Amherst claims there are around 10 million loans in trouble: 4 million 60 days past due, 2.5 million modified which will default and 3.6 million underwater loans likely to go bad.
The current inventory of bank-owned homes, Fanny, Freddie, FHA, the banks, private label, are close to 3.4 million properties. The banks are going to get rid of another 3.4 million distressed homes even though the market is completely saturated. Prices have only one way to go¦DOWN.
The banks find themselves in this pickle after having already been bailed out 3 times to the tune of many trillions of dollars. (The $700 billion TARP, the $1.25 trillion QE1, and the Fed's lending facilities which provided blanket support to financial institutions of about $12.4 trillion in loans and other commitments) And now, there's going to be a 4th trillion dollar bailout, which many expect President Obama to announce on Tuesday in the State of the Union Speech.
The stated goal of the purchases will be to drive down interest rates even further from current record-low levels, and, less obviously, to spur confidence that more monetary tools remain to stimulate the economy. But the Fed's proposed purchases have nothing to do with "driving down interest rates" or "stimulating the economy". That's just more public relations hype. It's all about inflating the prices of droopy financial assets that are eating up banks' balance sheets.
In the first PPIP Uncle Sam was supposed to stump up 94% of the low interest financing for mortgage-backed securities (MBS) that no one else wanted. (This time it will be the houses themselves).
Geithner's scheme offers a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. This isn't really about letting markets work. It's just a disguised way to subsidize purchases of bad assets.
There are some pretty wealthy and well-connected people who are betting the farm that another round of QE will put MBS into the stratosphere. What do these guys know that we don't know? The other part is a presumed "Public-Private Investment Partnership" that will incentivize the big banks and private equity firms to buy up loads of distressed homes so they can convert them into rental units. Team Obama is going to make them an offer they can't refuse.
The banker who put in $.06 while taxpayers put in $.94 will still rake in 50% of the profits. Nice, eh?
Bankers need to trim their inventory and pump a little more ether into their sagging MBS. Obama and Bernanke will do whatever it takes to get the job done.
excerpted from MIKE WHITNEY
If you aren't angry you aren't paying attention