29 November 2013

Angry Birds

When these endeavors began, the first post asserted "Why the Stimulus Will Fail"
In 2009, who are the unemployed? Not, by and large, workers in factories that will make goods for American consumers. The deindustrialization of the economy, in progress since the 1970's, makes any stimulus program a low probability gamble. Will the stimulus program re-employ the leeches in the financial services industry that sent us over the edge in the first place? It is important to realize that this sector of the economy had grown to a very large proportion; possibly unprecedented. Even if the Federal government chose to reward them with new employment, what is it that the Federal government could buy from the sector? Variable annuities? Would those who are re-employed as a result of the stimulus program spend their newly increased incomes in the financial services sector, thus re-employing all those folks? Would that be rational?

In later postings, which don't come to mind (and given the allusive nature of post titling used ...), this notion was made more specific. Any economic recovery from depression/recession faces a fork in the road early on: either re-inflate the businesses which had been employing those made redundant by the collapse (even, and especially in the current case, those who caused the collapse), or move the economy into new (and by intent anyway, less silly) modes of production. I've returned to them in both versions of this endeavor on occasion. Re-inflation is easier to do, since it rewards the wealthy miscreants, and that's exactly what the QE exercise has done. Total employed has barely changed over the course. Capital gains, for those with capital naturally, have exploded. Such a country!!

In sum: the raptor-quants intend to snip the gonads off the only part of Dodd-Frank that deals with the root cause of The Great Recession. They want all mortgages to be classified as exempt from the stricter rules (which aren't all that strict, particularly in historical context). They want to go back to 2004 when they could slurp jeroboams of moolah from the stream going from the saving class to the borrowing class. A zero-sum profit machine.

As Floyd Norris reports today, the Banksters, in harmony with builders and even some titular Left Wingnuts, have been hard at work to "Make it So", putting the oomph back into Banksterism.
The rules on qualified mortgages are meant to assure that consumers can afford them, and the requirements are rather low. Lenders must go to the trouble of verifying a borrower's income, and the total monthly debt obligation must be no more than 43 percent of pretax income. There are no requirements for down payments, or limits on how much is lent relative to the value of the property.

He later quotes the figure I've generally used: 35% as the operational rule of thumb. The new rules define three classes of mortgages, with the best having no restrictions. Naturally, the Banksters want all mortgages to magically qualify. "Welcome to Lake Homebegon, where all the Banksters are strong, all the men are feckless, and all the mortgages are above average."

So, the part of Dodd-Frank that's under assault is that which intends to rein in profligacy by home mortgage issuers (be they banks or mortgage companies). Both don't want to go back to the Good Old Days (which they always do, mostly) when savings' banks lent most mortgages and held them to term. Not much moolah to be slurped up that way. Better to make loosey-goosey ARMs and such, and sell them off for a quick few bucks. The builders don't want the new rules, since such rules reduce the number of high value qualifying houses; higher price thus higher profit. Just ask Apple how that works.

The raptor-quants are starting to feel hungry and need a hearty meal. I suppose it's just a coincidence that we hear about their hunger pangs at Thanksgivanukkah.

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