Mortgage crisis and NC Banks

One thing to wonder in the unraveling of the mortgage crisis story is how this will effect North Carolina, a state which has a huge banking industry due to its unique laws allowing banks to avoid taxes by plowing profits into local government bonds.

This is an analysis left to much smarter people than me, but I'm wondering how this will play out. Any economists out there with some ideas of what we'll see?

People are talking openly about BB&T's exposure, for instance. And Bank of America and Wachovia are hip deep in this, especially since BoA is buying one of the progenitor companies of the crisis — Countrywide, which, by the way, called their loan officers "marketers" and is having a lot of trouble of late. I have no idea whether the buzz about banks is valid, but it can't be good for business.

And it might not be good for the state, if, for instance one of the major sources of local bond investments, i.e. bank profits, slows to a trickle. There's also a good deal of philanthropy, personal spending and local investing done by these institutions. So, here in the NC one might feel a certain coziness. The rest of the country isn't going to be so nice.

Via Dean Baker:

Under the rules of the Federal Reserve Board's Term Auction Facility (TAF), Citigroup, or any bank, can borrow money at an interest rate that is below the discount rate, and put up mortgage backed securities, which could be nearly worthless, as collateral.

This sounds like a good deal if you can get it. Do we want to keep our major banks operating? Of course we do, but don't we want to replace the incompetent managers that ran them into the ground and make the shareholders take their full hit? After all these people don't share their huge salaries or the gains on their stock in good times with the rest of us.

Another backlash is coming in the area of mortgage-based redlining. Black and Latino borrowers are getting a disproportionate share of the so-called subprime loans — in many cases even if they qualify for a better deal. That means that the effect on the downside of this is going to lead to some serious charges.

Comments

I've searched

(briefly) for stories about the local effects of troubled banks, but have found nothing systematic. Does anyone from Charlotte have any sense that the meltdown is having aftershocks in the local economy (beyond the subprime debacle, which is certainly not restricted to Mecklenburg Bank of America Wachovia Duke Energy County.

Ponzi State Bonds are on the way?

And it might not be good for the state, if, for instance one of the major sources of local bond investments, i.e. bank profits, slows to a trickle.*kmr

*Note.....More State Bonds are insurance by private investment funded corporations on Wall State.....In short, should the Bond fail, the insurance company step in and secures the fail Bond. In normal times, these insurance companies have had a free ride, however, since banks are trying to stick their investments into Bonds to cover their ass, the Major Bond securing corporations are losing their rating from AAA to A or even lower in the next month by the so-called independent bond rating services in Wall street. Normal trading of these services have been at 20 million a day on the market, now the trading is at 400 million a day which means a massive rush toward selling off these massive loses in the future in the last 30 days.What this means, Your State Bonds are going to be worthless in the very near future, thus cutting off Bonding services to State, city, county projects.

(briefly) for stories about the local effects of troubled banks, but have found nothing systematic* James

Yesterday, The FDIC release a long list on their watch list of fail banks to come should the econ continue on the Bush path. Over 245 banks are on the watch list including a Major New York City Bank whose name was not supply. The FDIC has only 1% in reserve to cover these massive losts should the bottom fall out....In Short! We are screw.....buy Gold and Silver and kiss your Federal Reserve Myth ass good bye....

McHenry defending Countrywide

I have trouble talking about this in any terms other than a string of profanities. Durham's own Center for Responsible Lending has been reporting on the damage wrought by predatory lendors for at least a decade.

Republicans have vigorously defended the predatory lending industry. Even now, with the human cost illustrated by the 40,000 North Carolina families who have had their homes stolen by dishonest financial advisers, Republicans refuse to turn against their friends on the radically dishonest fringe of the banking industry.

During yesterday's hearing on CEO compensation, NC's own Patrick McHenry asked Countrywide executives, "Isn't it true that you love kittens?" and "Didn't Mother Theresa publically state that she considered you men to be personal role models?" Go to cspan to watch the hearing: http://www.cspan.org/

Obviously all the banks, and most elected officials, share some blame for this. Some are culpable by protesting too weakly, some by ignoring predatory lending, others by participating, and some by inventing and aggressively promoting it. McHenry looks toward those most personally and directly responsible and suggests we all give them a round of applause.

For what it is worth, Bank of America has at times stood up to oppose predatory lending practices. When we had a Republican majority, and all the sketchy ass banks wanted to push through radical legislation that would have made even easier for them to rip off America, BoA refused to sign up and reigned in the pillagers.

- - - - -
McCain - The Third Bush Term

It figures, one abject failure

would defend another abject failure.

Kittens, really?

Another depressing observation:

It appears that the number of homeowners in the U.S. who are falling into the negative equity (upside-down) category right now is approaching 9 million. This is mainly due to the substantial drop in property values associated with the increasing number of foreclosed homes on the market. That's around 10% of all homeowners.

A lot of these folks who actually can afford their monthly mortgage payment will default anyway, simply because they (currently) owe more money than their house is worth. Which (of course) will greatly contribute to the housing glut, bringing property values down even more, yada yada.

Frickin' bummer.

Payback Bush's Way?

Another depressing observation*scharrison

Cheer up! Sometimes depressing news is good?

Certain financial developments of late, commonly treated by the mainstream media as negative, are gladdening my heart. It is sheer delight to read that Carlyle Capital Corp. is unable to meet margin calls. Its stock fell from $12 to $5 in one day. I hope it goes to $0. I am happy because Carlyle is an affiliate of the Carlyle Group, which is a charter member of the corrupt military-political-industrial complex. It is the home, or former home, or palace, or safe deposit box of both Bush presidents and an incredible roster of other once high-placed officials, such as John Major, Frank Carlucci, James Baker III, Richard Darman, Arthur Levitt, and Mack McLarty, to name a few.

Carlyle invested $21.7 billion in mortgage-backed securities issued by two government-sponsored enterprises, namely, the Federal National Mortgage Association (ticker symbol FNM), known as Fannie Mae, and the Federal Home Loan and Mortgage Corporation (ticker symbol FRE), known as Freddie Mac. Carlyle used excessive leverage (issuing debt of its own) to finance these purchases. It borrowed by issuing very short-term debt known as repurchase agreements using the mortgage-backed securities as collateral. When these mortgage-backed securities fell in price, the lenders demanded more capital (margin) from Carlyle. But it had borrowed so much that it could not meet the margin calls. It received a notice of default. Wonderful!

How long the mighty fall before they manipulate the system to bail themselves out is anybody’s guess. In the meantime, it is fun to see even a token victory. Half a loaf of comeuppance is better than none.