At These Levels

The Healer

ddittman@kci-com.com (KCI Editorial) — Wed, 23 Jul 2008 17:49:47 -0400

Our man in Athens, Yiannis Mostrous, sent along the following comment on recent events in Europe:

The capture of Radovan Karadzic, the former Bosnian Serb leader accused of the deaths of 20,000 people, has been celebrated in the Western media as a great victory were a war criminal will be brought to justice. This may be so.

Whats silly, though, is the idea that the Serbian government didnt know where he was and that he had reinvented himself as a healer!!

Unfortunately, its been known for some time in the southeastern part of Europe that the Serbs were ready to trade Karadzic in order to achieve a fast track position in their desire to join the European Union. People in this part of the world are also speculating that pretty soon Ratko Mladic, his lieutenant, will also be discovered and handed over to the international court.

As Karadzic isnt useful to anyone anymore while Serbia is in a hurry to join the EU, trading him while offering justice is being viewed as the best approach. Appeasing the international community while working toward achieving ones goals is the great balance of international relations.

NIMBY Nonsense

egue@kci-com.com (Elliott H. Gue) — Wed, 23 Jul 2008 14:27:27 -0400

Generally, I love Alexandria, Virginia, the city I live in just outside Washington DC. Perhaps, its because I am a ninth generation Alexandrian. But, as much as I might like my home, I loathe city politics.

Typically, my issue of "FYI: Alexandria", the citys newsletter, is confiscated long before I have a chance to read it. This is a good thing as it keeps my blood pressure down and generally improves my quality of life. Unfortunately, this past weekend, as I was returning from Japan, the postman spotted me in the corridor of my flat and handed the recent issue of FYI directly to me along with a box of mail.

Then, I made the mistake of opening that same issue and ruining my Saturday morning. Apparently, the most important thing that has happened in Alexandria in my absence is that the city has decided to spend some of my real estate tax dollars on trying to close a Norfolk Southern (NYSE: NSC) ethanol transloading facility located on the extreme western edge of the city. The city has made a point of highlighting the term transloading, I suppose with the intent of scaring people. But, transloading is nothing more than the process of taking ethanol out of railcars and putting it into tanker trucks for transport locally.
Ethanol is simply an alcohol typically derived from corn in the US. It
is used as a fuel additive; in fact, the government mandates mixing
ethanol with gasoline in many parts of the country, including
Alexandria City. Most petrol stations in the area proudly display a
sign stating that the fuel they dispense contains 10% ethanol.

Ethanol cant be transported by pipeline because its corrosive and has
a tendency to evaporate (after all, it is alcohol). Therefore, the vast
majority is transported by railroads like Norfolk Southern and then
shipped locally by truck to be mixed with fuel. In fact, Norfolk
Southern, reported earnings this morning and the following quote from
their conference call reveals the importance of ethanol to rail freight
volumes: Record agricultural revenue and shipments were driven by
continued growth in ethanol, which was up 20% primarily [in] the
Southeastern market.

But I digress. The City has decided to fight this Norfolk Southern
transloading facility for what I gather to be no particular reason at
all. The most I could glean from their statements is that the existing
railroad depot where the transloading facility is sited is located 600
feet from a school and in a densely populated area. Since that depot
has been around for decades, I can only suppose that the concerned
local residents were well aware of its existence when they made the
decision to purchase a home in the area.

In addition, apparently the City managed to mangle the permitting
process when Norfolk Southern first announced they were building this
facility on their existing depot site. Also, the City Council has
decided that despite the fact this was their mistake it was somehow
Norfolk Southerns responsibility. This is precisely the logic that
makes reading FYI such a pleasure.

The City has now organized protests and put up a website decrying the
supposed evils of ethanol transloading. For those of you interested,
heres the website:
http://alexandriava.gov/special/transloading/default.aspx. This website
would be amusing if it werent so tragic. In particular, I am fond of
the slideshow of the protest against Norfolk Southern and the photo of
a sign that reads Save our School. There was a gasoline station
located approximately the same distance from my room in University;
however, I never lost any sleep to the thoughts of that facility
exploding.

