Sunday, March 22, 2009

A piece of tape

As noted below, the Geithner plan will probably fail big. It's failure will discredit the Democratic party, even though a true Democratic solution isn't even being tried. See Krugman's latest; see this response by James Galbraith. From Galbraith:
But the way to determine whether Geithner's and the banks' stated view of the toxic assets has any merit, is to demand an INDEPENDENT EXAMINATION OF THE LOAN TAPES, particularly looking to establish the prevalence of missing documents, misrepresentation, and fraud.
Galbriath keeps repeating the phrase INDEPENDENT EXAMINATION OF THE LOAN TAPES in all caps, something his father -- whose dry, understated wit was legendary -- never would have done. These days, one must shout to be heard.

What are loan tapes? The term is a holdover from the days when computerized information was stored on tape. A "loan tape" offers a precis of the relevant data for each loan; if you're looking for signs of fraud, start with the tapes. Examining that data is the only way to determine how much each asset is truly worth. Otherwise, you are relying on the word of someone who may be a con artist.

Geithner refuses to do that kind of investigation. Instead, he wants to bet the country on the delusion that the properties are currently undervalued. He's hoping that, once the panic has passed, everyone will see that the house in Oakland now going for $60,000 really should be priced at $400,000, simply because some idiot arranged a $400,000 deal for the place back in 2006, when the mania was at its height.

In the long run, Geithner is right. One day, that property will again be worth $400,000. But when? The same year that Kirk meets Spock? We don't know. We can't think that far ahead. In the long run, we are all dead.

Why does Geithner refuse to EXAMINE THE LOAN TAPES? Why does he refuse to do the necessary Sherlock Holmesing?

Because Holmes caught bad guys, and Timmy does not want to do that. Geithner is of the Street, and he wishes to protect his Street brethren. The Geithner solution encourages bankers to loot the system, because Uncle is paying the bills and no-one will hold the miscreants accountable for past or present misdeeds.


Anonymous said...

They cannot, cannot, cannot let auditors, regulators, or law enforcement look at the business transactions. They all say "this" happened until it is proven "that" happened and stories have to change which is like turning an ocean liner. If too much comes out at once they cannot keep up. The WH and O in particular have had this problem for the last few weeks. If these zombies are taken over the fraud is over and everyone gets caught. This is probably the deal between Wall St and O since he spent so much time there raising money and schmoozing. He may not have know what he was promising or cared. The public has already turned but he owes the street. He is well and truly ......

Cyn said...

I don't know about the rest of the country, but in NY, these loans are still happening. As a paralegal doing real estate work, I am still seeing the inflated prices, seller concessions, grants for first time home buyers and mortgage brokers who would sell their mother to get a loan through.

My only question is - who is buying these bad mortgages now?

Anonymous said...

Geithner, heckuva'job

Anonymous said...

There are past bubbles that have collapsed in real estate-- the Japanese experience, the '20s Florida land boom, etc.

Experience shows that the bubble peaks are not regained, at least on the time frame of a few decades.

Florida peak land values from the '20s were achieved in the mid-'80s, but only in nominal dollar terms, not adjusting for inflation between the 'dollars' involved (i.e., they were still 80% less than the '20s).


Gary McGowan said...

Just to update on Galbraith...

Gary McGowan said...

"Manager Magazin: Professor Galbraith, you suggest that banks that suffer from bad assets should simply be declared insolvent, instead of rescuing them with taxpayers' money. Why?",1518,druck-614297,00.html

He says the key aspect of bankruptcy, in addition to clearing the books, is the installation of new management.

"When a bank is insolvent ... they becomes perverse," ..."The incumbent management has good reason to gamble excessively and to make capital losses," or to loot the institution, in the form of bonuses.

"The way it usually works in the U.S.A.,is that a bank is closed on Friday and re-opened on Monday under a new name, with a new leadership and with a team of examiners who are going through the books.... A change of management is essential, because firstly, the incumbents are responsible, whether they were culpable or not, and secondly, you need new people who are in line with the public purpose of this re-organization. It's the same principle in the Navy: When a ship runs aground, the captain is removed, no matter if he caused the accident or not."

The reality of the financial crisis is that it was caused by a "culture of complicity," he said.

"There are moments where the state has to assert its autonomy," and right now, "it's about time to make these bankers work for the public rather than having the public work for the bankers."

Galbraith's fairly recent interviews with Charlie Rose and Bill Moyers are well worth the time for those who have not yet seen them.