The good: governmental transparency
IRS releases its 2009 Data Book, which provides information about IRS activities from enforcement ( examinations; information reporting; collections penalties and criminal investigations) to taxpayer assistance, tax exempt guidance, Office of chief counsel workload, and the IRS budget and workforce. It's available at this link (and archived copies of earlier data books are available at the bottom of the linked webpage for comparison).
This information is important, and merits some review. I will return to look at the types of returns covered in examinations and the criminal investigation numbers tomorrow. Some big banks are considering issuing new mortgage backed securities--these would be acked by jumbo bonds (more than $730,000 loans) because Fannie and Freddie can't do those, and probably with at least 40% or so equity. This would be the first deal since May 2008. And maybe there will be more loan checking, but guess what--the buyers want more reassurance about the instruments. What does that mean?
The bad: the return of mortgage securitization with bank losses
The paper touts it as a good thing, but I suspect is a bad thing. What is it? The return of mortgage securitization by the big banks. See Currie & Swann, Mortgage Bonds Make a Comeback, Reuters Breakingviews, Mar. 11, 2010.
"[A]ny deal will have to be over-collateralized to withstand losses on the underlying mortgages of...at least 15 percent ....[and] might still need to be priced at a discount to entice buyers . That poses a problem for institutions working on the deals: under those conditions, they're likely to lose money. But the cost of reopening a key market could be worth it. While banks might not rush to securitize nonstandard mortgages right now, that should change as the market regains equilibrium. Those who pioneer its rehabilitation will be in line to help bring in future deals."
Folks, why do I say this is probably a "bad" thing?
1) we don't need to help the wealthy buy homes through making the market more liquid for credit for them. Note that the mortgages will be only those held by the wealthy--a $730,000 or more mortgage, representing 60% or less of the purchase price of the home. So those folks should have plenty of credit possibilities, without such securitizations to smooth the way for them, right? Those are the moneyed folks who should be able to borrow with good credit, without having to have a super hot market for mortgage loans provided by the easy-flow securitizations of the past. But those folks aren't the ones that we are very interested as a society in smoothing the way into home ownership. If we want to help anybody, it's the middle class, since that contributes to stable neighborhoods and communities and schools, and stable communities and schools means better human capital development, which is our goal.
2) these securitizations are expected to be loss leaders. Whose on the line now for losses when the big banks do something to make profits for themselves that might lead to losses? Why, it's us, the taxpayers, through the implicit guarantee that the Bush Fed and Treasury made real inn September 2008. Socialization of losses, privatization of gains is just getting back on a roll again. Note that the article even expects that "nonstandard mortgages" will start being securitized once the ball gets rolling again. Read that as systemic risk will start increasing again (especially, if you've read my earlier postings on the subject, if we don't rein in the speculative use of derivatives for casino betting by big banks)
3) banks starting to do securitizations of mortgage loans again still haven't been forced to modify principal amounts on loans in bankruptcy. ordinary people continue to lose their homes because banks don't want to recognize losses on their books until they decide they're ready to do so. Does getting back into the securitization business do anything to help ordinary Americans. answer must be no--securitizations run the risk of losses now, possible bigger gains later. That means even less willingness to add to the losses on the balance sheet by acknowledging the actual loss of value of foreclosable homes.
The ugly: health reform without a public option
Pelosi: Public Option Not in Legislation, Washington Post, Mar. 12, 2010. According to Pelosi:
"I'm quite sad that a public option isn't in there." Pelosi added. "But it isn't a case of it's not in there because the Senate is whipping against it. It's not in there because they don't have the votes to have it in there."
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