Roubini: Break Every Mortgage Contract

[SlowDownFast]

US Recession Could Last Up to 36 Months: Roubini

The man who predicted the current financial crisis said the US recession could drag on for years without drastic action.

Among his solutions: fix the housing market by breaking "every mortgage contract."

"We are in the 15th month of a recession," said Nouriel Roubini, a professor at New York University's Stern School of Business, told CNBC in a live interview. "Growth is going to be close to zero and unemployment rate well above 10 percent into next year."

Echoing a speech he made earlier in the day, Roubini said he sees "no hope for the recession ending in 2009 and will more than likely last into 2010."

Roubini, who is also known as "Dr. Doom," told CNBC that the risk of a total meltdown has been reversed for now but that the economy is going through "a death by a thousand cuts." He also said that "most of the U.S. financial institutions are entirely insolvent."

"The market friendly view for the banks is nationalization," said Roubini. "Temporarily take over the banks, clean them up and get them working again."

more:
http://www.cnbc.com/id/29598949

[LARED]

1. I spoke with a friend of mine on Sunday who happens to be

the VP of a local bank. He would wholeheartedly disagree with this nonsense statement

"He also said that "most of the U.S. financial institutions are entirely insolvent."

According to him the vast majority of financial institutions (specifically banks) are just fine. In fact they are dying to lend money to credit worthy people (of which most folk are). Also the rates are great.

[jakeXT]

3. Looks like the ones who are healthy will have to pay for this

Jim Rogers calls most big U.S. banks "bankrupt"
Thu Dec 11, 2008 1:53pm EST
Reporter's Notebook

By Jonathan Stempel

NEW YORK (Reuters) - Jim Rogers, one of the world's most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded.

Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.

...

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.

"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

...

http://www.reuters.com/article/InvestmentOutlook09/idUSTRE4BA5CO20081211



FDIC raising fees on banks, adds emergency fee

...

But the head of the Office of Thrift Supervision, in his final day in that position and as one of the FDIC board members, voted against the emergency premium. John Reich said the fees would unfairly burden smaller banks that didn't contribute to the financial crisis with reckless lending.

"Taxing the banking industry with a special assessment of this magnitude, when they are already under siege, will have a negative impact on their lending capacities," Reich said.

..

http://www.fool.com/news/associated-press/2009/02/28/fdic-raising-fees-on-banks-adds-emergency-fee.aspx

[Better Believe It]

7. He's not the VP of the biggest 19. Most of those banks are insolvent

Does your local bank VP have an opinion on the banks Roubini and everyone else is talking about?

Roubini and other credible economists have said that most banks are OK along with credit unions.

So perhaps you should go back to your local bank VP and tell him what Roubini has actually said regarding the big banks and find out what he/she has to say in response.

[girl gone mad]

2. Another excerpt:

Given that common shareholders of AIG are already effectively wiped out (the stock has become a penny stock), the bailout of AIG is a bailout of the creditors of AIG that would now be insolvent without such a bailout. AIG sold over $500 billion of toxic credit default swap protection, and the counter-parties of this toxic insurance are major U.S. broker-dealers and banks.

News and banks analysts' reports suggested that Goldman Sachs (nyse: GS - news - people ) got about $25 billion of the government bailout of AIG and that Merrill Lynch was the second largest benefactor of the government largesse. These are educated guesses, as the government is hiding the counter-party benefactors of the AIG bailout. (Maybe Bloomberg should sue the Fed and Treasury again to have them disclose this information.)

But some things are known: Goldman's Lloyd Blankfein was the only CEO of a Wall Street firm who was present at the New York Fed meeting when the AIG bailout was discussed. So let us not kid each other: The $162 billion bailout of AIG is a nontransparent, opaque and shady bailout of the AIG counter-parties: Goldman Sachs, Merrill Lynch and other domestic and foreign financial institutions.

So for the Treasury to hide behind the "systemic risk" excuse to fork out another $30 billion to AIG is a polite way to say that without such a bailout (and another half-dozen government bailout programs such as TAF, TSLF, PDCF, TARP, TALF and a program that allowed $170 billion of additional debt borrowing by banks and other broker-dealers, with a full government guarantee), Goldman Sachs and every other broker-dealer and major U.S. bank would already be fully insolvent today.

And even with the $2 trillion of government support, most of these financial institutions are insolvent, as delinquency and charge-off rates are now rising at a rate--given the macro outlook--that means expected credit losses for U.S. financial firms will peak at $3.6 trillion. So, in simple words, the U.S. financial system is effectively insolvent.

Any bank that engaged in subrpime and alt-a lending is most likely technically insolvent, whether they are willing to own up to it at this point or not. Even prime is increasingly at risk with a near 30% decline in housing prices, and still falling and commercial real estate not far behind.

[notesdev]

4. Intentionally crash the market?

That's what Roubini's plan would do.

Howabout something constructive and sensible, like declaring naked CDS void and forcing the rest of it onto a regulated exchange?

[marketcrazy1]

5. notesdev ,I like that CDS idea too

this is something the President could do with the stroke of a pen via executive order.

[Joanne98]

6. Something like this will drive the bond market investors back into equities

They've been buying debt. If they think nobody's going to pay they will rush back into stocks. Which is good.

[regnaD kciN]

8. So, if we "break every mortgage contract"...

...what does that do to people like me, who have been holding a long-term prime mortgage for fifteen years or more, and have decent equity and quite managable mortgage payments, but who have (not entirely willingly) traded in their high-paying software development career for a far-more-emotionally-rewarding-but-nowhere-near-as-lucrative position as a self-employed photographer?

Would my mortgage suddenly become null and void, whether I liked it or not? Would I have to go out and find a new one? Because I'm fairly certain that, given my reduced financial circumstances, and in today's lending environment, I might not qualify for a mortgage at all or, if I were to get one, probably at far worse terms than the one I have now. Would Roubini's "advice" mean that I would, essentially, would have to lose my home, even if I was quite capable of keeping it under my old mortgage?

:shrug: