March 26, 2009
In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.
"As it stands now, we've only gotten 752 applications," said Federal Housing Authority spokesman Brian Sullivan. "And only insured one loan. Needless to say, the program isn't working terribly well."
Perhaps congress should stop playing dress-up in bankers' and economists' clothes.
∙ HOPE prevents 1 foreclosure [CNNMoney]
∙ Bam! Bam! Barney Frank’s Bailout Bill Survives As A Provision [SocketSite]
First Published: March 26, 2009 7:00 AM
Comments from "Plugged In" Readers
Any guesses as to how much HOPE money got spent on administration of the program? It may not have helped many homeowners but at least it created a few jobs.
Posted by: diemos at March 26, 2009 7:16 AM
Empire building is the goal of any federal agency; a similar phenomenon can be observed at any large corporation. I wonder what the cost per job is in this program?
Posted by: unearthly at March 26, 2009 8:02 AM
When legislators talked about helping "the disadvantaged American homeowner", I guess we should've taken them more literally. All this time, I thought they were referring to a class of Americans, not just that one dude. Good lesson on attention to detail for me.
Posted by: marina girl at March 26, 2009 9:22 AM
So it's not that homeowners don't want to participate, it's that the lenders won't participate because HOPE would force them to write down the principal and admit their portfolio of loans is actually full of worthless crap.
Not sure what to say about that except there needs to be a reckoning for the lenders, who continue to run their shell game long after the subway train has pulled into the depot.
Posted by: theo at March 26, 2009 9:22 AM
there needs to be a reckoning for the lenders,
not gonna happen.
Even now one of the biggest corporate giveaways in the history of the Earth is being written. (the so-called "Public-Private Investment Plan" or whatever)
even if you're generous: The PPIP is nothing but a subsidy to the banks. Don't believe otherwise. if you choose, you can read more about it here:
But the BIGGEST problem: this plan is basically begging the banks to cheat. (in fact, I wonder if it was specifically written to make them cheat to hide the problem)
it's easy. (my numbers are made up but work with the program)
let's pretend the bank has securities with face value of $100 billion, that are really worth 30 cents on the dollar. ($30 Billion)
The bank doesn't want to sell those for 30 billion, or they take a loss of $70 Billion.
Step one: bank sets up an off-balance-sheet special-purpose-entity (SPE). They're good at that, they do it all the time. they can do it in obscure ways.
Step two: bank gives the SPE money. $10 Billion to be exact. they can use the TARP money they got from the government even.
Step three: the SPE takes that $10 Billion and leverages it using the PPIP (it will get $10B from the Treasury, then that is leveraged up to 6x by the Fed or $100B). Now the SPE has $120B of buying power. it takes that $120b and buys the Bank's bad assets for $120 Billion.
now the bank gets to offload that garbage onto the SPE/govt, and makes a PROFIT of $20 Billion ($120-100B) on that garbage. (instead of a $70B loss)
The SPE has the assets now. ($30b worth of assets, "valued" at $120 Billion)
over time, the assets will deteriorate.
There will be massive losses. Let's say that finally they realize that it's only worth $30 Billion.
The SPE will lose it's investment (the $10 B)
But the Treasury put up $10 Billion as well that it loses ($10 B)
and the Fed put up $100 Billion. The securities are only worth $30 B, so the Fed loses $70 billion.
So the Bank MAKES $20 Billion
The SPE LOSES $10 Billion
The bank takes $10B of it's profit and pays the SPE the $10B.
thus, the bank makes $10 B
the SPE loses nothing
the Treasury loses $10B
The Fed loses $70B.
you'd be a fool not to do this.
If I, an armchair economist, can figure this out in 10 minutes, the Wall Street Yahoos figured it out long ago.
This program is literally BEGGING for fraud, and there is literally NO way to police it. (even I could obscure things so that the Fed/Treasury don't know that I'm related to the bank I'm bidding on).
over the next few years, we will all be SURPRISED at trillions of dollars of losses on this program. and in that time the bankers would have paid themselves big bonuses again (after all, they deserve it for offloading Trillions of dollars of crap to the Government).
