Credit mediator-designate Hans-Joachim MetternichGermany is appointing a “credit mediator.” And he will be obeyed.
The goal? To get German banks to lend to the kind of companies they probably shouldn’t lend to. Why? It is their duty to society, according to Rainer Brüderle, the Republik’s economics minister.
And if they refuse? Well, Germany has a solution to that question.
The most oft-heard description of the current economic recovery is “slow.” (Nonexistent is a distant second.) And hot on the heels of another disappointing jobs report, which put unemployment about 10% for the first time in 26 years, here’s some more evidence that the economy may eventually recover fully at some point in the next decade.
The Fed went around and talked to a bunch of banks, and found that only some of them are still tightening credit standards. Which I guess means that the credit crisis is only getting slightly worse more than two years on.
To its credit, the Fed didn’t exactly try to sugarcoat the news that only 15% of lenders–be they commercial, industrial or credit-card–were making it tougher to get their money. The central bank said the “tight credit” market is keeping the economy down, and is likely to do so for an “extended period.”
We think Credit Crisis II or Credit Crisis 2.0 has a much nicer ring to it than “W recovery” or some other charting nonsense. (We’re partial to the “M recovery”). Whatever we call it, we may get the chance to revisit old themes. Everything new is old and suchlike. Or so says Reuters:
The global financial crisis may morph into a second, equally virulent phase where borrowing costs rise again, hobbling an embryonic economic recovery, debilitating cash-strapped banks, and punishing investors all over again.
Early warnings signs of this scenario include surging government bond yields, a slumping U.S. dollar, and the fading of the bear market rally in U.S. stocks.
The reality is that the United States has quite a bit of housecleaning still to do. High beta stock rallies spur “green shoots” talk, but trad-weeds will grow anywhere for a time, but have no real staying power.
Rising U.S. bond yields may spark Credit Crisis II [Reuters]
We had to check the date on this Bloomberg post very, very carefully to make sure it wasn’t off by a year. It is not:
Fannie Mae, the mortgage-finance company under U.S. government control, will loosen rules for homeowners seeking to lower their loan payments by refinancing.
Fannie Mae will drop some credit-score requirements, reduce income-documentation standards and waive the need for appraisals in some cases, according to a notice yesterday to lenders posted on the Washington-based company’s Web site. The changes apply to loans that the company owns or guarantees. (Emphasis ours).
The interesting thing about waking up every morning in a different Kafka piece is trying to guess which morning you are in Der Gruftwächter. This seals it. It is today.
Fannie Mae to Loosen Rules for Home-Loan Refinancing [Bloomberg]
The Across the Curve blog often has insightful and potent analysis, with a focus on credit markets that reveals some real expertise in the area. Today, however, its author, originally a weak supporter of government intervention, has made a rather public about-face.
We are forced to agree with him. Matters are quickly getting out of hand and deeper government involvement in the essential engines of the economy, and the deficit spending required to entrench it, is looking less and less desirable by the day.
From the outset, I have always been a supporter of government intervention as a means to prevent this unique crisis from taking the system down. I have always believed that the consequences of inaction were greater than the cost of government involvement. I question that assumption now.
The bailouts began with the deal in which JPMorgan took control of Bear Stearns with government assistance and continues to this day with the government intervention in the Bank of America union with Merrill Lynch.
The Federal government will now be an integral part of the financial system for a very long time and will influence decision making and risk taking in that sector during the time in which taxpayers are a partner in those businesses.
I now think that we would have been better off with some truly cathartic event which would have curbed the animal spirits of traders but which would have established a basis for a market prescribed recovery. Succinctly stated, the government is not in the business of taking risk and I would argue is in the business of risk avoidance.
In retrospect, the commonweal would have been better served had nature taken its course and allowed for capitalism to travel its natural course. I fear that this new course has placed on us a path to a very slow recovery and one in which innovation and risk taking will be viewed through the narrow and ill begotten prism of some bureaucrat.
Some Opening Comments [Across The Curve]
Treasury Official: “Man is paying these debt instruments off painful.”
New Analyst: “Well, you know I used to work with new homeowners to get their payments down to levels they could afford.”
NA: “Yes, you know lots of first-time buyers would be surprised at the homes they could afford. Homes which originally seemed far outside of their budget.”
TO: “Well, that sounds sort of familiar.”
