Sallie Mae, the former GSE and current student loan powerhouse, had a deal to go private, and it’s now in jeopardy.
There are two reasons, the difficulty in obtaining capital in the past few months, and the fact that Congress has reigned in some of the absurdly high fees in the guaranteed student loan business.
The fact is that the GSLs are handled better and cheaper by the government than by for-profits, and hopefully this market will move increasingly in that directions.
This should surprise no one. It appears that the dam is causing landslides, plagues of displaced rate, collapses on the shore of the reservoir, etc.
And in a few years, as the lands that are fertilized by the silt carried in the Yangtze start to grow poor, the silt will now settle in the reservoir,it’s just going to get worse.
This will be the first of many, and proves that online business (NetBank was an online bank) obey the same economic laws as other businesses.
NetBank Inc., an online bank with $2.5 billion in assets, was shut down by the government on Friday because of an excessive level of mortgage defaults.
It was the largest savings and loan failure since the tail end of the industry’s crisis more than 14 years ago. Federal regulators appointed the Federal Deposit Insurance Corp. as a receiver for Alpharetta, Ga.-based NetBank.
This is just the beginning.
Nouriel Roubini is an economist, a good one, and he’s been one of the voices in the wilderness about the housing bubble popping, and now he has a post up, I Was Way Too Optimistic on the Housing Recession…, that bears reading.
He’s been a housing bear, and a consistent voice of reality, and the housing market has exceeded his worst case scenario.
Go read it.
Checkhere.
It was about $1.001 US: $1.00 CDN at mid-day.
We have another new low for the dollar. It hit $1.4234:€1.00 this afternoon. Its previous high was $1.4189:€1.00.
It was only a week or so ago that it broke $1.40:€1.00, this is a precipitous drop, and it will eventually force interest rates up…a lot.
It appears that Congress is getting ready to bash the rating agencies. We’ve seen similar things with real estate appraisers, though more at the local level.
What we are seeing here is a basic failure of a largely unregulated part of the market. Moody’s, S&P, and your local appraiser are all in a similar situation. If they look too closely, their customer will go to another appraiser or rating agency, hence you have unrealistic ratings on securities and unrealistic appraisals on houses.
The financial markets cannot police themselves.
We now havelowest sales level in 5 years, and the steepest price drop in 16 years, a 4.3% drop from July, and the Case-Shiller index showing a 4.5% price drop. Foreclosures have more than doubled, and we have a 10+ month inventory.
Obviously the agreement needs to be approved by the membership, but this is likely.
Sounds like they are expecting that there will be a strike, but perhaps it’s posturing, sometimes the rhetoric ratchets up just before a settlement.
UAW shocked by GM’s failure to recognize worker contributions; sets strike deadline for 11 a.m. on Monday, Sept. 24
The UAW announced today that due to the failure of General Motors to address job security and other mandatory issues of bargaining, the union has set a firm strike deadline for 11 a.m. on Monday, Sept. 24.
“We’re shocked and disappointed that General Motors has failed to recognize and appreciate what our membership has contributed during the past four years,” said UAW President Ron Gettelfinger. “Since 2003 our members have made extraordinary efforts every time the company came to us with a problem: the corporate restructuring, the attrition plan, the Delphi bankruptcy, the 2005 health care agreement. In every case, our members went the extra mile to find reasonable solutions.
“Throughout this time period,” said Gettelfinger, “it has been the dedication of UAW members that has helped GM set new standards for safety, quality and productivity in their manufacturing facilities. And in this current round of bargaining, we did everything possible to negotiate a new contract, including an unprecedented agreement to stay at the bargaining table nine days past the expiration of the previous agreement.”
“This is our reward: a complete failure by GM to address the reasonable needs and concerns of our members,” said UAW Vice President Cal Rapson, director of the union’s GM Department. “Instead, in 2007 company executives continued to award themselves bonuses while demanding that our members accept a reduced standard of living.
“The company’s disregard for our members has forced our bargaining committee to take this course of action,” said Rapson. “Unless UAW members hear otherwise between now and the deadline, we will be on a national strike against GM at 11 a.m. EDT on Monday, Sept. 24th.”
The UAW negotiating team will remain at the bargaining table, Rapson said, throughout the night and up until the 11 a.m. deadline.
Nothing yet on CNN about a strike starting, though.
Update: it appears that the balloon has gone up. The UAW is now on strike against GM.