If anyone has ever wondered why US infrastructure is so universally
pathetic, this is it. People want energy and they want it cheap but
they dont want to see it, smell it or hear about it for any reason.

I am quite sure some of the citizens and city council members that were
out protesting against Norfolk Southern later drove their SUVs by their
local Exxon station and filled their tanks with gallons of gasoline and
ethanol that went through the very same facility. These same uninformed
and shameless citizens want to have bountiful supplies of fuel but do
not want that fuel to pass through densely populated area which would
include, by definition, cities.

Others, claiming to be environmentalists, oppose the construction of
new ultra-efficient coal-fired power plants that would drastically cut
emissions of all sorts of pollutants. They then complain vigorously
when utilities continue running existing coal plants.

Naturally, they oppose development of clean coal technologies and,
while they claim to want to cut emissions of carbon dioxide, they
paradoxically oppose nuclear power. All the while they hold out the
false hope of renewable energy and, as you might expect, bitterly
campaign against a proposed transmission line that would bring wind
power from West Virginia to the densely populated Northern Virginia
region.

In short, they want to have their cake and eat it too. But they definitely do not want to take that cake in their backyard.

The result of all this: the United States has shed its leadership
position in most key energy technologies. Tragically, the US will soon
fall behind China when it comes to electricity generation efficiency
even as we become a key supplier of coal to China. Within 2 to 3 years,
vast regions of the US will experience blackouts caused by a lack of
badly needed energy infrastructure.

The one positive to come from all this: Norfolk Southerns response.
For disclosure, I recommend this stock in my newsletter, The Energy
Strategist.

They have done literally everything to assuage the Citys politically
motivated campaign. That includes installing safety equipment at the
site, training local firefighters and even buying special
fire-retardant foam for the City.

Thankfully they have not compromised on one key point: They have
refused to close the facility. They have also, quite rightfully,
claimed that the city has no right to regulate the existence or
permitting of the transloading facility. I wish them all the best in
their fight against the City of Alexandrias shameless Not In My
Backyard posturing.

The Business End of Brutality and Justice

gearly@kci-com.com (GS Early) — Wed, 23 Jul 2008 11:31:11 -0400

I was corresponding with Silk Road Editor Yiannis Mostrous, discussing the capture of Bosnian Serb butcher Radovan Karadzic earlier this week. And even having read the stories posted out of London and various other European sources, Yiannis penned a quick line that explained why Karadzic hadn't been nabbed before now--there have been stories going back years that Karadzic and his thug ally Ratko Mladic had a box and season tickets at their local soccer stadium and attended regularly.

Yiannis wrote: "Obviously a gift to the EU for early inclusion of Serbia in the family. Once they have further assurances, they will produce [Mladic] too."

Of course.

Yiannis is meeting with a journalist friend today and promises more on this from the pragmatic perspective in coming days.

Debiting Your Future: I.O.ME.

kzanoni@kci-com.com (Kate Zanoni) — Tue, 22 Jul 2008 17:22:40 -0400

It's as easy as one-two-three. Shop. Swipe. Sign.

Nowadays practically everyone uses a debit card to make purchases. It's easy. It's fast. It's convenient. The money you spend is taken directly from your bank account. But now there's a new kid in town, and it's raising red flags left and right: the 401(k) debit card.

The danger is that the money you spend with this card is directly debited from your retirement account. Much like a 401(k) loan, the debit card allows you to pay yourself back over time. But the increased ease and convenience of the debit card is a bit too unsettling. Now it's become much too easy to jeopardize your entire future with one swipe of plastic.

Most people use 401(k) loans as a last resort. It's difficult enough for many people to save, and it's certainly counterproductive to tap into your retirement savings for a shopping spree. FINRA (the Financial Industry Regulatory Authority) issued a warning against the cards, denouncing them as a tempting convenience with potentially harmful, severe repercussions.