Posted by: ex SF-er at March 26, 2009 10:43 AM
"I wonder if it was specifically written to make them cheat to hide the problem"
Of course it was. Even if there is not outright fraud as you predict, this will artificially elevate the price of those assets that are sold (because the downside is on the taxpayer's dime). And this means that the banks avoid marking down the unsold assets to their true, low value. So they get a bonus on the sold assets and get to postpone a little longer the day of reckoning on the unsold ones.
Question -- how can I, a mere mortal, get in on this? I suppose I can talk to our hedge fun clients (whom I don't work with, so awkward), but any more standard means?
Posted by: Trip at March 26, 2009 10:57 AM
as a side note:
the TAXPAYER could lose HUNDREDS of BILLIONS of dollars on the PPIP program depending on how things work out. depending on how it goes, losses could be over a TRILLION (much less likely though).
people should be OUTRAGED at this stuff. Even conservatively the Taxpayer could lose $172 Billion on this "deal"
That's 1000x the AIG bonus situation. we should therefore be outraged 1000x more than we were for the AIG situation.
there is an obvious reason why people aren't outraged about the PPIP and the other bailouts: because this stuff is boring and esoteric. Just so you all know, it is PURPOSEFULLY done this way. Unfortunately, our leaders try to make this confusing so that the taxpayer just sits there and takes it. "oh silly taxpayer, hush hush, don't worry you'll make a profit on this deal"
NONE of this bailout will be on our books until the losses roll in, years down the line. And by that time everybody will be "surprised".
just like they were "surprised" when AIG didn't turn a profit (ROFL), "surprised" when fannie/freddie failed, "surprised" when it wasn't "contained", "surprised" at the AIG bonuses. Hint: they're not surprised.
sorry to be in a glum mood today. but we're all gleefully getting raped. the stock market is up after all.
Posted by: ex SF-er at March 26, 2009 11:04 AM
As a follow-up to ex SF-er, I have seen the following in quite a few places over the last few days (the specific quote is from the big picture):
"The NYPost reports the two biggest banking wrecks, CitiGroup and Bank of America, have been aggressively buying toxic assets with bailout money."
Here is the full post story:
Posted by: Tom at March 26, 2009 11:09 AM
the stock market is up after all.
WS has never seen a taxpayer subsidy it didn't like! WS should grow corn too to milk the taxpayer some more ;)
At least 401(k)s are doing a tad bit better with the latest moves.
Posted by: San FronziScheme at March 26, 2009 11:28 AM
I never had any doubt that the banksters would triumph.
Looking at just how clueless and silly the American public has been (especially since the first TARP "bailout" last September), I'm no longer angry. The sheeple are getting what they deserve is all I can come up with ;) It's been a great market for traders the last few months, that's for sure.
Posted by: LMRiM at March 26, 2009 11:37 AM
1. Doesn't this "get the job done" at least in the short term.... meaning the party resumes because it looks good to 99% of the people, consumer spending goes up, economy improves, etc?
2. The bill obviously comes due eventually, so what then does the future look like when these losses are finally realized many years down the road?
Posted by: sfrob at March 26, 2009 1:32 PM
It's been a great market for traders the last few months, that's for sure.
Agreed. Even I jumped back in at the end of January, and I hate trading.
Doesn't this "get the job done" at least in the short term
yes, in the very short term (1-3 months) and limitedscope. i think this is for up to $1T. We need more than $1T.
There are some problems with the PPIP... it'll take a few months to get it up and running...
once it's set up we'll see if it's an abject failure (like HOPE, but with different permutations), if it is the huge giveaway that many of us think, or if there are unintended consequences.
I think it will be all 3 (a failure, a giveaway, and unintended consequences).
PPIP could in theory wreak havoc on the banking sector in counterintuitive ways. For example, if the PPIP buys assets at certain valuations, then even the non-participating banks may have to mark their assets to the new sale as well as the participating banks.
however, there's a huge flurry to abolish mark-to-market accounting so perhaps that isn't a worry.
