This morning I had the perfect trifecta! Last night I hopped on a train down to Washington, D.C. to interview the Treasury Secretary, the FDIC Chair and billionaire investor Wilbur Ross. One of these individuals on one show would be enough to excite me but having all three join me this morning made for one of the more memorable days on the job.
Let me begin with the FDIC Chair Sheila Bair who is featured on the cover of today's Wall Street Journal criticizing the federal government's plan for failing to address homeowners at risk of foreclosure. Her comments could not be better timed. Thankfully someone within the economic team is saying what certain members of Congress and the American taxpayer were saying almost two weeks ago when they heard about the language of this rescue plan. If the route of the problem is housing, why isn't it addressed in this plan?
This morning I asked the FDIC Chair about that and about what she is doing to help address those issues. Here is a brief summary of what she said.
"Well we do have a fairly elaborate reporting system now for loan servicers and many of the banks that got this infusion were subject to that reporting. The FDIC does not administer that, it’s their primary regulators, the Office of the Comptroller for currency and the office of Thrift Supervision. But, we do have a fairly robust reporting mechanism now so we can track the rate of foreclosures and long term sustainable loan modifications. I think it’s very important as they modify these loans not to do just short term repayment plans. We need long term solutions. If the mortgage is unaffordable now it’s probably not going to be affordable six months from now. So, permanently modify it, get people in a mortgage they can afford."
Take a look at the rest of the interview and how she responds to rumors that she was trapped in the middle of Citi's failed bid for Wachovia when Wells Fargos showed up at the eleventh hour.
Shortly after my interview with the FDIC chair I talked to Wilbur Ross, billionaire investor and chairman & CEO of WL Ross & Co. He made such fascinating points about this financial crisis and like Chairman Bair, highlighted the weakness in housing and the lack of reinvestment language on the part of this rescue plan in lending and preventing more foreclosures.
According to him 12 million families have negative equity in their homes. More than $4.6 trillion has been lost in real estate equity. Time is crucial and he rightly points out that what has lead us to this point cannot be fixed in days or weeks. He notes refinancing one million sub-prime borrowers with approximately $200 billion dollars in loans is complicated and each case is different. He made so many excellent points. Take a look at his interview below.
My last interview was at 9:40am once the markets opened with Treasury Secretary Paulson. As you could imagine, I had dozens of questions. It was hard to select only a few. We talked about how he came about selecting the figure that has now become a part of the national dialogue, $700 billion dollars. We also talked about the mechanics of the plan, whether he failed to correctly sell it and still fails to correctly sell it and whether enough is being done to address housing and lending in the plan. Here is one small excerpt from our interview.
GLICK: How are the steps that we are taking right now in real hardcore facts, how are they addressing housing?
PAULSON: Well let me say this, the key to this is the housing correction, the price declining housing. If we don’t have financing available for housing this isn’t going to work. We have taken strong steps with Fannie Mae and Freddie Mac to make housing and financing available, doing things that encourage banks to lend is going to make housing financing available and so that’s at the heart of the problem and we are going to the heart of the problem.
Here is the interview. He didn't pull any punches and he admitted he must remain flexible in this environment. Don't be surprised if new ideas get thrown on the table. They are listening and they know the plan isn't perfect but they are reacting at record speed and for that we should be thankful.
There's not often in life where we have powerful win-win opportunities. Today's banking crisis offers up one such opening.
The first part involves Bernanke. When the Fed next meets 10/29-30, Bernanke should lower rates another half point, minimum.
As you pointed out to Paulson, this rescue plan was not effectively sold to the American people, who view it cynically as a banking bailout that will pad the coffers of the wealthy while leaving the middle class with not only the bill, but the indignity of begging those same banks for credit. In other words, first we get to pay for this bailout and then suffer rejection as our financed bailout fails to provide any liquidity.
But let's say the Fed drops rates aggressively. And perhaps there's some incentive or aggressive moral suasion thrown in to assure banks actually lend this money at rates that resemble their historically low borrowing costs. The Fed could change the perception that Americans aren't simply bailing out the banks, but participating in the system's financial renewal while SIMULTANEOUSLY, via re-financing at much much lower rates, opening the spigot of consumer spending through tapping home equity and/or lowering monthly outflow.
After all, there is no point in easing the credit crisis if there are no consumers around to buy the widgets and services of businesses that will be tapping this credit. Broad refinancing or mortgages will create a sense of fair play, allowing many abused taxpayers to at least participate in the rescue plan. Fairness will help create confidence in the system. Confidence being a word Paulson and Bernanke have used a lot lately.
The Fed, Paulson, Bush, and others have hammered the point that they are looking out for the taxpayer. It's a rescue plan for our economy. Yet many Americans still feel left out of the process. The perception is that the benefits are flowing, once again, only to the wealthy.
With a slight change in focus, the Fed will be able to create a sense of fairness, foster wide participation in the rescue plan, ultimately heating the engine of the economy that is consumer spending - that's WIN-WIN!
October 20, 2008 at 9:28 pm
G.P.
sorry alexis :( i called you neil.
G.P.
October 17, 2008 at 11:49 am
G.P.
Neil,
I am a mortgage trader. This bailout off 700b will not work as you have
stated. Instead of buying up dead cmo or cdo’s that are dead asset’s now flow
of funds because the homeowner will and cannot pay. Instead of trying to get
mortgage rates to 5.00% the homeowner cannot refi. Banks will not lend to him
anyway. Take down the wamu, countrywide etc signs and put up federal govt 2009.