It's surprising how many people actually go to such measures for extra cash. A shocking 20 percent of 401(k) participants have jumped through hoops just to get loan approval. More disturbing, several studies have shown that the ability to borrow from retirement savings actually makes people more likely to contribute to a retirement plan.

Lawmakers fear that, in this tough economy, more people who are living paycheck to paycheck will increasingly turn to retirement savings as a source of cashflow. Sens. Charles Schumer (D--NY) and Herb Kohl (D--WI) called them an abuse of 401(k) plans and proposed legislation to ban them.

Unless you're using the cash for a dire emergency, it's a flat-out poor decision. And with poor money management becoming all too familiar these days, companies offering the 401(k) debit card are only fueling the fire. Employees who borrow from their savings will have less money to support themselves upon retirement and will have to add several more years on the job before they can even contemplate retirement.

It may sound like easy money up front. But chances are, if you're resorting to pulling from retirement savings, it will be considerably difficult to pay back. The price for defaulting: distribution taxes and penalties. 401(k) reimbursement won't come out of your paycheck as it would with a traditional 401(k) loan, so it's just like piling on another bill.

The debit card piles on additional finance charges, set-up, maintenance and cash-advance fees. Repayments are made with after-tax dollars that are taxed again when you draw on your account. Oh, and by the way, the interest isn't tax deductible.

The bottom line: Your retirement nest egg is too precious to risk. Swiping away your savings with a 401(k) debit card can shatter your financial future. If you do opt for this "quick-and-easy" way to cash, be conscientious and stay organized to ensure you're able to make repayments.

How Much?

(Peter Staas) — Tue, 22 Jul 2008 15:40:51 -0400

Today the Congressional Budget Office (CBO) released a research letter calculating the potential cost of the administration's plan to backstop the government-sponsored housing enterprises, Fannie Mae and Freddie Mac.

The report estimated this cost at $25 billion over 2009 and 2010. Although this is a round number that's easy to digest, the CBO concedes that the ultimate cost depends on a number of contingencies.

Such uncertainties include the performance of Fannie Mae and Freddie Mac's mortgage portfolios, the amount of capital the enterprises raise from other sources, and the Treasury Dept's criteria for determining whether or not to inject funds under its temporary authority. Needless to say, this situation is quite fluid.

At the same time, as a recent Mortgage Note released by the Office of Federal Housing Enterprise Oversight makes clear, Fannie Mae and Freddie Mac are absolutely integral to sustaining the nation's housing and mortgage markets.

The image below demonstrates the enterprises' importance following the collapse of the market for mortgage-backed securities issued by private firms:

Feeling Confident?

(Peter Staas) — Fri, 18 Jul 2008 15:31:28 -0400

Back in February, a survey conducted by American Banker found that almost 60 percent of banking executives believed that financial services companies faced a "crisis of trust" among their customers--the worst housing crisis since the Great Depression tends to have that effect on people.

Last Friday, that crisis of trust intensified.

The sight of irate IndyMac customers gathered around closed branches in an effort to access their money did little to inspire confidence in the US banking system. In fact, the highly-publicized run on deposits at IndyMac bank continued even after the FDIC had reopened the branches under its auspices.

Mattress companies salivated over a potential bump in sales of "cash storage models," while banks and regulators fretted that IndyMac's failure could prompt a jump in withdrawals at other institutions--particularly among customers with account balances in excess of the $100,000 limit on the FDIC's deposit insurance.

The FDIC should be commended for its efficient handling of IndyMac's failure; however, a new FDIC rule designed to "maintain public confidence in the banking system" by making future resolutions go much more smoothly only makes me more confident that more bank failures are on the horizon.

