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.