Rush Gets It Wrong

This is not very important, but I like to try to correct these mistatements.

I heard Rush "correct' hisself today, and say that a mortgage can never trade for more than "100", because a mortgage can never than "par" (Rush had mentioned mortgages trading at "150").

Rush was right the first time.  A mortgage can trade at more than "par".

Thought experiment:  Say you have a very secure, $10,000 mortagage at an interest rate of 10%, with prepayment penalties.  Say the balance left was $9,000, and interest rates were now 5%.  A person would be crazy to sell that mortgage for $9,000.  It is "worth" more than that.  Now in today's market, you are not going to find mortgages selling for more than the balance on the mortgage.  Plus, "easy" refinancing (less "easy" now) has made it likely a mortgage with a really high interest rate will be refinanced.  However, mortgagges can and have traded higher than their principle balance (more than "100"). 

That is true of bonds, as well.  Really secure bonds, which cannot be redeemed early, routinely trade a higher thna their "par" value if interest rates go down.  If interest rates go up, or the likelihood of the bond being paid when due goes down, then the bond has less value.  That is what has ahppened with mortgages and financial institutions.  The "market price" for mortgages--what a buyer will pay--has almost disappeared (because no one seems to know whether the mortgages will be repaid, or how to evaluate which will be repaid and which won't).  So people will only buy mortgages at "distress" prices, and financial institutioins valuing their asssets have to "mark down" their mortgage asssets to......what?   That is the problem.  Suddenlly, balance sheets of financial institutions disappear, as they are forced by present rules to "mark" their mortgages to "market" (a "market" that hardly exists).

You will note that this problem has nothing to do with the "deregulation" of banks in 1999 that Hillary Clinton and Barack "World" Obama are falsely blaming for this "crisis".  That "deregulation" merely let banks engage in investment banking.  But that has essentially nothing to do with the present crisis, other than to make financial institutions "too big to fail".  In fact, independent investment bankers, as I previously have told you, have now become banks to enable them to have financial resources to weather this storm.  That is what Goldman Sachs and Morgan Stanley just did.  Bank of America buoght Merrill Lynch, and previously bought Countrywide, in order to save those entities.  Without "deregulaton", Bank of America could not have done that. The problem is housing, and the Democrat promoted expansion of loans to almost everyone to enable them to buy a house.  Many of those mortgages have turned out to be worthless, as houses prcies have dropped (irrelevant if house prices rise). 

This had absolutely nothing to do with the deregulation of banks in 1999.  In fact, as I have stated, I lost money in IndyMac bank, and many other straight banks are in trouble (banks not involved in investment banking). 

It all occurred becasuse of the central plaining, Clinton/Carter Administration idea that everyone should be able to own a house, including minorities and people living in bad neighborhoods.  Banks, and too many Republiicans, then decidded this was a pretty good idea, since it caused a housing boom that was making everybody money.  As always happens, the "bubble" burst, and those traded mortgages (which Fannie Mae and Freddie Mac were set up to buy and facilitate) became worth much less than financial institutions paid for them.  Instant financial crisis.  Nothing to do with "deregulation".