Quality of toxic assets

There has been some optimism that the mortgage assets held by the banks may not be as bad as they are made out to be. That would be a great plus for the bank rescue package that Geithner is, finally, going to unveil in the next few days, because his plan will try to find buyers for those assets. If willing buyers come forward, even with the large government subsidies that the plan makes available, that will at least establish market prices for assets that have been sitting there frozen. Once these assets are priced, the financial condition of the banks that hold them will become known, and presumably the assets themselves will attract enough buyers to get them off the banks' books.

But so far no one has any good idea just how bad those loans are.

Here is an examination by Fitch, one of the rating agencies, of a small sample of subprime loans ; it is quite discouraging. For example, 69% of the loans were made with "Low/No Documents" -- proof of income, credit history, etc. "There was the appearance of fraud or misrepresentation in almost every file." If this sample is at all representative, these assets really are of extremely low quality (see the table of problems on pp. 4-5). That would mean that they will be bought only very deep discounts, and most of that will be taxpayer money.

Byron

Horse, barn door

Madoff's accountant charged with fraud as prosecutors begin going after his associates

Yeah, wow, big deal. Not.

The overriding fact is that the flaming, flailing fraud that was the Madoff operation was allowed to continue year after year after year. This schmuck Friehling alone kept the phony books for -- count 'em -- 17 years, and his father-in-law before that!

The issue is why the SEC did not launch a full-bore investigation years ago of this mathematically impossible nonsense. Fraud audit teams should have been rappelling from helicopters onto the Madoff roof at least a decade ago. Instead, the SEC sat on its hands, even in the face of multiple, recurrent demands for investigation, including specific allegations that it was a Ponzi scheme.

Is there no such thing as nonfeasance by a government agency? A private organization would be looking down the barrels of the Mother of All Negligence Suits. That's the scandal, and it's not going to be allayed now, at this preposterously, pathetically late date, by rounding up any number of 32-year-old accountants that Bernie corrupted.

Byron

Land of Oz

Obama talks about trillions in spending or debt as if it doesn't really amount to all that much. Some studies have found that for many people all numbers over about 1,000 are pretty much the same, just great big numbers. Maybe Obama is one of those people, so here's some help in the form of an illustration given by Ronald Reagan:


If you had a stack of $1,000 bills 4 inches high, you'd have a million dollars.

To have trillion dollars, you'd need a stack over 63 MILES high.

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(Can that be true? Yes:

A trillion (1,000,000,000,000) is a million million (1,000,000 x 1,000,000).

If a 4-inch stack is a million dollars, then a trillion dollars is a stack a million times that tall.

4,000,000 inches / 12 = 333,333 feet

333,333 feet / 5280 = 63.131 miles)

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Obama's $3.6 trillion 2009 budget projects a deficit of $1.75 trillion dollars.

So he will spend a stack of $1,000 bills over 227 miles high, and leave a deficit over 110 miles high.

Don't forget that municipalities and states have their own budgets -- and their own deficits to pile on top of the Federal one.

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Obama is a guy with zero executive or business experience; he never ran so much as a church bake sale before ascending to the Presidency. What he is, above all, is full of himself, with a level of self-regard that's frankly bizarre. His preternatural self-confidence borders on the pathological, because there is no background of difficult, hard-won accomplishment to justify it. Above all, he has no history of chastening experience, and people like that are always dangerous for their lack of any sense of limitation or perspective. Obama is a Greek tragedy waiting to happen, and we are all along for the ride.

So, here we are, in the Land of Oz, with an untested, ego-maniac naif behind the curtain merrily pulling the levers of the preeminent military and economic power on the planet. This country, the world's oldest constitutional democracy, is a patrimony built over centuries of untold effort and sacrifice, but it won't take nearly that long in the other direction.

You get what you ask for at the ballot box, and it looks like we, and our children and grandchildren, are going to get it good and hard. Neither the markets nor our foreign adversaries care one whit about nicely delivered speeches, and they will not share in our delusions.

Byron