Post by unlawflcombatnt on Mar 14, 2007 14:10:45 GMT -6
In a March 13, 2007, article titled The Easy Society, analyst Mike Shedlock discusses the collapse of real estate in Florida, along with the resignation of Federal Reserve governor Susan Bies. She has been the Federal Reserve's top banking policy official during her tenure. Below are excerpts from the last part of the discussion which pertains to Bies' resignation.
"The Easy Society
By Mike Shedlock ~ “Mish”....
Tsunami of Defaults
A tsunami of subprime defaults is about ready to sweep The Easy Society right out of their houses. Fed Governor Susan Bies says, “Subprime Defaults Are ‘Beginning of Wave’”:
“The nation's banks are just beginning to feel the pain of defaults on risky mortgages they made at low introductory rates when housing prices were soaring, U.S. Federal Reserve Governor Susan Bies said.
“Bies, who has been the Fed's top banking policy official in her tenure at the U.S. central bank, said today banks are likely to see more missed payments and foreclosures as consumers with weak credit histories begin to face higher monthly mortgage payments.
“‘What's happening is the front end of this wave of teaser-rate loans that are coming into full pricing,’ Bies said at a risk-management forum in Charlotte, N.C. ‘So what we're seeing in this narrow segment is the beginning of the wave. This is not the end, this is the beginning’…
“The Fed and four other bank regulators released proposed guidelines last week instructing banks to strengthen their underwriting standards and offer clear disclosures on loan terms to subprime borrowers.
“The central bank also said last week that the delinquency rate on banks' residential real estate loans reached a four-year high last quarter.
“Bies said the problems in the mortgage market are well contained.
“‘We're seeing this in a very narrow segment,’ Bies said. ‘We're watching for contagion, we haven't seen it.’
“Outside of the housing and auto industries, ‘the economy is strong,’ Bies said.”
Given that housing alone accounted for over 40% of the jobs this recovery, that last statement by Bies seems pretty feeble. The Fed is also four years and trillions of dollars too late on those lending guidelines....
Contagion Watch
So the Fed is “watching for contagion.” Exactly what can the Fed do about it when it hits? That will not be Bies' problem, as she is cleverly leaving her post at the end of March, as Forbes reported back in February in “Fed Gov. Bies Quits”:
“Two days after a group of major U.S. banks asked regulators to reconsider proposals for regulating bank risk, the Federal Reserve governor heading their implementation resigned.
“Fed Governor Susan Bies submitted her resignation on Friday that will become effective March 30. Bies leaves five years into an appointment that was not slated to end until 2012. In a resignation letter address to President Bush, Bies called her experience on the board ‘very rewarding’ but offered no reason as to her departure.”
That seems like a good move. I would not want to stick around for this tsunami, either. Most of those in The Easy Society won't even know what hit them. They will be blaming predatory lenders, hurricanes, insurance companies, and anyone and everyone but the primary culprit (the Greenspan/Bernanke Fed). I suspect that is the real reason (at least one of them) for Bies’ resignation.
To be fair, Forbes also reported:
“In her last position, she was spearheading efforts to revise and implement the international capital standards for banks developed in 1988. Although banks and regulators agreed the old standards were outdated and overly simplistic, updating them has been a contentious issue for years.
“Bies had recently voiced frustration at the slow progress. After a speech at the National Credit Union Administration's Risk Mitigation Summit in January, Bies told reporters that ‘I'm an impatient person. I clearly wish that things were going faster, but I'm very happy that we've got everything out for comment now.’
“On Wednesday, four major U.S. banks submitted a letter to the Federal Reserve and urged it to move away from certain Basel II proposals. JPMorgan Chase, Washington Mutual, Wachovia, and Citigroup complained that the new rules would require U.S. banks to hold more minimum capital and would give foreign banks an advantage.”
If Bies is resigning because she refuses to go along with tightening minimum capital requirements, then perhaps she should be applauded. For now, she isn't saying. Once she is gone, I hope she will disclose her reasons. It will also be interesting to see if she stops chirping the economy is strong with Paulson, and starts singing the recession blues with Greenspan...."
