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Notes to myself, possibly of interest to others.
-- Bill Northlich

Thursday, January 21, 2010

A Conversation: Reality/Politics/Economics

Btw. me and a respected colleague.
RC: Yet another govt hedge fund, operating at 200:1 leverage. And Congress, in its infinite wisdom, "requires" it to "only" operate at 50 to 1:

"The Federal Housing Administration announced stricter lending requirements and higher borrowing fees today, a move meant to shore up the agency’s tanking finances and preclude the need for a taxpayer bailout. The FHA’s reserves to cover losses have fallen to $3.6B, or 0.5% of the $685B in loans outstanding. A year ago, its reserves stood at 3%, and Congress requires the FHA to maintain a 2% capital-reserve ratio."

Me: Unlike the fed, with the sovereign power of managing money and credit, fha etc can only buy mortgages and hope for the best. Whether I want there to be or not, there is a real limit to how much these guys can buy. Banks havn't known how to lend for 20 years; all the people in banks who knew how have gone elsewhere. The fed is buying mbs from freddie/fannie/fha, but wants to stop, has said it will stop. There is absolutely no private market for home loans.

fha/fannie/freddie are all that stand between us and an utter crash of the housing situation but they are reaching the breaking point and there will soon be no where at all to sell loans. I am not a liquidationist, I root against liquidationists, but I'm afraid liquidationists will have their day pretty soon.

RC: Liquidationists: Wow, that's an odd name for people who want reality to be the prevailing guide. So no one want these securities. Let's not call them toxic junk today, let's be nice and call hem a charade. So what you are saying is that you support the charade? You don't want the charade to end?

Me: Nieve waif that I am, I think you try to go in measured steps, via public policy, to guide the river to an eventual place which is better. I don't think you say gee, the river looks to be going to take out New Orleans: We'll hope for the best, pray to Allah, and re-organize afterward.

Of course it's nieve. Public policy, what a joke. You've got Sarah Palin, Limbaugh, and the rest whom you have to "persuade". It's like engineering management (with which I have some experience). What could be more straightforward? Make a list, decide how much time each thing on the list will take, try for some overlap, present to "management", take some stuff off the list if the schedule is too long. In practice, you have unreality on all sides (speaking of reality). And that's just at some insignificant little software company.

Reality, like beauty, is 100% in the eye of the beholder. During good times, everyone fashions their own version of reality. Some are right, some are crazy, but who cares. During bad times, you get fighting, v. "oh, lets do the thing that meshes with reality".

EOD, the just let it crash plan may be the only one you can do. Liquidation. Then it starts again.

We few, we happy few, who actually see "reality" and would just take it into account, are probably doomed to be greek-tragedied into irrelevance.

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