Got a look at the good folks who were into the discount window in 2008 and the first thing that came to mind was the famouse clip of the great coach: "WHAT THE HELL IS GOING ON OUT THERE!!!!?" Now I have not just fallen off a turnip truck, at least I don't think I have, but I had never in my life heard of Dexia or Depfa Bank until this morning. I think the former is Belgian and the latter German but they were #1 and #2 in the line before the window. Depfa, I am told, has some connection with Hypo Bank (what, I don't really care) which was a car wreck 30 years ago. I suppose one has a right to ask what the hell did the Fed have in mind providing massive amounts of liquidity to two Euro deadbeats and I don't really have a good answer except that it appears things were obviously worse than anyone realized and I, for one, knew things were awful. I just hope that the trollies down in the sub-basement of the Liberty Street fortress were moving the bars from under the signs that said "Belgie's" and "Fritz's" over to the spot reserved for Uncle. Not a time for unsecured lending, but then again, I thought that's what swap lines were for. I gotta get to the bottom of this story.
Moving right along on to the tail of Poo Bair's last great idea, the "20% down, no skin in the game" real estate mortgage, it appears that a few really bright guys have figured out that this is not a real solution to what was a really bad idea in the first place. Other than the fact that you have to have a preety good pile of scratch to put down 20% given home prices, which means the average folks just may not get a motgage if the home town banker is forced to hold 5% of the risk, which means that Fan and Fred who we want to get rid of are the onliest lenders left, which means...oh bother, I'm just a Bair of very little brain. Yeah, yeah, I know. That's being unfair to the lady but dear lord, it's soooooo easy.
We can blame all of this on Gen. George Patton and the wonderful portrayal by George C. Scott. Remember the opening speech?
"...Your job is not to die for your country; your job is to make the other poor, dumb
son of a bitch die for his!"
And so boys and girls was invented securitization and syndication which is to make sure the other poor, dumb SOB takes the loss if the loan goes bad, not you. Around this has grown an entire cottage industry of accounting, financial rules and investment criteria which is how the world of banking operates today. Want to reinvent the wheel? Have at it. As for me, I'm not exactly a fan of unfettered financing, but don't you think, just for a moment, we should start focusing on the people who by the stuff created by the Masters of the Universe on the street? Is it too much to ask...nay, DEMAND...that they know what the hell it is that they are buying? What's that you say? You can't ask that question too loudly because then we have to start taliking about rating agencies which are the products of Congress? Oh, I see. Awkward, that. I guess we're just going to have to start learning who are to be the next Dexia and Depfas. Oh double bother! Can I watch the Final Four first?
See you next week.
Oh Mr. James. Don't you know that Depfa is short for Deutsche Pfandbrieffe? Depfa is the german AIG, which is why they don't want to bail out any more banks. Rather than rail at our dying friends Fannie and Freddie, perhaps you should offer some caution about the rush into creating a covered bond market here in the US.
ReplyDeleteAnd as to the buyers, does it surprise you that the marginal buyers of the leveraged structured CDOs were SIVs of Irish subsidiaries of German banks (predominantly Landesbanks monitizing expiring government guarantees)?
The Germans had to invest all those dollars they made through trade somewhere - they just shouldn't have short-funded the trade.
Go VCU!