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The Waning Influence of the Fed

By: Brad Jackson (Diary)  |  August 12th, 2011 at 10:11 AM  | 

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the European credit crisis, the possibility of a QE 3 and Obama’s plan to be Landlord in Chief.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Short Selling Ban Will Not Deter Bears
Fed Now More Likely to Do Third Round of Easing
The Aura Of the Fed Is Gone, Good Riddance
Gov’t considers turning foreclosures into rentals

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  • anjinconsulting

    should send chills up your spine and make you think seriously about what is coming down the pike.

    Think about this: the government, through its actions by the Fed and legislation by FHA/Fannie MAE/Freddie MAC, with the willingness, if not the outright collusion with major banks has blown the real estate bubble to its max, then when it popped the resulting foreclosures are somehow “owned” by the government who will now make them available to any poor or hapless individual at some rate paid for or subsidized by our taxes. Anyone who has ever lived in a neighborhood where Section 8 housing has take a foothold nows how that works out for property values.

    How do the banks lose? How is congress held accountable? Those people are making money off each other and responsible, hard working citizens are paying their expenses?

    It seems the gushing happiness of that imbeclic minion who opined about not having to pay for her house or her car during the last presidential campaign is well founded.

    America better wake up and smell the coffee, then turn these clowns out in droves or we will be another Cuba in no short manner.

    It would be a good start by declaring FHA/Fannie/Freddie insolvent, terminating their functions and selling their assets. Let the banks take the bath and let the consumer reap the benefits. Oh and send a few of those folks to jail at the same time we shave that funding from the budget or use it to pay down Uncle Sugar’s credit card. cardrediculous

    • 6eorge Jetson

      Fannie & Freddie are in the hole to the tune of ~$150 billion and it is only going to get worse from pre-crisis liabilities that can’t be waved away with a magic wand. They’re on the hook to pay MBS investors the cash flows from bonds that were “supposed” to be backed by homeowner loan payments. This is already spilled milk. (I’m not defending them.)

      With the slew of defaults, Fannie/Freddie own ~250,000 homes that are just sitting there in a really crappy real estate market. We the taxpayers through FHFA conservatorship have already taken the $150 billion hit. It doesn’t seem like a bad idea to me to mitigate some of that loss by collecting some rental income until the housing market picks up and they can be sold at less of a loss.

      Heck, that’s exactly what I’m doing with a second home. I still have to pay the mortgage and there’s no way I’m selling in this crappy market.

      • wonkish1

        Well it’s clear 6eorge is also in finance.

        I actually thought up this solution several months ago as well.

        Currently these assets are just sitting around earning 0 for Freddie and Fannie. Now personally I believe that a lot of these assets just need to be priced lower and dropped.

        But to be honest there currently aren’t enough buyers to buy up all of the available and shadow inventory in the market today. Even if everything was priced 50% lower it just takes time for enough people to come around to the decision to buy.

        There is going to be excess inventory earning 0 for sometime no matter what. Its foolish to not turn these temporarily dead assets into income producing ones.

        • mikefrey

          Best for us if they would just leave a stable and predictable climate for the free market to work.

          The housing market has contracted, in that many families/individuals who previously had their own places are now sharing. So if all the empty housing is stuck into the rental market, that market will crater as well, taking out people who have invested into rental property as part of their livelihood.

          I’m not sure which of these is worse, but am very sure that everytime government changes the climate they do damage. They are a bull in a China shop. Any movement = destruction.

          • wonkish1

            What should have happened was to have those entities be broken up and sold into the private sector.

            Now they are quasi company/government agencies in Federal Receivership. With an absence of any better alternatives right now these “companies” actually have to be ran. They still own a lot of assets, have a lot of employees, and owe a lot of money. If this was a company not in receivership with a portfolio that large it would be a no brainer to start renting out those properties.

            I doubt it will crater the rental market. The rental market is pretty damn bullish these days, but it will definitely put a damper on that market a little.

            Saying Freddie and Fannie shouldn’t engage in a smart business decision because government ownership means its the government picking winners and losers is like saying that GM shouldn’t make a car that can successfully compete against Ford because its owned by the Government.

            Catch my drift.

          • mikefrey

            that we wouldn’t have the problem if the federal government wasn’t pushing all the bad loans to begin with.

            And if they had let the free market clean up GM / Chrysler messes instead of propping them up and screwing the creditors/shareholders in favor of political cronies.

            My experience with a couple of aircraft simulators comes to mind. On the KC-10, you could slam the yoke all the way to one side with no effect. Until seconds later when the aircraft was slowly turning in a steeper and steeper turn. The unexperience pilot (me) then flips the yoke to the other side. But by the time the plane starts to come back, it is almost upside down. In this case I want a real pilot (the free market) to do the real-time, measured corrections that will keep the plane on course and under control, not the clumsy and destructive movements of the outsider (government).

            Mike

          • 6eorge Jetson

            “we wouldn?t have the problem if the federal government wasn?t pushing all the bad loans to begin with”

          • 6eorge Jetson

            at a rate of ~500,000 / year, down from the mid-aughts peak of ~2,000,000 a year.

            Household formation is growieng faster than that. When Republicans win the 2012 elections, repeal the disincentives to job creation, and we muddle through this weak economy in the mid-teens, there will be a significant surge of young adults that will move out of their parents homes.

            Not soon, but the imbalance will eventually drain off.

  • dsmurf

    market, I would think that further QE is out of the question. Japan is sending out an SOS on the currency markets and CNBC commentators are blithely trumpeting further Fed stimulus without taking Japan or the USD/JPY charts since the last QE took effect or they are typical Wall Street hustlers trying to recover their shirts because they missed the obvious head and shoulders topping patterns and all of the news from Europe near the tops, there is no way the Euro survives at these levels if at all, after September when the German courts rule on last years German bailouts of Greece.

  • 6eorge Jetson

    With one-trick pony Ben, it’s only a matter of time until

  • http://impudent.edublogs.org/ kyle8

    it can do except print money.

    Watch out for that next.

  • Common_Cents

    $850Billion in student loans, a full 60% are not performing or have economic hardship deferments. Remember obama talking about his army? and student loan slaves can work off their loan working for obama and the government?

    ah, whats another half trillion in taxpayer money.

    so there will be govt housing, while you work for obama’s civilian slave army if you have student debt.