Market Trumps Government

egue@kci-com.com (Elliott H. Gue) — Fri, 18 Jul 2008 14:21:22 -0400

Tokyo, Japan

At the Summit this year world leaders of G8 countries resolved to cut carbon dioxide emissions by 50 percent by 2050. One of the biggest planned contributors to that cut: promoting better energy efficiency.

But while politicians discuss energy efficiency, the markets are forcing change. At this time, it really has little to do with carbon dioxide; rising energy prices are forcing companies and consumers to make changes.

Consider that General Motors truck and SUV sales for the US are off more than 21 percent since the beginning of the year. Car sales are down because of the economic slump but only by around 9 percent. That's a sure sign that consumers are changing their behavior in response to higher oil prices. It has absolutely nothing to do with fuel efficiency standards or any other government regulations, rather it's the invisible hand of higher prices at work.

And how about the aerospace industry? At first, most airlines just
complained about higher oil prices and their effect on the business.
Still many are complaining about excess speculation driving up oil
prices. But, the airline industry is also reacting, buying up new
aircraft made of lighter materials such as carbon fiber. The most well
known of these is the 787 Dreamliner aircraft being produced by Boeing.

But at the G8 this year, Mitsubishi also displayed its new regional jet
capable of traveling the same distance as existing regional planes
while consuming 20% less fuel. Again, the driver of demand for this
aircraft isn't government regulations regarding airlines carbon
footprints but the simply economics of fuel and fares.

The same basic pattern is repeated across many industries, The Chinese,
for example, are now building some of the most efficient coal plants in
the world to cut their consumption of coal while allowing for an
expansion of generation capacity. New coal plants being constructed in
China are actually more efficient than the existing fleet of plants in
the US; ironically, environmental groups are blocking the construction
of new plants that could cut US carbon emissions and reduce demand for
coal.

The steel industry too is adopting more advanced furnaces that
consume less coal to make steel; rising metallurgical steel prices are
forcing change.

Slim Pickens?

bscott@kci-com.com (Ben Scott) — Thu, 17 Jul 2008 16:26:21 -0400

T. Boone Pickens was an oilman, but in the midst of an energy crisis he's now a windman. He's not blowing hot air, but rather hoping we can take advantage of moving air no matter what the temperature. He's started his own website, on which he's proposing the Pickens Plan, a plan based on wind energy. According to his site, "The Plan calls for building new wind generation facilities that will produce 20% of our nation's electricity and allow us to use natural gas as a transportation fuel. The combination of these domestic energies can replace more than one-third of our foreign oil imports. And we can do it all in 10 years."

Some folks think it's a pie-in-the-sky idea, but he's made a believer out of several people thus far. Even with the possibility of the offshore drilling ban being lifted, T. Boone Pickens and many Americans recognize the need for alternative energy solutions.

Now, the state of Texas has given the go-ahead on $5 billion worth of transmission lines for the nation's largest wind-power project.

Watch the Pickens Plan:
a special investigation this morning after failing to comply with requests made in April by Missouri Secretary of State Robin Carnahan for documentation regarding the sales practices, internal evaluations of the auction-rate securities (ARS) market and marketing strategies. The original request was made after Carnahan received more than 70 formal complaints by Missouri investors who were unable to reach money they'd invested in ARSes; investments involved total more than $40 million.

Although Wachovia filed a notice in May with the Securities and Exchange Commission that it had received the request, the fact that regulators found it necessary to drop in today seems to fly in the face of its promise to "cooperate fully" in that same notice. No word yet on what was turned up in the investigation.

Wachovia and Wachovia Securities are also under investigation in New York, where they face a class-action lawsuit regarding misrepresentations concerning the quality, risk and characteristics of ARSes. Although the company plans to defend such allegations rigorously, its noncompliance in Missouri certainly doesn't seem to help its case much--at least not from a public standpoint.

Wells Fargo and Responsible Lending

(Peter Staas) — Thu, 17 Jul 2008 14:20:22 -0400

After mortgage-related losses placed IndyMac in a precarious capital situation and a run on deposits delivered the final coup de grace, share prices of regional banks and other financials took a sharp hit in the next trading session.

