Bank Regulators Cutting the Red Tape and Screwing the Rest of us

Caption: "June 3, 2003: Determined to cut red tape and reduce the regulatory burden are (l-r), Office of Thrift Supervision Director James Gilleran, Jim McLaughlin of the American Bankers Association, Harry Doherty of America's Community Bankers, FDIC Vice Chairman John Reich and Ken Guenther of the Independent Community Bankers of America"

Mentioned in William Black's: The Great American Bank Robbery

Hmmm I wonder if this will end badly??? This one you can chalk up to the Bush Administration & Alan Greenspan for leading the charge to make regulators useless. Greenspan was the most egregious by favoring "competition" between the regulators where banks had the ability to choose and change the regulators on a moments notice. So "regulators" jumped over each other to try to win business by being the most lenient. Well they won but America lost.

William Black: The Great American Bank Robbery

Dr. William Black a former regulator during the savings & loans crisis and white collar crime expert is discussing "The Great American Bank Robbery". I had seen this video a couple of years ago and should've posted it then, but it is just as important now as it was then. I recommend that if you have high blood pressure and get angry easy than please don't click the play button. I wish Black was in charge during the run up of the financial crisis or at the very least be there in 2008-9 to clean up the trash and throw a bunch of these banksters into the slammer. Again nobody from the major banks, brokerages, or mortgage origination companies have been thrown in jail from the pervasive fraud that was perpetrated on the United States & the world!! This is really the most troubling for me because it corrupts our market based economy. I am all for capitalism, but there needs to be a referee and consequences for crime and failure.

Watch the video and spread the word about the fraud!

95% LTV hurray for Australia!

As I'm working on part 2 on my aussie housing bubble problem I stumbled upon this brief headline from the online/magazine publication The Advisor: industry news for mortgage and finance brokers. Which by the way is gold mine of all things bubbly in Australia. Do not think this will be the last time I will post something originating from this publication! The link below is an article talking about one of the majors joining the ranks of 95% LVR or what we in the states call Loan To Value (LTV).

"The Commonwealth Bank has become the latest in a long line of lenders to increase its maximum LVR. Over the weekend, the major announced it would allow all new mortgage customers to borrow up to 95 per cent of the value of a property."

"CBA’s general manager retail products Michael Cant said the decision to increase its maximum LVR was a response to growing competition for a smaller number of borrowers.

“We are certainly looking to grow our lending to the home loan market,” he said."

http://www.theadviser.com.au/breaking-news/5019-major-increases-max-lvr

The money part of the quote: "...was a response to growing competition for a smaller number of borrowers." Umm that sure sounds like a ponzi scheme to me! They seem to be running out of greater fools and they need to ratchet up the risk another notch to keep this thing afloat.

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The Housing Bubble isn't gone it just moved; Part 1

I find it unbelievable that after what the US & Europe have been through over the last 4+ years with the housing bust that folks around the world would be more vigilant to preventing it from occurring. Well at least temporarily from occurring. History teaches us that humans are bound to repeat similar mistakes. Mark Twain's quote says it best, "history doesn't often repeat itself but it sure does rhyme". Anytime I can quote Twain I take that opportunity! Well the shocker in all of this is Australia hasn't learned 1 bit from the suffering of Europe and the US. Their major banks have all the greatest hits from the housing bubble. I am going to pick on one of their banks but most of them are doing similar irresponsible lending practices. Hell they are trying to out compete each other in the quest of market share without regard to the consequences.

I am going to feature Westpac Bank Corp one of the larger Aussie & New Zealand banks out there. All of this information I will be commenting on is in plain sight and can be gathered on Westpac's website. First I will rattle off some of the terminology like the Rocket & Flexi First Option Loans. Interest Only up to 10 years with Low Doc loan Applications: "If you're self-employed and don't have documentation proof, we can still help." Combination loans that combine a fixed and variable component to the loan. 100% offset loan accounts that act like a margin account. Then a laundry list of different options of: Top-up, Redraw, Portability, Repayment Holiday, Parental Leave, Reduced Repayment, Progress draws for Construction, Smart Pay, and Funds Access. Wow! That my friend is a lot of financial innovation. Now granted some of the options can be useful and are nice. You can put lipstick on the pig, but a pig is a pig. Guess what? Debt is still debt no matter how you dress it up too.

I am in debate with a leading Australian bank analyst and he has passed on some of his reports countering my belief that Housing Bubble in Australia is a major danger. After I look through it I will pass on some of the findings.

*Disclosure: No position in Westpac Bank corp as of the date of this post


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The Media Misses the Forest from the Trees with Sub-Prime Scare

Is it me or is the Main Stream Media (MSM) taking the easy way out on the deflating housing bubble. We have finally passed the stage of denial of the falling values and are now approaching acceptance of them. Most likely by the fall of 2007, we'll be moving on to panic stage after a dismal spring-summer peak buying season passes. Currently the easy way out to explain why home prices are falling and our economy is slowing is to blame it on some shady loans in sub-prime. If you came from another planet and began reading today's business news you would think the entire housing bubble could be blamed on the segment of sub-prime and shady loans. However the MSM is completely missing the forest from the trees because it was a convergence of numerous factors that helped spur massive home speculation.

Yes problems with sub-prime are showing up now, but it was only a symptom of the great housing bubble not the disease. Plus the real shady loans, 110% financing, 40-50yr mortgages, neg-ams, and ninja loans (no income-no job-no assets) haven't even reared their ugly head yet! They showed up around 2005. Why did this happen, well I will tell you why. From 2002-04 a massive amount of people were hired to meet the demand for new homes, refinances, and other real estate activities. This just led to a feeding frenzy of increased real estate activity as more and more people fueled the rise of prices and the rise of the Real Estate Industrial Complex. No Dick Cheney and the black helicopters were not behind this, it is just an easy way to describe everyone (REIC: agents, lenders, builders, title, escrow, appraisers, etc) that has vested interest in real estate activity. Continuing: Greed took greater hold with speculators buying 2nd, 3rd, and 4th homes which artificially inflated prices and created jobs for the REIC. While the REIC reciprocated and encouraged more and more speculators and buyers to join in. In economics this is your typical multiplier effect. As values skyrocketed home affordability was falling like a rock. But REIC and the general buying public didn't want the gravy train to stop and that is where the true sub-prime stepped in to extend the bubble for another year and half.

Here is a simple way that the media should be describing the entire situation out there: The housing market got way ahead of itself and now its coming back to earth! The simple economic term says it all: revision to the mean. Or here is yet another way of putting it: the housing bubble was one big bender of a party and now the inevitable hangover is here. Those at the party tried in vain to keep it going with redbull/vodkas, cocaine and on the housing side you had low rates, creative financing, and general propaganda. Now they enter the long and drawn out hangover which for housing means long periods of price declines to high inventory from inactivity, etc. Ahhh, but I digress.

So when somebody tries to blame this housing decline or anything else for that matter on just one factor, take it with a grain of salt. There are a lot factors to this housing hangover and there is a lot of blame to go around: Greenspan & his artificially low rates, Bush's idealistic ownership society, sub-prime, REIC, yen-carry trade, a greedy uneducated public, black helicopters, etc. America and the media need to wake up and take responsibility for this mess that we all had some stake in creating! One tree of this mess is sub-prime, while the forest are all these factors together that created one of the largest bubbles of history, the late and great housing bubble.