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Crisis of Credit Visualized

http://vimeo.com/3261363

Even as simplified as this great 10 minute video is, it still gets complicated. And as you can imagine, when you’ve got so many transactions handling a piece of mortgage paper, even the bankers have a hard time keeping track, which just complicates this process further — sending it to a grinding halt in some cases.

I.e. you’re foreclosing and the bank wants you out of the house. You demand to see the loan and the bank can’t find it. Until they can show it to you, they can’t kick you out. Yeah, really. So often people are staying in their houses mortgage-free for months before the bank can track down the loan and actually foreclose/kick them out.


The Crisis of Credit Visualized from Jonathan Jarvis on Vimeo.

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Fannie Mae Rescue Hindered as Asians Seek Guarantee

http://www.bloomberg.com/…_DcY&refer=home

This strikes me as being incredibly naive of the Asians. Do they really think it matters if the U.S. explicitly guarantees the mortgage-backed securities of Fannie and Freddie? The U.S. can always run the printing presses. They should be more concerned (and I know the Chinese government is concerned based on recent comments) the U.S. government destroys the value of the dollar and obliterates their dollar-denominated holdings. .

Put another way, there’s no free dessert, nor can you have your cake and eat it, too.

Below are the relevant quotes from Bloomberg:

Asian investors won’t buy debt and mortgage-backed securities from Fannie Mae and Freddie Mac until they carry explicit U.S. guarantees, similar to those given on bonds issued by Bank of America Corp. or Citigroup Inc.

The risks are too great without a pledge that the U.S. will repay the debt no matter what, according to Hideo Shimomura, chief fund investor in Tokyo for Mitsubishi UFJ Asset Management Co., and other bondholders and analysts in Japan, China and South Korea interviewed by Bloomberg. …

[Shimomura continues] “there is still a concern that there is no guarantee” from the government, said Shimomura, who oversees $4 billion in non-yen bonds for the arm of Japan’s largest bank.

“Looking at the risk, they’re not so attractive,” he said. “We need a guarantee before we’ll buy.”

I’m reminded of the scene in Tommy Boy where the protagonist, Tommy Callahan, makes a sale by speaking truth about guarantees:

Tommy: Let’s think about this for a sec, Ted, why would somebody put a guarantee on a box? Hmmm, very interesting.
Ted Nelson, Customer: Go on, I’m listening.
Tommy: Here’s the way I see it, Ted. Guy puts a fancy guarantee on a box ’cause he wants you to fell all warm and toasty inside.
Ted Nelson, Customer: Yeah, makes a man feel good.
Tommy: ‘Course it does. Why shouldn’t it? Ya figure you put that little box under your pillow at night, the Guarantee Fairy might come by and leave a quarter, am I right, Ted?
[chuckles until he sees that Ted is not laughing too]
Ted Nelson, Customer: [impatiently] What’s your point?
Tommy: The point is, how do you know the fairy isn’t a crazy glue sniffer? “Building model airplanes” says the little fairy; well, we’re not buying it. He sneaks into your house once, that’s all it takes. The next thing you know, there’s money missing off the dresser, and your daughter’s knocked up. I seen it a hundred times.
Ted Nelson, Customer: But why do they put a guarantee on the box?
Tommy: Because they know all they sold ya was a guaranteed piece of shit. That’s all it is, isn’t it? Hey, if you want me to take a dump in a box and mark it guaranteed, I will. I got spare time. But for now, for your customer’s sake, for your daughter’s sake, ya might wanna think about buying a quality product from me.
Ted Nelson, Customer: [pause] Okay, I’ll buy from you.
Tommy: Well, that’s…
Tommy, Richard Hayden: …What?

Cross-posted (well, sort of) to IEHI.