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

Saturday, February 27, 2010

Rosenberg - "Capitalism on Retirement." Bill - Stop Whining; Read Buffett

David Rosenberg, 2/26:

In March 2008, I published a report titled “Capitalism Takes a Sabbatical.” If only that were the case. I really can’t believe what I just read on Bloomberg News (Obama May Prohibit Home Loan Foreclosures Without HAMP Review). In a nutshell, the White House is considering a tactic that would prevent banks from foreclosing on defaulted homeowners unless they have been screened and rejected by the government’s Home Affordable Modification Program (HAMP). George Orwell must be rolling over in his grave.

To think that the government is at the same time pressuring banks to start extending credit again, but the question is why bother when you have absolutely no recourse. We’ve reached a stage in this crisis where lenders have no rights. The long-run distortions from such a heavy handed interventionist approach are too long to list right now, but suffice it to say, this will do more to exacerbate and prolong the deleveraging cycle than solve it.
Bill:  I post a lot of quotes from David Rosenberg, whom I admire a lot for his realism and reporting of actual facts,  However, everyone lets opinion, v. facts, overwhelm him from time to time.  This is such a time.

Warren Buffett in his annual letter to shareholders says "It has not been shareholders who have botched the operations of some of our country’s largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure...

"The CEOs and directors of the failed companies, however, have largely gone unscathed. ... If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance."

Rosenberg, with sad, too typical 'it's not my fault' reasoning of some so-called capitalists, thinks banks, who (generally speaking) participated gleefully in the housing run-up, lending to anything that could sign a paper, then tossing the result up into the investment bank securitization vortex, now should have the full force of law on their sides to enable them to crush a bunch of hapless Joe the Plumbers who, like Buffett's shareholders, stand to loose substantial parts of their fortune through - mostly - no fault of their own.

Some will say the Joes should not have taken the loans.  I laugh.  As if the average Joe the Plumber has/had remotely the capacity to understand the mortgage vortex that was sucking him in.  On the other hand, the banks understood the situation perfectly well.  Listen to the NPR production, "The Giant Pool of Money".

The point?  Banks in general are the equivalent of Buffett's CEO's.  They ran amok, and have not really paid, in any significant ways. for their misdeeds (aside from many smaller banks which have gone out of business, not able, for size or political connection, to participate in TARP, etc.).  The country has been harmed;  The banks should pay a heavy and permanent price.  Some suggest, for instance, that they might be forced to significantly reduce the premiums of loans.  But of course they would have a tough time doing that, right?  The loans are on the books of some insurance company in Norway.

The government stepping in to try to bring some realism is not Capitalism on Retirement.  It is Capitalism being spanked.  If capitalism knows it can be spanked when it misbehaves, perhaps there will be somewhat less misbehavior.

And then, the all-powerful Invisible Hand will lead banks back to doing what banks should do:  Borrow at 3%, lend at 6%, play golf.  As Miranda Priestly would say, "That's all"...

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