_________
We can only hope that Bies' replacement will concern himself more with honesty and accuracy, and less with blind, unjustified optimism. Unfortunately, Bies' replacement will probably be even more of a spin doctor, since that's what Bush needs to perpetuate this "faith-based" economy.
"The Easy Society
By Mike Shedlock ~ “Mish”....
Tsunami of Defaults
A tsunami of subprime defaults is about ready to sweep The Easy Society right out of their houses. Fed Governor Susan Bies says, “Subprime Defaults Are ‘Beginning of Wave’”:
“The nation's banks are just beginning to feel the pain of defaults on risky mortgages they made at low introductory rates when housing prices were soaring, U.S. Federal Reserve Governor Susan Bies said.
“Bies, who has been the Fed's top banking policy official in her tenure at the U.S. central bank, said today banks are likely to see more missed payments and foreclosures as consumers with weak credit histories begin to face higher monthly mortgage payments.
“‘What's happening is the front end of this wave of teaser-rate loans that are coming into full pricing,’ Bies said at a risk-management forum in Charlotte, N.C. ‘So what we're seeing in this narrow segment is the beginning of the wave. This is not the end, this is the beginning’…
“The Fed and four other bank regulators released proposed guidelines last week instructing banks to strengthen their underwriting standards and offer clear disclosures on loan terms to subprime borrowers.
“The central bank also said last week that the delinquency rate on banks' residential real estate loans reached a four-year high last quarter.
“Bies said the problems in the mortgage market are well contained.
“‘We're seeing this in a very narrow segment,’ Bies said. ‘We're watching for contagion, we haven't seen it.’
“Outside of the housing and auto industries, ‘the economy is strong,’ Bies said.”
Given that housing alone accounted for over 40% of the jobs this recovery, that last statement by Bies seems pretty feeble. The Fed is also four years and trillions of dollars too late on those lending guidelines....
Contagion Watch
So the Fed is “watching for contagion.” Exactly what can the Fed do about it when it hits? That will not be Bies' problem, as she is cleverly leaving her post at the end of March, as Forbes reported back in February in “Fed Gov. Bies Quits”:
“Two days after a group of major U.S. banks asked regulators to reconsider proposals for regulating bank risk, the Federal Reserve governor heading their implementation resigned.
“Fed Governor Susan Bies submitted her resignation on Friday that will become effective March 30. Bies leaves five years into an appointment that was not slated to end until 2012. In a resignation letter address to President Bush, Bies called her experience on the board ‘very rewarding’ but offered no reason as to her departure.”
That seems like a good move. I would not want to stick around for this tsunami, either. Most of those in The Easy Society won't even know what hit them. They will be blaming predatory lenders, hurricanes, insurance companies, and anyone and everyone but the primary culprit (the Greenspan/Bernanke Fed). I suspect that is the real reason (at least one of them) for Bies’ resignation.
To be fair, Forbes also reported:
“In her last position, she was spearheading efforts to revise and implement the international capital standards for banks developed in 1988. Although banks and regulators agreed the old standards were outdated and overly simplistic, updating them has been a contentious issue for years.
“Bies had recently voiced frustration at the slow progress. After a speech at the National Credit Union Administration's Risk Mitigation Summit in January, Bies told reporters that ‘I'm an impatient person. I clearly wish that things were going faster, but I'm very happy that we've got everything out for comment now.’
“On Wednesday, four major U.S. banks submitted a letter to the Federal Reserve and urged it to move away from certain Basel II proposals. JPMorgan Chase, Washington Mutual, Wachovia, and Citigroup complained that the new rules would require U.S. banks to hold more minimum capital and would give foreign banks an advantage.”
If Bies is resigning because she refuses to go along with tightening minimum capital requirements, then perhaps she should be applauded. For now, she isn't saying. Once she is gone, I hope she will disclose her reasons. It will also be interesting to see if she stops chirping the economy is strong with Paulson, and starts singing the recession blues with Greenspan...."
_________
We can only hope that Bies' replacement will concern himself more with honesty and accuracy, and less with blind, unjustified optimism. Unfortunately, Bies' replacement will probably be even more of a spin doctor, since that's what Bush needs to perpetuate this "faith-based" economy.