Two days later, the slate was wiped clean as Wells Fargo hiked its dividend and posted second-quarter earnings that exceeded analysts' expectations. Here was a study in contrasts: Many commentators attributed the bank's success to its strong underwriting standards and limited exposure to the riskiest subprime mortgages--for example, interest-only and payment-option adjustable rate mortgages.

Although Wells Fargo deserves plaudits for avoiding these "innovative" mortgage products, this restraint should not be confused with so-called responsible lending practices.
Despite management's efforts to downplay the scope of its nonprime
business, the bank was one of the biggest players in the subprime
market. In 2006, Wells Fargo was involved in $83.2 billion worth of
subprime or alt-A loans--21 percent of the institution's overall
production.

However, for the majority of its subprime originations, Wells Fargo
retained only the servicing rights and transferred the risk of
delinquencies and default to secondary market investors.

The bank also has a longstanding history of alleged predatory and abusive lending. In 2004, Wells Fargo Financial faced
a protracted campaign from consumer advocacy groups that accused the
company a number of unscrupulous practices designed to victimize low
wealth consumers. For an overview of these alleged transgressions, see
this report prepared by the Center for Responsible Lending.

More
recently, Baltimore, MD sued Wells Fargo for discriminatory lending
practices that may have contributed to the wave of foreclosures
gripping the city. Click here for
more on this story. Likewise, the bank's mortgage operations were
targeted by then New York State attorney general Eliot Spitzer, but the
company avoided investigation when the Office of the Comptroller of the
Currency blocked the probe through federal preemption rules.

IndyMac Goes Under FBI's Knife

kzanoni@kci-com.com (Kate Zanoni) — Wed, 16 Jul 2008 17:15:02 -0400

Kaput lender IndyMac Bancorp could be in a heap of trouble. The FBI is investigating the mortgage lender's practices for fraud regarding home loans given to less-than-creditworthy borrowers.

The FBI is keeping details of the investigations under wraps, but for more on the story, click here.

It's Time for Some Campaignin'!

kzanoni@kci-com.com (Kate Zanoni) — Wed, 16 Jul 2008 12:17:42 -0400

They're baaaaaack. Remember Jib Jab's satire of the 2004 elections? Check out the new 2008 lampoon, Time for Some Campaignin', as well as commentary from the creators. It's politico absurdity as its best.

For more jib jabbering fun, click here.

Production Not Reserves

egue@kci-com.com (Elliott H. Gue) — Wed, 16 Jul 2008 04:38:07 -0400

Tokyo, Japan

Its annoying how often the concept of reserves and production are used interchangeably by the media. After all, we have all heard the statistics about how many barrels of oil are to be found in Brazils deepwater fields or locked in Canadas vast oil sands. Most recently, the focus has turned to how much oil and gas can be found in offshore US oil reserves currently closed for drilling.

Dont get me wrong, I am all for opening up the US Outer Continental Shelf (OCS) and the Alaska National Wildlife Refuge (ANWR) for drilling. After all, modern oil and gas drilling techniques are actually low-impact from an environmental standpoint and it makes perfect sense to try and increase domestic energy supplies in the current market.

But temper your enthusiasm slightly; reserves can be a misleading concept. The basic misconception seems to be that the world consumes about 83 million barrels per day of oil or 30 billion barrels per year. Therefore, some conclude that a 30 billion barrel reserve is enough to replace a year's worth of the world's oil.

But that's totally the wrong way to look at it. First, the reserve
estimates you often hear quoted in the news are for estimates of
original oil in place (OOIP), the total amount of oil contained in the
reservoir. But, oil and gas aren't found in giant underground caves or
lakes but trapped in the pores of rocks.

