Joe Weisenthal writes about the latest Morgenscreed in today’s NYT – financial institutions aren’t lending their TARP money the way they’re supposed to. Gretchen closes by favorably quoting a Dallas money-manager, Fred Rowe, as saying the banks “are acting like war profiteers. If I were in charge, I would haul them all down to Gitmo, put them in a room and say, ‘You have used the taxpayer’s money to pervert our objectives. It is morally wrong and we are not going to stand for it.’”
As Weisenthal points out, this seems at odds with Morgenscreed’s earlier complaint that bank lending policies were too lax. He gives her credit for being right then. Readers of this blog’s detailed analyses of Morgenscreed’s columns know that she’s not right very often, so I suppose I should give her credit. Let’s say the best case for Morgenscreed is that a stopped clock is right twice a day.
But like the banks I’m not in much of a credit-giving mood. To begin with, Morgenscreed wasn’t quite right back in 2007 when she was complaining about lax lending. Like many others, she saw cracks in the subprime market. But she cited little support for her cries about a coming disaster, as I pointed out back then.
Moreover, Morgenscreed’s idea of a disaster back then was that
If home prices do not appreciate or if they fall, defaults will rise, and pension funds and others that embraced the mortgage securities market will have to record losses. And they will likely retreat from the market, analysts said, affecting consumers and the overall economy.
In other words, she was worried then, as now, about a normal market adjustment to the defaults – a pullback of credit. Give her no kudos for seeing the disaster that has unfolded.
Morgenscreed also had a concern back in spring 07 with subprime lenders purportedly hiding defaults by rolling over loans. She pointed out that "it is worth remembering that the rollover of nonperforming loans was central to what made the savings and loan mess of the early 1990s so disastrous,"
Well, now, the big problem is that banks are not rolling over loans. She writes:
There is an ugly precedent for banks refusing to renew loans during a time of crisis, said Frederick E. Rowe, a money manager at Greenbrier Partners in Dallas. That is what Texas institutions did during the savings and loan crisis in the late 1980s. The consequences were disastrous.
It’s great that Morgenscreed can pull the savings and loan crisis out of her little bag to support whatever she wants to preach at the moment. And convenient that she once again could find Frederick E. Rowe to give her a nice quote.
More Gretchenomics: Gretchen also has some interesting criticism of the Treasury:
And the Treasury’s decision not to buy toxic mortgage assets with TARP money after it said it would do so has produced paper losses for the banks that hold these securities. The value of those securities rose when TARP was announced but fell significantly when the mortgage purchase program was abandoned."
If I'm understanding this, the "paper losses" were the gain the banks momentarily thought they would get by the government's overpaying for the assets.
Further note: Well, now it looks like the government will buy the assets. So I guess the shorts will have the "paper losses."
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