Breaking Wall Street Market News & Reports

What do Greenspan, Goldman Sachs, and foreclosures have in common? In one way or another, they’re interrelated on this catastrophic Great Recession.

In prepared remarks for delivery to a congressionally appointed panel investigating causes of the devastating crisis that wracked the country from 2007-2009, Greenspan renewed a defense of his own legacy by denying the U.S. central bank helped inflate housing prices with excessively low interest rates. He states the housing bubble was not created by the central bank’s monetary policy, but rather long-term mortgage rates were a key contributor per his testimony before the Financial Crisis Inquiry Commission, a government-appointed inquiry panel, on Wednesday. The house price bubble, the most prominent global bubble in generations, was engendered by lower interest rates, but it was long-term mortgage rates that galvanized prices, not the overnight rates of central banks, as has become the seeming conventional wisdom. Making it easier for poorer Americans to get mortgages didn’t push the country into crisis but Wall Street’s drive to package the loans into opaque securities helped do so, Greenspan said on Wednesday.

Well last I remembered, the Fed is fighting to maintain control and regulations in the banking system. Correct me if I’m wrong, if you allow banks to lend an exuberant amount of cash without standards set by Fannie and Freddie and then don’t regulate the opaque packaged loans, don’t you think we’ll end up in a similar situation as Japan in 1990′s? How odd history repeats itself. Mr. Greenspan, it was a very creative experiment, and you pulled us out of the 2000 Recession, but you have ended the economic boom cycle to an abrupt halt. The poorer people should not have purchased homes at 100% loan to value and stated income. The Fed is to regulate the financial system. The non existent regulations drove us into a Depression in the 20′s.

Goldman Sachs will on Wednesday rebuff accusations that it “bet against” clients in the mortgage market at the height of the financial crisis in a letter to investors that contains the most robust defense yet of the bank’s actions during the ­turmoil. Goldman Sachs told shareholders in a letter accompanying the firm’s annual report that despite harsh criticism of the company from several quarters, it has always placed its clients’ needs first. Mr Blankfein and Mr Cohn admit that Goldman had “short” positions in residential mortgages in 2007, which were designed to profit from a market deterioration, but maintain they were not “a bet against our ­clients”.

It also acknowledged the support it and other financial institutions received from taxpayers during the financial bailout. Goldman shares have gained nearly 50% over the past year and have more than doubled since they dipped below $50 in November 2008. The firm also defended its relationship with bailed-out insurance company American International Group Inc. Goldman says it hedged its credit exposure to AIG to keep overall risk at manageable levels.

“While our direct economic exposure to AIG was minimal, the financial markets, and, as a result, Goldman Sachs and every other financial institution and company, benefited from the continued viability of AIG,” the letter said. “Although it is difficult to determine what the exact systemic implications would have been had AIG failed, it would have been extremely disruptive to the world’s already turbulent financial markets. Goldman lost about $3.1bn on mortgage-related securities in 2008, less than rivals such as Citigroup // and Merrill Lynch.

The move is an implicit admission that Goldman’s long-held strategy of giving short shrift to criticism of its behavior and pay policies during the crisis has done little to quell the public backlash against the Wall Street bank. The letter also dismisses accusations that Goldman hastened the demise of AIG by making aggressive collateral demands on credit protection bought from the insurer and that it received excess profits from the US government bail-out of the company.

Goldman’s clout in the political and financial spectrum is one of if not the best bank on the market. They’re truly great at what they do. They’re so great that they are willing to provide countries loans and then bet against them by creating third parties not directly tied to the firm and provide the financial support. With the case with AIG, hence why did they demand the be paid on the insurances on a monthly and quarterly basis when AIG’s standard payout was semi annually for the insufficient values of the packaged loans? That’s because they knew was on the forefront and wanted to cash in quicker. When it came time due and the catastrophic collapse of the real estate market came when rates were beginning to rise, AIG couldn’t pay out quick enough. Again  Goldman received $15 billion from AIG after the government provided the financial support. 

Foreclosure wave is here. The government’s prior practice was to stabilize the market and slow down the process. Well that has failed. The foreclosure process takes 2 years. Rumor has it they like to accelerate it.

Yes, banks are ramping up loan modifications and ramping up short sales and ramping up deeds in lieu of foreclosure, but the plain fact is that as the systems are oiled, the loans are moving through faster, and the pig in the python is showing its face. We won’t get the numbers until next week, but sources tell me they will likely be a new monthly record. Tens of thousands of loans have been hitting the “notice of trustee sale” bin, and that means they are coming to foreclosure.

All the policies and practices that the government put into place, whether on modifications or short sales, will quicken the process. Clearly the Administration knew of the impending rise in foreclosures, as it revamped its modification, refinance and short sale programs last month, increasing incentives all around and pushing for principal write down. The big question is how will the new wave affect home prices, especially in the hardest hit markets. Housing double dip. What happens when interest rates go up? What goes up must come down. That is the history of housing prices relative to interest rates. They have an inverse relationship. Back-test the 70′s and 90′s and then Japan’s market in the 90′s. We’re in a mist of the end of the Housing cycle. Keep this in mind, the home buyer tax credit deadline is 24 days away, and that is pushing some of the numbers up, but not as much as some had hoped.