Some of this oil is
stranded in sections of the field where the rock is impermeable, and
therefore, the oil can't reach the wellbore. And some of the oil will
simply be left behind during production; theres no way to "pump" it
out as if it were in storage.

Typically, a producer wont recover anything close to 100 percent of
the OOIP even after many decades of production. Some reservoirs with
lower permeability may only yield 15 percent of the OOIP. And even the
best, most permeable and most heavily developed fields in the world
rarely reach a 70 percent recovery factor.

And consider that the UK's two major fields, Brent and Forties, went
into production in 1975 and 1977, respectively. Neighboring Norway's
major fields started going into production in the early 1970s and
underwent major rehabilitation programs to boost production in the
80s.

At any rate, not long after these giant fields entered production,
North Sea oil production began to soar. The initial growth in
production was rapid; the North Sea finally entered a sort of plateau
period in 1995. Production peaked early this decade and has since
fallen precipitously.

Although these fields will still be yielding oil (and gas) for many
years to come, the production rate will continue to fall. That's
despite the fact that some estimate that many North Sea oilfields still
contain 70 percent of their OOIP. What really matters isnt how much
oil is in a reservoir but how quickly it can be produced.

Most fields follow some version of this "bell curve" production
profile. In other words, production ramps up quickly when a field is
first produced because underground pressures are high; natural geologic
forces drive production.

But at some point, as pressures fall, production hits a plateau. This
occurs long before all the OOIP is recovered. At this point, the
producer can use certain techniques--such as oil and/or gas
injection--to stabilize pressures and increase production. However,
these factors are unlikely to do much more than simply stabilize
production at relatively high levels.

To put this in the context of global supply, European energy giant
Total detailed some of their intermediate to long-term outlook for the
global energy markets. Total was careful to point out that the problem
is production, not reserves; the company estimates that there are about
1 trillion barrels of known reserves left worldwide. That is as much as
we have already produced since the dawn of the oil age.

Total estimates that an additional 200 billion barrels are left to be
found and new technology could allow us to bump up reserves by a
further 300 billion barrels. But due to geological and geopolitical
issues, Total sees total oil production globally peaking at 95 to 100
million barrels of oil per day.

Always Historicize

(Peter Staas) — Tue, 15 Jul 2008 16:13:47 -0400

Last week erstwhile McCain advisor Phil Gramm imprudently suggested that the US is merely in a "mental recession." With a reduced role in McCain's campaign, Senator Gramm now has plenty of time to bolster the weakening US economy by rereading The Secret and thinking positive thoughts.

Better yet, perhaps taxpayers should use their stimulus checks to pick up a copy of the book and use their newfound understanding of the "Laws of Attraction" to repair their ailing attitudes and balance sheets.

Speaking of balance sheet repair, taxpayers must be cringing over the government's proposed bailout of the beleaguered government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.

A handful of commentators, most notably William Poole, a longtime critic of the GSEs and former head of the St. Louis Federal Reserve, have focused on the mortgage giants' thin capitalization and the systemic risk posed by the size and scope of their operations.

Such criticism of the GSEs is neither without merit nor without precedent.

At the height of the housing and mortgage booms, Alan Greenspan argued that Fannie Mae and Freddie Mac's most profitable activities failed to meet their affordable housing objective and that the firms' extensive portfolio holdings represented a substantial risk to the financial system--especially with their implicit government subsidy.

Fannie Mae and Freddie Mac support the mortgage industry through two activities. The first involves purchasing mortgages from originators, packaging these mortgages into mortgage-backed securities (MBS) and selling these MBS to investors in the secondary market. Because Fannie Mae and Freddie Mac guarantee the performance of the pooled mortgages underlying these vehicles, such securities are more desirable and therefore more liquid than comparable private-label MBS.

Although both Greenspan and Ben Bernanke concede that securitization is a crucial component of the GSEs' missions, the two Federal Reserve chairmen strongly criticized the enterprises' purchase of MBS for their own investment portfolios.
Not only did the sheer size of Fannie Mae and Freddie Mac's portfolio holdings represent a systemic threat to the financial system, but the GSEs' implicit government subsidy and consequent access to low-cost financing theoretically provided scant incentive for making disciplined investments.

