Discovered a great source today, which I'm currently writing up. Basically, I've just sat and watched a whole bunch of US Congressional testimony, some experts talking on QE and an extract from a recent US Federal Reserve conference on the US Housing Market and an hour of Warren Buffet chatting with Hank Paulson about his book 'On the Brink' (from last year) at the Omaha Chamber of Commerce.
The overwhelming impression is of a whole bunch of people who know that the whole US political process and financial system is, and has been, completely out of control for some time, but even worse they seem to stress that, having walked into a problem which a total mess, they really are all constrained because there is limited machinery to sort it out and operating against the background of a Congress that is, at the best of times, a squabbling irresponsible shambles.
The extent of the underlying problem was highlighted by a law Professor presenting to the Fed Reserve Conference. He pointed out that if house price drop another 10%, around half of all US homeowners will be lumbered with negative equity (20% already are), and much as the politicians would like to slow the rate of foreclosures, the level of 'out sourcing' and 'automation' of mortgage administration means that there are simply not the resources in terms of people, and people with experience, to renegotiate mortgage loans - so they are merely equipped to send out 'automated' foreclosure notices.
Another Fed expert concluded that the problem was less securitisation as such, simply that so many loans are bad loans. He said that mortgage foreclosures could not be expected to drop from 5.0-5.5million per year to say 3.5 million, but would continue at a rate of around at least 4.5 million a year for 'quite a few years'.
You can add in that a lot of the big banks/trustees/mortgage service companies just 'deleted' a lot of the legal titles in their automated processing, and have been caught out fabricating it when they foreclose. You can add in too, that people are exercising their 'put option' as it were in large numbers, and 18% of foreclosures are the result of people who could service their debt but would rather hand back the keys to their house and walk away from the mortgage obligation.
Both Paulson (in the discussion with Buffet) and Bernanke (in a lecture to college students) emphasised that the situation was completely out of control when they stepped in during 2008. Paulson stressed that Congress only appears to take any action at all when faced with extreme crisis, and stressed as bad as the out-turn was in 2008, it could have been even worse.
Given that the Conference on housing was introduced by an address by Bernanke and the most damning evidence of the dreadful state of the system came from his own experts, it is pretty clear he knows how bad the situation is, and the only course left to him is to do whatever it takes to attempt to stop a further slide in the housing market. If Paulson stressed that he took on a job no-one else would have wanted, and implies he 'held his nose' in talking on the job anyway, frankly Bernanke talks and looks like a 'dead man walking'. Clearly he sees QE as the only alternative in his limited arsenal to stop half of all American householders waking up to discover that they are effectively bankrupt....
Similarly, the Chairman of the Senate Budget Committee kicked off an August hearing by holding up a graph of projected government deficit falling in the next 5 years but rising again from a still high base therefore He followed this with a slide showing debt being projected to go 400% of GDP by 2054 on current deficit projections by the Central Budget Office, pointing out the next financial crisis would be likely to hit well before then, pointing out that Greece effectively defaulted at 100%. Given the Chairman was a Democrat, there doesn't seem much doubt no-one is fooling themselves on that front.
Reading between the lines anyone, talking about 'recovery' in this situation, tended to get a harsh look from anyone dealing with this problem...with a sort of 'keep taking the happy pills' sort of look...
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