Re: [Marxism] Mortgage Company Exec Jumps to Death

["Margaret Wyles" <kaliyuga@xxxxxxxxxxxxx>]

Steve wrote:

> But this is hardly the root cause, any more than that the problem is just
> subprime loans. This kind of stuff just greases the skids and helps it on 
> its
> way. If we didn't have per deal fees (money-lenders ALWAYS take a cut and 
> have
> an incentive to make a loan rather than not) and didn't have subprime, 
> we'd
> still have a problem, or rather, the capitalists would. With the 
> underlying
> decline in profitability, credit is expanded to sustain the economy and
> guarantee profits. It becomes increasingly speculative, since the 
> underlying
> real profits are no longer there.

Well said.  Politicians are now nosing in and playing the "blame game" like 
everyone else - from unscrupulous brokers, incompetent rating agencies, 
greedy investment bankers, etc. - and the "fix" is not going to help anymore 
than fixing a leak will save a house if the foundation is crumbling. 
Hillary was yesterday suggesting that all the ARM rates poised to reset at 
higher rates be fixed at their current rates.  That may help a small number 
of borrowers, but most are struggling right now, prior to reset, to pay. 
The fact is, it is in the LENDER'S interest to modify these loans and keep 
the borrowers in their homes.  The last thing a lender wants right now is to 
foreclose on that Florida condo that was appraised at 200K last year and 
can't be sold today for 100K.

>Now the bond insurers are getting whacked -
> and so will the bonds they insure. No longer AAA, investors with prime 
> grade
> portfolios will be forced to sell them, pushing prices down, with further 
> write
> downs and unravelling elsewhere. How long this is going to go on and how 
> far it
> is going to spread is impossible to tell ... but we're still in the 
> foothills,
> since the subprimes are continuing to reset for quite a while. It's 
> interesting
> to note that part of Citibank's write downs this week were for distressed
> credit card and auto debt.
>
> So, best wear a hard hat on the way to work and keep an eye open for 
> further
> plunging brokers ...
>
I think the panic is starting to be felt at higher levels.  It was someone 
from the State of New York who said they were poised to rescue those bond 
insurers, presumably because it is recognized, as you pointed out, 
downgrading a mass of AAA bonds would create a huge glut on the market for 
these bonds and reduce prices even further.  I noted the other day a 
publication from Moodys in which they revealed that they had downgraded 
between 65-88% of the lower traunches (the less than AAA grade bonds) of the 
subprime securitizations, but only 2.5% of the AAA bonds.  Logic would 
dictate that, if you lowered the AA portion of a bond to a A rating, some, 
if not all, of the AAA would have to be downgraded.  My suspicion is that 
the rating agencies are loathe to downgrade the AAA bonds because many of 
the institutions that buy these bonds, canNOT buy anything but AAA bonds and 
would be forced to liquidate their holdings if there was a downgrade.  AS 
you point out, the impact of such a downgrade would be disastrous for the 
credit markets, at the very least.

Whether government intervention to stem the bleeding - or at least restrict 
it to acceptable levels - will do anything to prevent economic collapse, 
remains to be seen.  As you pointed out, underlying profits are no longer 
really there.  Without access to profitibility through credit markets, one 
wonders when, or even if, the next opportunity will arise to pull the 
country out of this mess.

M 


________________________________________________
YOU MUST clip all extraneous text before replying to a message.
Send list submissions to: Marxism@xxxxxxxxxxxxxxxxxxx
Set your options at: http://lists.econ.utah.edu/mailman/listinfo/marxism