Greenspan, Bernanke and others reasoned that these shortcomings, combined with inadequate capital requirements and oversight, posed a significant risk to the economy: If mortgage-related losses eroded the enterprises' reserves and the firms found themselves unable to raise additional capital to service their considerable debt, their failures would plunge would plunge the markets into chaos.

The recent imbroglio and proposed rescue plan ostensibly confirms these contentions; however, upon further examination, this explanation is akin to diagnosing skin cancer as a rash.

Let's return to Greenspan and Bernanke's case for reducing Fannie Mae and Freddie Mac's portfolios and attendant debt levels.

Aside from the risk inherent in enterprises' portfolio holdings and lax capital standards, both chairmen (especially Greenspan) maligned the unfair competitive advantage conferred by the GSEs' then implicit government subsidy. Here's an excerpt from Greenspan's 2005 testimony before the Senate Committee on Banking, Housing and Urban Affairs:

The government guarantee for GSE debt inferred by investors enables Fannie and Freddie to profitably expand their portfolios of assets essentially without limit. Private investors have granted them a market subsidy in the form of lower borrowing rates. Unlike subsidies explicitly mandated by the Congress, the implicit subsidies to the GSEs are incurred wholly at the discretion of the GSEs.

Because Fannie and Freddie can borrow at a subsidized rate, they have been able to pay banks, thrifts, mortgage companies, and other home mortgage originators slightly higher prices for mortgages than their potential competitors have paid. This edge has enabled Fannie and Freddie to gain gradually but inexorably an ever-larger share of the home mortgage market. Investors have provided Fannie and Freddie with a powerful vehicle for pursuing profits through the rapid growth of their balance sheets, and the resultant scale has given them an advantage that their potential private-sector competitors cannot meet.

The outcome of these efforts enabled the Office of Federal Housing Enterprise Oversight to impose risk-based capital requirements that reigned in the GSEs' abilities to finance their portfolio acquisitions through the issuance of debt.

As a result of these and other limitations--restrictions that were perfectly reasonable given the firms' dubious accounting practices--Freddie Mac and Fannie Mae's share of the mortgage market declined to historic lows.

At a time when mortgage originators and private-label securitizers were churning out loans with little regard to quality, Fannie Mae and Freddie Mac (not to mention their more stringent underwriting requirements) were largely relegated to the sidelines.

We're all aware by now of the so-called subprime crises that paralyzed the nation's housing, mortgage and credit markets. (For a refresher, check out this previous post).

Fannie Mae and Freddie Mac are now paying the costs for these excesses.

Critics of the Bush administration initially reveled in irony when the government signaled its intention for Fannie Mae and Freddie Mac to revivify the moribund housing and mortgage markets. And bullish analysts saw the opportunity for the mortgage giants to scoop up mortgage-related assets at bargain prices, when regulators cut the GSEs' excess capital requirement from 30 percent to 20 percent.

At the same time, skeptics regarded this about-face as the death knell for Fannie Mae and Freddie Mac; if the mortgage boom was a period of restraint, the already under-capitalized GSEs would essentially gorge themselves to death in an effort to sustain the housing and mortgage markets. Federal intervention was inevitable and necessary.

The housing enterprises are not above reproach, but the government's rescue plan should not be characterized solely as a bailout of Fannie Mae and Freddie Mac. Make no mistake, this is a bailout of the housing and mortgage markets as a whole.

It Starts

wrichardson@kci-com.com (Whitney Richardson) — Tue, 15 Jul 2008 11:27:05 -0400

In a previous post, I noted the increasing interest in online advertising, how companies obtain data to target ads to the appropriate audience and Internet companies' desire for regulation of such data. Looks like Congress is now getting in on the game.