NA: “Exactly, and I also helped people with debt problems or deteriorating credit secure homes when they thought it was impossible.”
TO: “Well, I think we could really use your help.”
NA: “Sure. Start off by extending the length of the mortgage.”
TO: “Uh, the instruments, you mean.”
NA: “Right. We had people move their 30 year terms out to 40 and 50 years.”
TO: “Ok, hmmm. I suppose we could try 40 years.”
NA: “Well, why not push it even more. I mean, you are the treasury, right?”
TO: “Right, yeah. We are the Treasury. Ok, 50 years. No, 100 years. How about that?”
NA: “I like your enthusiasm. Good start. You know, sometimes planned life events and expensive vacations, marriages and that new car can make it hard to start off a new home with that big mortgage payment…”
TO: “Debt instrument, you mean.”
NA: “Right. So you might want to structure the payments to start off low and accelerate later in the term. What about keeping the payments to interest only until later in the term.”
TO: “That’s cool. That would get us over this big hump of baby boomers with their decaying bodies about to literally about to raid and pillage the Treasury. How does that work, exactly?”
NA: “Well, you just pay interest out on your debt until, say, halfway through. Then you “reset” the payments to be fully amortized. Like at the, I guess it would be the 50 year mark.”
TO: “Fully amortized?”
NA: “Right, you start to pay hunks of the principal amount.”
TO: “Now that sounds like a plan. Anything else we can do to get these affordable?”
NA: “Well, we can do adjustable rates. You can start them off with low rates, like Treasuries plus 200 basis points, then raise that later according to a schedule of some kind.”
TO: “Treasuries plus 200? Uh, we better wait on that for now.”
NA: “No sweat. I’m here for you when you’re ready to take that next step.
Treasury Should Consider 100-Year Debt, BlackRock’s Fisher Says [Bloomberg]
There are clearly two constants in the new epoch of American poli-finance. Daily Obama press conferences and monthly admonitions from financial dominatrix Meredith Whitney. The latest target: the U.S. credit card industry, which, with a crack of the whip and a biting string of verbal abuse (can be ordered a la carte, or with the FemDom Platinum package) has contritely, and prematurely, pulled-out credit lines to the tune of $2 trillion.
The popcorn is being passed around Dealbreaker offices as I type this, as the Dollar Dom (“Economy is going to pieces,”) facing off with the President Elect (“No, economy is heading for recovery”) promises to deliver quite a show.
Trillions in Credit Line Cuts Ahead: Whitney [CNBC.com]
Ok, that’s enough. We are mad as hell and we are not going to take it anymore. Mess with interest prices, fine. Mess with short selling, whatever. But when you take away the only chance a member of the Y-Generation has to connect with the American West complete with perpetual blue skies, millions of snowflakes fluttering to the beat of your heart, 400 inches of annual snowfall or three ski-ready mountains, we are not taking it sitting down.
Ski resort for super rich files for bankruptcy [Reuters]
At 2pm eastern, the Federal Housing Finance Agency is expected to announce a plethora of mortgage gifts to homeowners with Fannie Mae and Freddie Mac loans. This year, gifts will follow the increasingly popular “Reverse Santa” list (not to be confused with the “Double Lehman” formula) which provides relief in the form of federally mandated mortgage price fixing for those who have been caught on the Naughty Debtor list.
Don’t worry. Be happy.
Fannie, Freddie Work on Mass Loan Modification Plan [The Wall Street Journal]
So has your local bank announced an infusion by the Treasury yet? No? Then the Treasury might not think it is going to survive the crisis. That’s how the New York Times plays it, anyhow. There is a certain bitter smell to the article. I strongly suspect that some of the people involved in the piece over at the New York Times were, long ago, left standing in line after the list of the people picked for the baseball team was read.
But, you know, there are other reasons your bank might not have rushed out a press release. Perhaps they just don’t like the terms the Treasury has to offer, and now they have to spend the rest of the month explaining that no, they did qualify, but they just chose not to take the money. Good luck with that, guys. Let us know how it goes.
Which Banks Won’t Make Henry Paulson’s Cut? [The New York Times]
Those looking for retribution against the executives of failed companies will quickly see that prosecutions won’t come easy. The law gives executives wide latitude to run their business, no matter how terrible their decisions. And even convictions would seem an incomplete conclusion given that a system — political and regulatory — also failed the public.
Be afraid. Be very afraid.