How much can you pay mr. smith to stay in your home $500, $1,000 whatever. Ok
we will PAY OFF the existing mortgage. That amount that you can pay comes to 2%
3% 1% whatever. Done. The old mortgage now in a cmo or cdo’s shows cash flow
into the dead assets as a trader I can analyze flow of funds (speeds) and know
dead asset’s show some life, have value. The man on the street stays in his or
her home and the economy shows life. Banks have lending competition with the
govt, won’t be under pressure to lend what they do not have, money. Buy just
buying up assets and giving citi 100b of the 700b they are not being forced to
lend it out. The main on the street already in under pressure how can he refi
with say 20% down. Another bailout package is being floated. What will another
$600 do? Get the money into the hands of the people that need to stay in their
homes. The govt will make money on anything over 1.5% and the dead asset’s mr.
Paulson is buying will have value if they show movement within the various
traunches that make them up. Modification of the loans just reduce the value
of the traunche that that loan is in and makes them more worthless not more
valuable . so the 20 or 40 cents on the dollar the govt is paying will just
cause the govt to lose money. As traders we need to look at cmo’s or cdo’s with
cash flow. Then we can trade them. Why would I participate in a market of
worthless assets. Get the flow of funds into them and then a trader can spot
value at a price. The housing market will never recover with more and more
foreclosure’s. in the short run a homeowner will have a mortgage rate, rather a
payment he can pay. The govt is already the largest land owner thru fannie mae
and freddie mac. Let the govt back into the rate. The mortgage market can never
get mortgage rates low enough nor can the homeowner ever get the necessary down
payment to refi his exsisting mortgage.
a tired mortgage trader
G.P.
October 17, 2008 at 11:45 am
Gary Driscoll
We should be thankful that they reacted at record speed to spend 2 1/2 TRILLION dollars over the last 2 weeks? No thanks from here!
October 16, 2008 at 2:25 pm
aboutthis blog
Alexis Glick is an anchor for FOX Business Network. Prior to joining FOX, Glick served as a correspondent for the Today Show and co-anchored the third hour of that program. Before her stint at NBC News, she was the senior trading correspondent for CNBC and reported from the floor of the New York Stock Exchange.
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Art
There's not often in life where we have powerful win-win opportunities. Today's banking crisis offers up one such opening. The first part involves Bernanke. When the Fed next meets 10/29-30, Bernanke should lower rates another half point, minimum. As you pointed out to Paulson, this rescue plan was not effectively sold to the American people, who view it cynically as a banking bailout that will pad the coffers of the wealthy while leaving the middle class with not only the bill, but the indignity of begging those same banks for credit. In other words, first we get to pay for this bailout and then suffer rejection as our financed bailout fails to provide any liquidity. But let's say the Fed drops rates aggressively. And perhaps there's some incentive or aggressive moral suasion thrown in to assure banks actually lend this money at rates that resemble their historically low borrowing costs. The Fed could change the perception that Americans aren't simply bailing out the banks, but participating in the system's financial renewal while SIMULTANEOUSLY, via re-financing at much much lower rates, opening the spigot of consumer spending through tapping home equity and/or lowering monthly outflow. After all, there is no point in easing the credit crisis if there are no consumers around to buy the widgets and services of businesses that will be tapping this credit. Broad refinancing or mortgages will create a sense of fair play, allowing many abused taxpayers to at least participate in the rescue plan. Fairness will help create confidence in the system. Confidence being a word Paulson and Bernanke have used a lot lately. The Fed, Paulson, Bush, and others have hammered the point that they are looking out for the taxpayer. It's a rescue plan for our economy. Yet many Americans still feel left out of the process. The perception is that the benefits are flowing, once again, only to the wealthy. With a slight change in focus, the Fed will be able to create a sense of fairness, foster wide participation in the rescue plan, ultimately heating the engine of the economy that is consumer spending - that's WIN-WIN!
G.P.
sorry alexis :( i called you neil. G.P.
G.P.
Neil, I am a mortgage trader. This bailout off 700b will not work as you have stated. Instead of buying up dead cmo or cdo’s that are dead asset’s now flow of funds because the homeowner will and cannot pay. Instead of trying to get mortgage rates to 5.00% the homeowner cannot refi. Banks will not lend to him anyway. Take down the wamu, countrywide etc signs and put up federal govt 2009. How much can you pay mr. smith to stay in your home $500, $1,000 whatever. Ok we will PAY OFF the existing mortgage. That amount that you can pay comes to 2% 3% 1% whatever. Done. The old mortgage now in a cmo or cdo’s shows cash flow into the dead assets as a trader I can analyze flow of funds (speeds) and know dead asset’s show some life, have value. The man on the street stays in his or her home and the economy shows life. Banks have lending competition with the govt, won’t be under pressure to lend what they do not have, money. Buy just buying up assets and giving citi 100b of the 700b they are not being forced to lend it out. The main on the street already in under pressure how can he refi with say 20% down. Another bailout package is being floated. What will another $600 do? Get the money into the hands of the people that need to stay in their homes. The govt will make money on anything over 1.5% and the dead asset’s mr. Paulson is buying will have value if they show movement within the various traunches that make them up. Modification of the loans just reduce the value of the traunche that that loan is in and makes them more worthless not more valuable . so the 20 or 40 cents on the dollar the govt is paying will just cause the govt to lose money. As traders we need to look at cmo’s or cdo’s with cash flow. Then we can trade them. Why would I participate in a market of worthless assets. Get the flow of funds into them and then a trader can spot value at a price. The housing market will never recover with more and more foreclosure’s. in the short run a homeowner will have a mortgage rate, rather a payment he can pay. The govt is already the largest land owner thru fannie mae and freddie mac. Let the govt back into the rate. The mortgage market can never get mortgage rates low enough nor can the homeowner ever get the necessary down payment to refi his exsisting mortgage. a tired mortgage trader G.P.
Gary Driscoll
We should be thankful that they reacted at record speed to spend 2 1/2 TRILLION dollars over the last 2 weeks? No thanks from here!