Daily Archives: March 25, 2008

No sooner had I finished berating the candidates for failing to pay attention to the housing-finance meltdown than Hillary Clinton devoted a whole speech to the subject. And a pretty good speech too.

Not that I agreed with it all. I think the proposed 90-day moratorium combined with a “voluntary” five-year freeze on interest-rate resets is a bad idea: a drastic remedy, and yet to little effect. What is the point of prolonging the agony? And I cannot say I am impressed by the call for an “Emergency Working Group on Foreclosures”: a working group, even if it is a Working Group, is not a solution–though I grant you that the idea of putting Alan Greenspan (as Hillary suggests) on a panel to sort through a mess somewhat of his own making has a definite appeal. However, much of the rest of what Hillary said seems sensible. For instance, she agrees with Larry Summers’ idea for a new bankruptcy procedure that would curb repossessions and allow mortgages to be written down. Though she got the thing a bit muddled:

I’ve also proposed that we amend the bankruptcy code to give judges the discretion to write down the value of struggling families’ homes. Believe it or not, bankruptcy judges can write down the value of many other things to help families pay off their debt, but not their homes. They can write off the value or write down the value of second homes, which seems kind of ironic to me. Making this amendment to the code will help families in bankruptcy pay off their mortgages and stay in their homes.

It is not the value of the homes that would be written down, obviously, but the value of the mortgage debts secured against them. Assuming that is what she meant, I agree with her: it’s a good idea.

By the way, one argument offered against doing this (though it’s debatable whether it is in fact an argument for or against) is that it would discourage future mortgage lending. A recent study, “The Effect of Bankruptcy Strip-Down on Mortgage Markets” by Adam Livitin and Joshua Goodman, pours cold water on that notion.

The most important proposal was that the FHA should start buying impaired mortgage-backed securities–except that, to be precise, she only said that it should “stand ready” to do so. The question is, when and under what circumstances ought the FHA, or some other taxpayer-financed entity, actually start buying up this stuff. But I cannot be too hard on her for failing to answer that question because nobody else appears to know the answer either.

The markets were thrilled by J.P. Morgan’s quintupling (to $10 a share) its offer for Bear Stearns. But does this not make the whole operation, from a public-policy point of view, look like even more of a shambles? The Fed explained that its $30 billion of support for J.P. Morgan, secured against Bear’s most dubious assets, was not a bail-out because Bear’s shareholders were being wiped out. Well, now they aren’t being wiped out. The more general point is this: having secured Fed support for its purchase of Bear, is it now entirely a matter for J.P. Morgan how much it pays for the bank? (The Fed has apparently participated in the revised offer. The terms of its support have been adjusted: it is no longer standing behind the first $1 billion of Bear’s impaired assets.) Was the Fed’s support for the deal in the first place conditional on the price J.P. Morgan was going to pay, or not? To say that the authorities are making this up as they go along is putting it mildly.

I agree with Lex’s take:

Where does this leave the Fed? Outwardly better off. Under the new deal, JP Morgan guarantees the first $1bn of losses on the $30bn of illiquid Bear assets the Fed originally took on. But it also means that the Fed loses its sacrificial Bear. Its intervention has given shareholders $10 a share instead of zero. (Lehman shareholders did even better from the Fed. Lehman’s shares soared from their lows in large part because its future was guaranteed by the Fed’s decision to give investment banks access to the discount window.)

Moral hazard is returning to the fore. When the smoke clears, the Fed must get its pound of flesh by regulating Wall Street, and doing it more aggressively, to make sure this never happens again.

Of course the other point of having a blog (see my previous post for the main reason) is to advertise one’s enthusiasms, as if anybody gives a damn. Therefore, while I am in this narcissistic frame of mind, be it known, I am a Joni Mitchell fan. She is one of the greatest musical artists of our time, and a woman I have lusted after (it goes without saying) man and boy. More than 30 years ago I recall attempting to persuade the poet Roy Fuller that many of Joni’s lyrics were capable of being read as serious poetry, no less than his own. He was very nice about it.

The great thing about Joni is that she improves with age. Her artistry soars as her record sales decline. I am not talking about the enviro-politics, I hasten to add—you have to look past the whining apocalyptic gloom. (We make these adjustments for our loved ones.) But the music just gets better, and the lyrical ingenuity is undimmed. I urge you to listen to “Shine”, her newest album (and the first of new songs for nearly 10 years) if you haven’t already. The jazz sensibility is perfectly assimilated. It’s beautiful.

And do listen, also, to Herbie Hancock’s lovely new album of Joni covers, “River”. It features—and I would say stars—Wayne Shorter, my favourite saxophone player and a frequent Joni collaborator. A couple of reviewers have complained that the album is subdued and understated. That’s what I like about it. It’s a dreamy, reverent reflection on Joni’s wonderful melodies. I think he likes her music as much as I do.

What is the point of having a blog, really, if you are not allowed from time to time to vent a personal grievance? No point, you say? I quite agree.

I am a born-again Apple devotee and recidivist iPhone-fondler. However, I am disturbed by a couple of recent developments in the Apple product line, and want to see these errors corrected. I believe I am not alone.

Clive Crook’s blog

This blog is no longer updated but it remains open as an archive.

I have been the FT's Washington columnist since April 2007. I moved from Britain to the US in 2005 to write for the Atlantic Monthly and the National Journal after 20 years working at the Economist, most recently as deputy editor. I write mainly about the intersection of politics and economics.

Clive Crook’s blog: A guide

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