Tuesday, December 04, 2007

What's in Santa's Sachs of gifts? Goldman?

David Gaffen of the WSJ MarketBeat blog has begun the process of shaking the boxes in anticipation of what's under the tree. The tree in this case being the Big Freeze that Hank Paulson, now US Treasury Secretary, recently top Goldman Sachs guru, has been hoping to use to chill out the credit markets.

Ostensibly, the Big Freeze (Matrix, as Gaffen calls it) is meant to help out the poor small schmucks who got teased into ARM breaking mortgage deals. But more sensibly, as Gaffen notes, it is the really big boys, who stand to loose the only leg they have to stand on whilst the little guys only loose an ARM, that are the real intended beneficiaries of Santa's Sachs of goodies.

Gaffen blogs,
"commenters are wondering whether the Treasury’s plan isn’t so much about those on the bottom rungs with subprime loans as those who are leveraged to those loans in the first place.

Marc Chandler, chief currency strategist at Brown Brothers Harriman points out ... “We suspect the subprime problem has been exaggerated to obfuscate the real issue and the real threat to the capital markets,” he writes. “It is the old nemesis–leveraging.

“If we make the payment structure better, who wins? A few people that will eventually default anyways? Nope,” he writes. “The folks that sit on the bulk of the sub-prime related paper, those ‘so far’ untouched from the sub-prime crises. Yep. Goldman Sachs and their pals.”

Mike Shedlock of Sitka Pacific Capital Management writes on his blog that “this is about saving financial institutions from collapse,” as those firms don’t want to hold massive piles of foreclosed-upon homes."
The Minyans have been in a mighty huff over this Big Freeze plan. Todd Harrison says,
"Moral hazard, socialism on Wall Street, call it what you will. Just see it with both eyes wide open."
The Staff there adds,
"the US Treasury’s decision to announce a major initiative for sub-prime adjustable rate mortgages on the last day of the fiscal year for Goldman Sachs (GS), Lehman (LEH), Bear Stearns (BSC) and Morgan Stanley (MS) strikes me as anything but coincidence. (Quarter ends are the critical dates for calculating financial institutions’ increasingly scrutinized capital ratios.)"
And John Facenda joins in,
"This, on the heels of the proposed super-conduit rescue plan, tells us all we need to know about the fears of those in the know."
The ever smooth and unruffled Felix Salmon is "slightly more sanguine" than others that the Big Freeze will thaw out a bunch of litigation. (Digressing, Henny Youngman style, to the old gag, "it was so cold the lawyers had their hands in their own pockets".)

The star shining in the East, Sybil's Star Katy Delay, blogs, "All this political posturing is nothing more than grandstanding." As to the possibility of lawsuits, she suggests,
"Come on, all you ambulance chasers. Stop chasing ambulances and start hunting for mortgage hucksters and those who hired them. Let's clean up the mortgage business from the ground up, instead of asking the government to do everything for us."
Bloomberg continues with its coverage of the Big Freeze, quoting from the most recent Paulson pronouncements,
"Treasury is aggressively pursuing a comprehensive plan to help as many able homeowners as possible keep their homes." In the interview, he said he wouldn't "put a number" on how many people would be affected.
Guambat noted that he didn't put any postcodes on those people, either, whether they live in NYC or Connecticut or thereabouts or South LA.

Paulson's statements on whether this will cost the taxpayers anything were a bit ambiguous. On the one hand he said, "The plan `does not, and will not, including spending taxpayer money on funding or subsidies for industry participants or homeowners'." On the other hand he "also reiterated his call for the Senate to pass legislation to help the Federal Housing Administration guarantee loans for delinquent borrowers."

Giving impetus to Paulson to get some kind of deal done, the report added the little aside,
"Moody's Investors Service is preparing the biggest credit rating cuts since subprime mortgages contaminated the bond market."
You better believe that Moody's is not cutting credit ratings on the small borrowers, just the big holders who couldn't get enough of that joyjuice.

The Bloomberg story added,
"The chief executive officers of Countrywide Financial Corp., the largest U.S. mortgage lender, and Washington Mutual Inc., the biggest savings and loan, endorsed Paulson's effort to negotiate the loan-modification plan."
Well, they would, wouldn't they, as they're the major ones who got us into this mess in the first place.

Meanwhile the political posturing bends to near pandering, as that same Bloomberg article reported,
"Democratic presidential candidate Hillary Clinton called for a 90-day moratorium on foreclosures for homeowners who default on subprime mortgages ... [and] the New York senator advocated a five-year freeze on rates."

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