Or maybe just too truthful: What Catherine the Great can teach CEOs.
They’ve already done to the shareholders and workers what she did to her horse*.
FWIW, Jay Winik, the author of this book, also does not have a good handle on what Catherine the Great was as a ruler. Look up Potemkin villiages.
*Yes, I know that the story is false. She died of a stroke while sitting on the chamber pot.
Prudent Bear has put it better than I ever could* in his post, When markets lose their mind.
His point:
Subprime mortgages themselves exemplify irrational markets, yet the participants’ activities at each stage were economically in their own rational interest:
- Low income consumers took on mortgages they had no prospect of affording because they believed from the experience of others that house prices would rise sufficiently to bail them out. In any case being often near bankruptcy the potential profit from successful speculation appeared to them greater than the potential loss from default.
- Mortgage brokers sold subprime mortgages because they got a commission for selling them and were not responsible for the credit risk.
- Investment banks packaged the subprime mortgages into multiple-tranche mortgage backed securities because they received fat fees for doing so and again had no real responsibility for the credit risk.
- Rating agencies gave the upper tranches of mortgage debt favorable ratings, because they made a great deal of money from providing ratings for asset backed securities, needed to keep in the favor of the investment banks who brought them this attractive business, and had mathematical models (either their own or the investment banks’) “proving” that the default rate of the securitized mortgages would be low.
- Investment bank and rating agency mathematicians produced models “proving “ that default rates would be low, ignoring the real-world correlations between defaults on low quality consumer debt, because they were well paid to do so – the alternative was to return to a miserable cheese-paring existence in academia.
- Finally the investors bought asset backed securities because they could achieve a higher return on them in the short term than their borrowing costs, and could tell their funding sources (in the case of hedge funds) or bosses (in the case of foreign banks) that they were taking very little risk because of the securities’ high rating.
I do think that his post is incomplete in one area, which is in explaining how so many people with decent credit got caught up in this too.
Let’s be clear, this is the exception, not the rule. These folks were crooked, and hoped that housing appreciation would cover their tracks.
The Saudis have been pegging the Riyal to the Dollar for years. One of the things that this requires is that the interest rates in the two countries remain the same, otherwise there are pressures for them to move relative to each other.
The Saudis have made it clear that they will not follow the recent Federal Reserve rate cuts.
This will place further downward pressure on the dollar, and make it more likely that other Arab oil Sheikdoms will follow suit. Kuwait actually preceded them on this action, breaking the peg in May.
So, the SEC has finally noticed that the cow is gone, and they are endeavoring to close the barn door.
When you have huge sums of money, detailed information, and NO supervision, insider trading is really a given, not a surprise.
Yep, for the first time in a couple of years, I’m able to read his stuff right off the NY Times web site, so I give you Sad Alan’s Lament, in which Paul “When does this man get his much deserved Nobel Prize” Krugman completely owns Alan “Bubbles” Greenspan.
Note: 100 Basis Points is 1%.
The dollar is now $1.3972:€
Note the spike that happened as soon as the Fed announced at 2:15 (Times are in GMT), so 6:15 GMT is 2:15 EDT).
I think that we got the worst of both worlds today, the currency traders care if the fed slashes rates, but mortgages, commercial paper, and interbank lenders don’t.
Thankfully, it’s not my lender, but American Home Mortgage Investment Corp. is bouncing property checks in Baltimore City and Baltimore County.
Over 100 Grand so far, and this is the camel’s nose under the tent.
In addition to everything else, there is going to be a lot of unpaid property tax at the local level, and falling assessments, putting cities and counties in a cash crunch.
Thank you Alan Greenspan.
Well, Rich Toscano does it again, with a series of charts that reflect how bad things are in San Diego.
Yep, you read that chart right, notices of default (NOD) are higher than house sales. Notices of trustee sales (NOT—Foreclosure auctions), and real estate owned (REO, basically no one would buy at the foreclosure auction) are skyrocketing too.
Truth be told, San Diego was one of the 10-20 most over heated markets in the country, but it’s effects are nationwide.
You see accelerated NOD, NOT, and REO levels in places as “un-overheated” as Toledo, and you see people who have used their equity in overheated markets to make investment and vacation home purchases in cheaper areas, which inflate prices everywhere.
Fannie Mae and Freddie Mac, in particular, and the mortgage resale market in particular, have made real estate markets more national, and even global.