Sunday, June 7, 2009

So, what happened to...


... "toxic assets"? Remember them?? They were pegged as the ostensible cause of the economic and financial downturn!! Supposedly, they couldn't be valued since no viable secondary market existed, and as a result the banks couldn't value each other and thus were chary about loaning money to one another... thus causing the financial and credit 'freeze.' The original solution was the TARP, the rationale for which was to buy up these toxic assets so as to get them off the books of the financial institutions, which could then recapitalize...

Well, none of the TARP money was ever used for this purpose. Then, earlier this year, the FDIC launched its 'Legacy Loans Program' to "... cleanse bank balance sheets of distressed loans and other assets and reduce the associated market overhang..." Well, this never got off the ground either, and is now effectively dead, see 'The quiet death of Geithner's controversial loan plan'

So, since we haven't addressed the ostensible cause of the crisis, this would seem to mean that either the crisis was misdiagnosed (and that weakness in mortgage-backed securities was not the cause); or that since nothing had been done here, that the crisis remains and will be ongoing... Since the administration does not seem to be doing anything here, presumably that means that either the whole bit about "toxic assets" was a bit of misdirection, or that they believe that the massive TARP and ARRA spending will get the banks and financial institutions "over the hump" until things improve... One wonders which it is!!

The June 8th Business Week has an article on this subject, "They're Not All Toxic Loans." This article says that the $3.7 trillion pool of residential mortgage-backed securities from 2004 to 2007 has shrunk to $1.7 trillion. This is because credit-worthy borrowers are refinancing into cheaper mortgages or paying off their mortgages, while on the other end homeowners are losing their homes to foreclosure. The article quotes an S&P group managing director as saying, "The market has kind of resolved a lot of the problem." Hmm, so although defaults are still increasing (and much more so than the write-offs taken by the banks and financial institutions), housing prices are still stagnant or heading in the wrong direction; a wave of mortgage rate "resets" were still due; the economy is shrinking, people are losing their jobs (and presumably their ability to pay), and many are still underwater; the crisis is worming its way into commercial real estate, credit card debt, and other areas; etc., etc. things are "resolving"?? Let's certainly hope so (though it does seem that something doesn't add up here)!!

Previous blog entries related to this topic:

Random chart - May 17th, 2009
Random chart - April 18th, 2009
Held to account? - April 16th, 2009
Automotive restructuring - April 4th, 2009
Theory vs. practice - March 30th, 2009
Random chart - March 18th, 2009
Random chart - March 12th, 2009
Random chart - March 9th, 2009
Random thoughts - Feb 15th, 2009
Rhetorical questions - Feb 11th, 2009
Better charts - Feb 10th, 2009
Random charts - Feb 9th, 2009
Random chart - Feb 8th, 2009
The high and mighty... - Feb 6th, 2009
Stimulus update II - Feb 3rd, 2009
Stimulus update - Jan 28th, 2009
Some recovery info - Jan 28th, 2009
Random chart - Jan 13th, 2009
Irony alert! - Jan 7th, 2009
Misc TARP updates - Dec 20th, 2008
Bailout/handout - Dec 13th, 2008
Recession decision - Dec 11th, 2008
Oh wow - Nov 24th, 2008
The answer? - Nov 18th, 2008
G20 - Nov 17th, 2008
Misc. financial crisis - Nov 15th, 2008
Financial Crisis misc. - Nov 11th, 2008
Goofs - Nov 7th, 2008
The money PIT - Oct 31st, 2008
Repeat question - Oct 30th, 2008
Up or down
- Oct 29th, 2008
Lest we forget... - October 27th
One possible reason... - Oct 27th
Great quotes... - Oct 27th
Thank you California and Florida - Oct 26th
The elephant (and donkey) in the room - Oct 25th
Great quotes... - Oct 25th
Say what? - Oct 22nd
Crisis unfolding - Oct 21st
Once, squared, cubed - Oct 8th
Mortgage mess - Oct 7th
Crash victims... charities - Oct 6th
Executive compensation (Section 111)Oct 4th
MOABOct 4th
Quotes… (updated) Oct 4th
Fingers crossedOct 4th
Great quotesOct 2nd
Wall Street vs. Main Street – IIOct 2nd
Wall Street vs. Main Street Oct 1st
Yet another plan (Soros) Oct 1st
Ouch – IIOct 1st
OuchSept 30th
All about CDSs Sept 30th
Genius!Sept 30th
Crisis expandingSept 29th
Great quotesSept 27th
Redefining “too big to fail”Sept 27th
Crashing the partySept 27th
Rough LandingSept 25th
Confused and nowhere to go (updated)Sept 24th
Street-wiseSept 24th
One can dreamSept 23rd
Government bailoutsSept 23rd
What it took – Sept 23rd
Truth RIP (updated 9/22)Sept 22nd
Vox clamantis in desertoSept 22nd
Finely calibrated reactionsSept 16th
Fannie and FreddieSept 10th
Fannie Mae and Freddie MacJul 24th
Mortgage meltdown (update) - Apr 1st
Mortgage meltdownMar 31st
Housing Stories III Jul 29th
Housing stories – IIMar 6th
Housing storiesApr 5th