The other problem: as I've postulated for the last 6 months, we may start seeing buyer fatigue in the Treasury markets.
All these bailouts depend on people buying Treasuries (at least initially). Even Treasury Bulls are starting to get nervous about the amounts of debt piling up.
Worse: The Fed has effectively become an Off-Balance entity of the Treasury. The Fed battles for our currency. Loss of faith in the Fed equals loss of faith in our currency.
Hate to see a currency crisis. (not impossible).
there is a reason that China/Russia are asking to remove the US Dollar as the World Reserve Currency, and it's not all political.
Our leaders are making a HUGE bet on this program.
The bill obviously comes due eventually, so what then does the future look like when these losses are finally realized many years down the road?
I think that most people agree that US Debt is at such a level now that we can never pay it back in REAL terms. At some point we will have to recognize this fact so we will debase our currency (we are lucky that our debts are in US Dollars so we can inflate our way out of the debt). at that time we will lose Reserve Currency status and likely enter a currency crisis.
but I'd guess that's still a long time from now. (depending on actions of our leaders)
Posted by: ex SF-er at March 26, 2009 2:26 PM
Admittedly, I probably need to become more jaded , but at this point I have a hard time believing any entity could buy the assets for $120B ($20B over face) without raising eyebrows (notably Geitners..)
I thought the My.Hedgefund LLC guys on Charlie Rose's Monday show were pretty cogent -- a counterbalance to the Krugman (nationalize now) and WSJ & NYTimes reporters on earlier. They said that between the stress tests and the PPIP program, it will become (quantifiably) clear in several months which banks are insolvent. At that point, "preprivatization" will become an actuality and the government can take action. Either way, it will be ugly...
Posted by: EBGuy at March 26, 2009 2:56 PM
I thought I would add here a bit to my previous anti Ka-Poom stance. I have been and continue to be busy with real work, so I'll post the links and summarize briefly.
With regards to the massive expansion of the Fed's balance sheet - they are, of course, aware, and they have made sure to plan for their rapid exit when needed:
i've provided the best bits below
Actions that the Federal Reserve takes, during this period of unusual and exigent circumstances, in the pursuit of financial stability, such as loans or securities purchases that influence the size of its balance sheet, must not constrain the exercise of monetary policy as needed to foster maximum sustainable employment and price stability. Treasury has in place a special financing mechanism called the Supplementary Financing Program, which helps the Federal Reserve manage its balance sheet. In addition, the Treasury and the Federal Reserve are seeking legislative action to provide additional tools the Federal Reserve can use to sterilize the effects of its lending or securities purchases on the supply of bank reserves.
In the longer term and as its authorities permit, the Treasury will seek to remove from the Federal Reserve’s balance sheet, or to liquidate, the so-called Maiden Lane facilities made by the Federal Reserve as part of efforts to stabilize systemically critical financial institutions.
Ah, so the TALF will be passed from the Fed to the Treasury - yes, saving the dollar and burdening the taxpayer. How novel.
And even more importantly:
Giving the Fed power to issue debt “would make them more comfortable that they could raise rates without being too disruptive in terms of having to dump assets into the markets,” said JPMorgan Chase & Co. economist Michael Feroli, a former Fed researcher.
Now, the Fed could always screw it up, and they almost certainly won't get it right away, but because of the critical nature of maintaining dollar dominance (and therefore Fed power!), they are making sure they have the weapons necessary to drain the liquidity from the system when the time is right - and much like the larceny that the PPIP is going to create (we agree there without a doubt, xsfr), the TALF will be another gift to banker/shoreholders, and the loss will likely be quietly and discreetly passed from the Fed (which would otherwise risk dollar devaluation) to the Treasury. The plan is forming, and it will, in all likelihood, be easly assembled while the world is hailing the Fed's easing as a sign of enlightened banking.
