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Posts Tagged ‘Ben Bernanke’

Spectacular TED Talk on The US Financial Crisis: How it Happened + How to Prevent

May 31, 2014 | 4:59 pm | Favorites |

Wlliam Black, a former bank regulator, made a TED Talk last fall that I wish I had made (but I couldn’t be as eloquent although I have a cooler tie). It should be required viewing by anyone who is connected with the housing industry.

Black’s presentation lays out the financial crisis in the proper context. He provides the recipe for disaster for all to see and it is NOT complicated to understand. Change the perverse incentives and a lot of this goes away. So many opportunities to avoid this crisis were missed.

And this is the first time I’ve heard someone talk about the unrelenting pressure that banks (and mortgage brokers) placed on appraisers, essentially forcing our industry to either make the number of get out of town. By 2007, 90% of appraisers said they were coerced by banks to make the number. That seems low to me. It had to be 100% or else those 10% of appraisers were living in a cave.

I’ll be returning to this video periodically for the foreseeable future as a reminder.

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[In The Media] Bloomberg Surveillance 9-18-12 QE3, Low Rates and Housing

September 18, 2012 | 9:14 am | fedny | Public |

Very much enjoyed my conversation with Tom Keene and Scarlet Fu on Bloomberg Television’s Surveillance.

Scratch notes before my appearance:

Some thoughts about the Fed’s QE3 as it relates to housing (Einstein defines insanity as doing something for a 3rd time hoping it works).

-Focus of QE3 seems to be housing, but it shows how little Fed understands housing since this seems to be an effort to press borrowing costs lower.
-Falling rates until now have increased affordability 15% this year but reaction in sales is less. A diminishing return for this action. Yes it temporarily helps but is more akin to the 2010 tax credit – remove it and consumers stop buying.
-Fed must believe recent “happy housing news” isn’t sustainable. Prices and sale generally showing improvement.

-Banks prob won’t drop rates all that much-could even see a slight increase in short term: admin backlog from existing business, guarantee fees by Fannie Mae to kick in a few months and spreads already low. This action provides little traction.

-QE3 doesn’t address THE REAL PROBLEM – mortgage underwriting remains irrationally tight. Smaller universe qualifies for mortgaged and a large number of contracts fall through – approx 15%.
-Telegraphing low rates through 2015 eliminates any urgency for consumers to take action. National volume up YOY but 2011 was the aftermath of 2010 tax credit so comparing against low.



Bernanke’s Speech on QE3 [MarketPlace.org]
Benanke Statement on QE3 [Federal Reserve]
QE3: What is quantitative easing? And will it help the economy? [WaPo Wonk Blog]
Fed’s Evans Says QE3 Will Make Economy More Resilient [Bloomberg]
Low Rates Not Improving Housing Market, Miller Says [Bloomberg Surveillance TV]

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Regulators Are Human. That’s Precisely Why Bubbles Are Not Preventable

January 7, 2010 | 11:47 pm | nytlogo |

David Leonhardt had a fantastic front pager in the New York Times yesterday that was such a compelling read, I re-read it to try and absorb anything I missed the first time. The article Fed Missed This Bubble. Will It See a New One? looked at the case made by the Fed to enhance its regulatory power.

David asks the question for the Fed:

If only we’d had more power, we could have kept the financial crisis from getting so bad.

But power and authority had nothing to do with whether they could see a bubble.

In 2004, Alan Greenspan, then the chairman, said the rise in home values was “not enough in our judgment to raise major concerns.” In 2005, Mr. Bernanke — then a Bush administration official — said a housing bubble was “a pretty unlikely possibility.” As late as May 2007, he said that Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.”

I maintain that because of human nature, mob mentality, or whatever you want to call it, all regulators drank the kool-aid just like consumers, rating agencies, lenders, investors and anyone remotely connected with housing. Regulators are not imune from being human.

Once the crisis was upon us, the Fed and the regulatory alphabet soup woke up and began drinking a lot of coffee.

David concludes:

Which is why it is likely to happen again.

What’s missing from the debate over financial re-regulation is a serious discussion of how to reduce the odds that the Fed — however much authority it has — will listen to the echo chamber when the next bubble comes along.

Exactly.

