Friday, 19 September 2008

A "Resolution Mortgage Corporation" ?


- 1989 Creation of the Resolution Trust Corporation:

"In the late 1980s, Washington created the Resolution Trust Corp. to restructure the mortgages held by 750 insolvent savings and loans. By selling off assets over time rather than in a fire sale, the RTC lessened the cost of the crisis to taxpayers."

- 2008 -2009 Creation of a kind ot Resolution Mortgage Corporation?

"U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke proposed moving troubled assets from the balance sheets of American financial companies into a new institution.

Congressional leaders who met with Paulson and Bernanke late yesterday in Washington said they aim to pass legislation soon. The initiative, which may also insure money-market funds, is aimed at removing the devalued mortgage-linked assets at the root of the worst credit crisis since the Great Depression
."

The US Government plan to deal with banking industry "toxic assets" is clearly a positive move, and welcome by the market.

One has to understand, that this is more complex than the 1989 U.S. rescue operation. It will not solve the problem overnight. As matter of fact, in the last crisis, the RTC was dissolved in 1996.

So you will see a temporalry rise in stock market, which I think will soon fade. The reason is that banks need to deleverage. When I say banks it's all over the world, they have taken far too much risks and need to rebuild their capital base.

Is it a good time to invest in stock market? well it's your decision not mine ;->, but personnaly I will rather wait until the economy pick up gain, sometime in late 2009, 2010. The stock market will react earlier so let's say mid 2009. Although it doesn't mean that some stocks were not hammered by the prospect of the U.S. depression. So if you want to trade short term, it could be an opportunity.

Now what about the housing market? well even with this action, the U.S. real estate price will continue to fall for another 12-18 month.

What about Finland housing market? well you know you got to make housing price affordable to first time buyer, so you will see as well a correction as said previously. Price will drop from next quarter amid a falling transaction volume and a declining housing starts.

In order to find a quick floor to this housing decline. Few factors can help. Lower interest rates and readjustment of housing price. Both will happen from 2009.

In the past in order to make housing affordable, wages were rising faster than inflation. Today it's an utopie to think such event will happen and that's the reason why the ECB has not cut interest rates.

Think about it - Finnair decided to cut wage by 5% or lay off people. Union finally decided no to go for a cut. So job will be lost and wage won't rise.
Union have lost their power. They were, finally, the collateral damage of the globalization.

7 comments:

Anonymous said...

It better works, otherwise it's mayhem...

-Anton

andrew said...

HousingFinland

"Union have lost their power. They were, finnaly, the collateral damage of the globalization. "

I am not a socialist but i think you have blurred that in some way and that politically we see some things quite differently.

Countries like britain became wealthy by exploiting other nations and enabling their own firms to employ people in terrible conditions while the elite were like Lords up in the stratosphere of society.

But even so people under british rule did become more educated and were able to fight to improve their own conditions.

In Britain, stupid employers who did not innovate, battled with stupid workers who felt their employer owed them a living.

The employers needed a way to transfer their production to other countries with cheap labour and so globalisation became the new buzz word, once that started then no firm of any politics could employ people to produce if their competitors moved overseas.

You often sound like an elitist because you often say the workers need to allow their wages to be devalued and you dont seem to want to report on the continually rising inflation. There are various Mr Kone Cranes in Finland, hopefully you will be also calling upon them to do their part for Finland.

When money was honest there was no inflation for 300 years.

Inflation now is part of the solution - even as we stare into the abyss of the worst deflationary crisis of all time.

Banning short sales will help i think. As will separating out toxic waste. But even so there is still a process here that has to be worked thru and i can see 5 years or more before we can say things are brighter.

Banks *and* people are going to have to delever. If we are lucky then it is "that 1990's show", when Finland was brought to its knees in one of the worlds worst ever disasters ever to happen to an economy.

But it was also a cleansing and a cure. A bit like collonic irrigation or radiation therapy in that it is terrible but you get better.

The chaos is part of the cure.

Lower rates is part of the illness.

HousingFinland said...

I agree that lots of short covering were in action, especially in the financial stocks.

More speculative money went as well in resources and materials.

Coming to fundamentals, economies around the world are slowing therefore this bounce will be short live.

Now I see deflation in the next few years, but i don't rule out in a decade to see interest rates much higher that what we have today. After the global economy gets out of recession, then huge issues will rise again - especially on the oil front - if nothing is done in the meantime (i.e electrical cars).

Bank & people deleveraging is deflationnary phenomenon, we have had glimpse of it during 1991-2 or 2002-3.

I'm not against wage rise, but I don't like the idea that Union should set or agree my wage rise and even more the wage rise is the same for all ...

Union have lost powers and will lose even more over time. In any case I have see very little activity of union in important time. This lack of activity is just highlighting a decline in their strengh (you can clearly see it in the paper industry especially when they do an anemic 1 day strike when 1000 job will be lost).

I think wage should be agreed based on people quality and productivity. Not on any "nonsense" wage settlement or indexation stuff...

How will India do if globalization was not in force? just to name one country...

HousingFinland said...

Another important point that i left aside, is that the move made by the Treasury and the Fed is as a political move.

That could give a temporary boost in the moral of the consumer and stock market, a crucial time before the election. So here McCain could score...

To be Franck, I always though thatb free market was the right model, but in the last few weeks, including today. The market is completely broken. It looks like a Casino... From Euphoria to despair back and forth on a daily basis.

When bank are making move as big as 40% a day, it's total nonsense... Where are the analysts and capitalist brains? same apply for other sectors...

andrew said...

" I always though thatb free market was the right model, "

We dont have free markets. Interest rates have been too low for the market for years. Money market rates now would be much much higher without all of the money that has been made available at artificially low rates.

All thru this month the market was refusing to lend dollars at the rates the market meddlers were saying rates should be. The market meddlers have now done what was necessary to enable the market to lend at the artificially low market rates. So that problem might have now been solved.

In the bigger picture it might be the end of the beginning. Further down the track there is now a massive amount of money in the system via artificially low interest rates that has no rightful place to be there and it will have to be drained out to avoid massive inflation.

Meanwhile it is true we have massive monetary deflation with also high price inflation.

In the free market in the euro area the whole market is controlled/influenced/managed/manipulated by a small group of people so that the market moves as they want it to.

Free markets?? ;-))

Andrew said...

The NZ central bank has been lowering interest rates but even so lending standards are tightening. The guy on this video has been producing more or less a daily informational video for interest.co.nz.

http://www.youtube.com/watch?v=sSHKneLQEfs

New Zealand is a few months ahead of Finland, and the insulating Nordic banking alliance should protect Finland but already we are seeing signs that this kind of thing could arrive in Finland.

Anonymous said...

Great blog! Do you have any helpful hints for aspiring writers?
I'm planning to start my own blog soon but I'm a little lost on everything.
Would you recommend starting with a free platform like Wordpress or go
for a paid option? There are so many options out there that I'm totally confused .. Any tips? Thanks!

Here is my weblog; Discover More Here