Posted by: polip at March 26, 2009 4:55 PM
I'm sorry polip, but I don't believe you can sterilize ex-post. The Fed can "drain the swamp" pretty quickly by shutting down TAF and TSLF; after that they are screwed. The Treasury will be having enough trouble trying to fund the national debt -- let alone carrying the Fed through the Supplemental.
Posted by: EBGuy at March 26, 2009 5:38 PM
as soon as the fed "drains the swamp", more dead bodies will emerge and they'll have to pump in money again to "save" the economy.
i know polip & lmrim think the fed's deviously clever and all, but in my opinion they've done a pretty stupid thing -- they're not operating behind the scenes but rather are front & center claiming they're "saving" the economy, what with bernanke giving "60 minutes" interviews & all. so as the economy continues circling the bowl, the fed will get their portion of the blame and there's going to be pressure on them to "fix" things.
i agree they'll want to preserve the dollar hegemony as much as they can, but the 1970s and 2002-07 have shown that the dollar can take a lot of abuse & still remain the reserve currency (a.k.a. the tallest midget).
Posted by: notgreat at March 27, 2009 3:11 AM
I actually don't think the Fed is deviously clever - I do think the populace is rather unclever, and/or totally disinterested. Tried explaining the PPIP to a smart friend of mine and he said - 'who cares, doesn't matter if I care or understand it - the money's spent.'
What I do think is that the Fed has been bred to fight one battle, and only one battle, and has developed and wll develop the necessary armaments to fight that one battle. That battle is the one against hyperinflation. Hyperinflation destroys currencies (bad for the Fed) and often destroys countries (doubly bad for the Fed). I'm not of the conspiracy theory mindset. The US military has been trained for decades to fight against conventional USSR/Eastern Bloc tactics - urban guerilla warfare - not so much. Our military might not want to fight a conventional war, but I do think they know how to do it. Likewise, the Fed doesn't want to fight inflation, but they know how to do it.
Posted by: polip at March 27, 2009 10:42 AM
I linked this article on an SS post a year or so ago (maybe twice!), but it's worth rereading once again in light of everything that has gone on in the past year or two (it's a funny and quick read anyway). The article dates from January 2007, back when everyone was gaga for stocks, debt, risk, "inflation", etc.
Just fwiw, polip, I'm not quite as sanguine as you that the Fed will be able to control the outcomes - it all could turn into a huge mess, b/c these guys are not that competent - but I still lean towards the view that they are engineering a "controlled" implosion of the debt-based economy, so that they can set their member banks up for the credit reinflation - even if it's 20 years down the road. And even if I have my doubts whether they'll be able to accomplish what they most definitely want, which is a deleveraging in which the foolish population aborbs as much of the pain as possible.
I guess I'm a conspiratorialist, but I don't think it's coincidence that the greatest supposed "expert" on the Great Depression was installed in early 2006, well before anyone was tuned into to credit deflation as an imminent condition.)
Posted by: LMRiM at March 27, 2009 10:54 AM
hyperinflation is one extreme -- i don't doubt the fed and the politicians want to avoid this outcome (just as they'd want to avoid a hyperdeflation). a controlled implosion of the dollar (against the dollar of yesteryear in which most of the current debt load was contracted), especially in conjunction with other currencies following us to stay competitive is what i'm envisioning. envisioning is not the right word -- it's basically what's happening right now. so the "poom" won't be a hyperinflation if they can help it, but it could just mean high (double-digit?) inflation over many years.
i think i've mentioned this before, but my model for their actions is that the fed is a partnership between the big banks and the politicians -- each party gets something it wants out of the deal. if the economy is keeling over, the politicians will ask for theirs -- which means spending money to appear like you're "doing something", while running up huge debts which the fed will monetize/inflate away. e.g., if the fed was only looking out for itself and its member banks, why would it get into this business of buying long-term treasuries and MBS paper and expose itself to potential losses on all this garbage?
so basically, i think the banksters don't run the country -- they run it in partnership with the politicians, and the power center in the relationship waxes and wanes with the times.
Posted by: notgreat at March 27, 2009 1:05 PM