I think this whole thing started with the repeal of Glass-Steagal where the boundaries between commercial and investment banks which were set during the Great Depression, were removed. Commercial banks had cheap capital (deposits) and could compete in the Investment Banking world. But Investment banks could not act like commercial banks. Their access to capital was more expense motivating them to get their allowable leverage ratios raised significantly. One blip and they go under.

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[Housing Bubble Golden Rule -> 3 R’s] Regulating, Rates and Recession

January 6, 2010 | 12:24 am | nytlogo |

In Bernanke’s speech to the American Economic Association on Sunday he suggested that it was regulatory failure, not keeping rates too low for too long, which caused the housing bubble.

Stronger regulation and supervision aimed at problems with underwriting practices and lenders’ risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates.

This seems to be splitting hairs, doesn’t it?

Low rates triggered the housing bubble as money became cheap and easy to get. If the Fed hadn’t kept rates too low for too long, the bubble would not have happened. The regulatory system was ill prepared for the insanity that followed. House prices rose so fast that underwriting had to evaporate to keep the mortgage pipeline full. Regulators hadn’t seen this before and with the removal of Glass-Steagal and Laissez-Faire mindset, everyone in DC, including Congress and regulators, drank the Kool-aid.

Actions Taken Too late

Mr. Bernanke has pointed to the Fed’s extraordinary efforts to stem the crisis, including the creation of new lending vehicles to banks and a reduction of bank-to-bank interest rates to virtually zero, as evidence that the Fed has a firm grasp of what the economy needs. The Fed’s handling of the crisis has been widely praised by economists.

The Treasury and other government agencies already have supervisory power over parts of the financial system, but so, too, does the Federal Reserve.

In his talk on Sunday, Mr. Bernanke acknowledged as much, rattling off a list of regulatory efforts the bank made to address nontraditional mortgages and poor underwriting practices.

But, he said, “these efforts came too late or were insufficient to stop the decline in underwriting standards and effectively constrain the housing bubble.”

All regulators are human and subject to mob mentality just like politicians and consumers were. Everyone is awake now. That’s why I think a “bubble czar” type position is silly. I’m not blaming the Fed or Bernanke. Now about Greenspan….

In fact I think the Fed has done an excellent job keeping our financial system from the brink. Lets recognize Bernanke’s comments for what they are – dodging the minefield of Congressional approval. God help us if Congress is able to audit the Fed. Its not the audit I object to – its the politicalization of it. We need to keep the Fed neutral (in theory).


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[Over Coffee] Morning Quote From The Home Front

July 29, 2009 | 6:00 am | nytlogo |

From Caroline Baum’s excellent column: Conan’s Couch, ‘Daily Show’ Ready for Bernanke:

Alan Greenspan prided himself on being opaque. The former Federal Reserve chairman used to joke that if the audience thought he was being clear, they probably misunderstood what he was saying.

Bernanke believes in transparency. With everyone hanging on every word of every report, every pundit, every TV show, every government official release etc., I’m not quite sure this doesn’t create a lot of more volatility. But if we could have the Fed Chairman on the Daily Show?

My life would be complete.

Aside: The IRS is more popular than the Fed.


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[Matrix: Worth Reading] Sunday July 26, 2009

July 26, 2009 | 10:14 pm | nytlogo |

Here are a few things worth reading.


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[Geithner Stress] SNL Calls Out The Low-ball Exercise of Ignorant Bliss

May 13, 2009 | 10:08 am |

Kudos to SNL for being able to carry this off – it’s as good as an earlier Geithner skit.

Robert Kuttner, in his piece in the Huffington Post called Collateral Damage and Double Standards writes about a recent Fed conference on the stress test:

At one point in his remarks, Bernanke, recounting just how rigorous the stress tests were, explained that “More than 150 examiners, supervisors, and economists” had conducted several weeks of examinations of the banks. That kind of let the cat out of the bag. If you do the arithmetic, that is about seven supervisors per bank, and all of the stress-tested 19 banks were hundred-billion and up outfits. When an ordinary commercial bank, say a $10 billion outfit, undergoes a far less complex routine examination of its commercial loan portfolio, it involves dozens of examiners.

So the stress test was not a set of rigorous examinations at all, but a modeling exercise using the banks’ own valuations of their assets.

It’s kind of like trying to help the economy by providing aid to large corporations who are most visible, yet represent only a small portion of the economy. On second thought big banks don’t represent a small part of the economy so I guess I am referring to the absence of help to a large portion of the banking system – lenders with less than $10B in assets.

A slow leak of information, talk of green shoots and glimmer fill the headlines when it comes to banking. It’s $75B rather than $3.6T we should probably be talking about.

Why does this matter to real estate? Cause it’s linear.

Banks => Credit => Housing

Actually I am not sure I disagree with the Geithner/Bernanke mindfreak that we are seeing since it seems to be helping restore some confidence in the future of the economy. I guess I get irritated when I know am being managed or perhaps, (my) ignorance would be bliss (ful).


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A Lot Of Professionals Are Crackpots

April 13, 2009 | 12:01 am | nytlogo | Podcasts |

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[The Housing Helix Podcast] A Lot Of Professionals Are Crackpots

April 12, 2009 | 11:59 pm | nytlogo | Podcasts |

This week I reflect on the media explosion over Manhattan’s housing woes (A1 NYT version) and Nightly Business Report and some of the remaining gatekeeper thinking. While London is falling down but not as much, it’s time to revisit the word “recovery.” Bernanke said recovery in 2010. Technically it’s not a recovery when “L” or “J” shaped. I also recommend a great Inman story on non-experts and social networking.

Here’s whats new on The Housing Helix Podcast

A Lot Of Professionals Are Crackpots

You can subscribe in iTunes or simply listen to the podcast on my new blog The Housing Helix. Don’t forget to share your suggestions and comments there.


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[Bracket This] Optimism Gains A Foothold Against Skepticism, But Not Against Madness

March 19, 2009 | 2:52 pm | nytlogo |

One of the most useless housing metrics ever debated has been new home sales released by the Commerce Department. The data doesn’t consider contract recisions and has a wildly high margin of error.

Privately-owned housing starts in February were at a seasonally adjusted annual rate of 583,000. This is 22.2 percent (±13.8%) above the revised January estimate of 477,000, but is 47.3 percent (±5.3%) below the revised February 2008 rate of 1,107,000.

Housing starts were up 22% over the prior month plus or minus 13%. Crazy. Yet it’s widely covered.

Every year at this time the metric is always discussed in the context of its prior month change rather than the prior year result. It’s March and this metric is based on February data. Housing starts nearly always rise starting at the beginning of the year. In all the press coverage, little or no attention was placed on the fact that starts are 47% below last year at this time, providing an illusion to the uninformed that construction is booming.

So my initial takeaway from this announcement and the ensuing buzz was, predictably, skeptical.

Last week the Dow jumped, and even though it has no direct correlation with the housing market, people were noticeably upbeat about the improvement in the stock market. This week – more of the same.

My initial takeaway was again, predictably, skeptical.

Madoff pleads guilty and goes to jail.

This provided some closure (not to the victims) on this horrendous financial situation. Nothing to be skeptical about.

The AIG $165M bonus debacle became the next event to focus on. It certainly appears that these bonus payments were enabled by Congress and Treasury from the beginning and feeble attempts were made to say “gee, contracts were signed and therefore we need to honor them.”

The public isn’t that stupid and responded in outrage and now suddenly every government servant from the president on down now suffers from a case of righteous indignation. The AIG audacity of paying these bonuses, along with Thain’s bathroom renovation, is clearly the symptom of a larger reality distortion and one of the reasons we are in this mess. Yet if this is a crisis of confidence and the $165M represents peanuts relative to the trillions at play, its symbolism is far more important – at least for now. Merrill Lynch bonuses are next on the radar.

Bernanke announces that he sees the recession over by the end of this year and recovery beginning in 2010. By now, skepticism reigns with the Fed chief’s intentions since the Fed was so slow in reacting to the crises in 2007 and 2008, chimed in with Paulson’s panic message last summer and Ben has clearly radiated optimism in between bleak assessments.

It seems to me that the majority of economist do not believe the recovery will begin in 2010 so I’m skeptical.

The Federal Reserve is directing $1T at credit to alleviate the log jam which is met with euphoria (financially speaking of course). Now there are signs that liquidity is starting to return to the credit markets.

But I must say I am skeptical of the President with the confidence in his decisions on the Madness. I am picking UConn to beat North Carolina in the final and he is going with the Tar Heels.

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