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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

JPMorgan, Citigroup Expand in ‘Jumbo’ Home Mortgages

Posted by WARREN MOSLER on June 26th, 2009

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Lending follows the markets.

As the economy improves banks and other lenders figure it out and jump in.

Also, today’s news on personal income is very bullish as well.

It shows fiscal policy ‘works’ as it did for q2 last year.

The concern is that the ‘savings rate’ is high which takes away from spending.

Not necessarily.

The ‘savings’ comes from federal deficit spending.

Net federal spending adds financial assets to someone’s account in the non government sector that can’t ‘go away.’

The federal spending can be spent many times over and savings will still go up by the same amount.

So to me it looks like the deficit spending is currently high enough to have sufficiently restored savings to levels that promote at least modest increases in consumption.

But not yet enough to bring unemployment down as the output gap continues to grow.

JPMorgan, Citigroup Expand in ‘Jumbo’ Home Mortgages

by Jody Shenn

June 26 (Bloomberg) —JPMorgan Chase & Co. and Citigroup Inc. are expanding in “jumbo” mortgages used to buy the most expensive homes, helping revive a market that shriveled amid a three-year jump in homeowner defaults.

JPMorgan resumed buying new jumbo loans made by other lenders this month, after halting purchases in March, spokesman Tom Kelly said. Borrowers must have checking accounts with the bank, he said. Citigroup is again offering the loans through independent mortgage brokers, spokesman Mark Rodgers said.


24 Responses to “JPMorgan, Citigroup Expand in ‘Jumbo’ Home Mortgages”

  1. Dissenting Comments Encouraged Says:

    Sheila Bair can’t sell her house. Can anyone here tell me why the head of the FDIC is listening to a common real estate agent like the article discusses below? Shouldn’t she be a little smarter than him?


  2. Mike S Says:

    This is unqualified good news.

    The PCE data while not yet strong is better than a negative. We do have to assume that most of this positive effect is coming from the automatic stabilizers and tax revenue decrease rather than additional spending though, simply because most of the spending hasn’t happened yet.

    Here’s hoping for a great 2010!


  3. Winslow R. Says:

    Professor has been waiting for jumbo rates to fall and now they have 5.875% (yea!) though would they would still lose about $700/month for the stability of a 30 year jumbo loan as their second variable rate loan is only at 2.25%

    Professor located in California has just been told the whole University will be put on furlough for 2 days each month reducing salary by some 10% starting in August.


  4. bb Says:

    warren so if the lending starts to pick up and consumers start spending all the govt transfer money they are now saving looks like prices for everything are going to rise allot given how much capacity is coming out of the sytem. How are you investing given what you are seeing. What are your thoughts about interest rates


    Dissenting Comments Encouraged Reply:

    BB I think a far more interesting question would be:

    “Warren, what were you portfolio returns over the past year?” I think Warren did not protect himself from the crash sufficiently and suffered losses. At least over the past year my readings of his calls and predictions here were very rose colored. If you had invested on all his optimism you would be looking at negative numbers for your portfolio.

    Many smart investors lost 40-50% of thier portfolios, some made 600%. Prophets and gamblers are all around us, but I have never heard Warren talk about his portfolio returns. It’s ok though, when he runs for president, he will have to publicly disclose all his investments, so we will get a peek then.


    Curious Reply:

    The best way to disagree with something on this website, is to make a logical counter argument. I don’t see how is Warren’s investment record going to help in understanding economics/banking system.


    Dissenting Comments Encouraged Reply:

    Curious I completely agree. Curious let me take your meme a little further. Perhaps BB is a product of our failed financial culture. What I call the “american psycho” disease if you have watched the movie – it is about a wall street clone that is a total human waste.

    Portfolio returns, investment decisions on hedge funds of etf’s of bizarre emerging market foreign currency denominated nuclear utility bonds that might make his returns higher may be important to him, etc etc, he is curious about this knowledge. I have posted for a long time now what a waste of human brain power this is for so many humans. I constantly talk about no cancer cures or 3d solar cells coming from a bunch of humans sitting on a bloomberg terminal clicking buttons back and forth. Even Warren agrees with my macro points saying the financial sector is more trouble that it is worth and can be reduced by 90%.

    All the time spent here by so many people including you Curious trying to learn or strategize what benny and bazooka hank and friends will or won’t do or should do does not bring cancer cures or 3d solar cell research breakthrough’s from what I can tell. Perhaps I watched too much star trek as a kid, they didn’t have an economy with so many humans dedicated to the finance part of our society.

    It your loss though Curious, you are dying, the cells in your body are aging and you will perish at some point in the future. You can know all there is to know about the fed’s monetary operations and this process will not stop. However if you were to put down the economics textbook and perhaps pick up a human biology textbook there may be a chance to save your life. So you tell me Curious, when you have a creature than can do something to SURVIVE and save their life, and do something that won’t, what would you call that creature? A fool, an idiot, misguided, misinformed? You tell me.

    Warren once said he was too old to leave the economics field for something more useful to humanity’s future, as I eat my sunday KFC grilled chicken meal, I am glad Colonel Sanders didn’t have Warren Mosler sense of defeat to his uselessness because of his advanced age.

    Warren Mosler Reply:

    yes, and not much to look at. I own a lot of st. croix land and some rental properties, less than 1% in equities, a decent amount in Enterprise Bank in North Palm Beach, and a few dollars in my own companies.

    The bank had very few actual losses (a few mark to market losses on secured loans that are paying on time) and now very wide net interest margins.

    I also am the major shareholder in that is doing very well.


    Professor William Black Reply:

    “I own a lot of st. croix land and some rental properties,”

    I own a lot of farm land and pine trees. I grow food for people to eat and wood for them to build houses to live in, what non financial productive use is that st. croix land in the middle of hurricane alley? I may became your neighbor soon and would like to know more why you value st. croix land so much? My grandpappy said buy all the land you can, they can’t print that like they can money.

    “a decent amount in Enterprise Bank in North Palm Beach, and a few dollars in my own companies.

    The bank had very few actual losses (a few mark to market losses on secured loans that are paying on time) and now very wide net interest margins.”

    Well I did write a book called “The best way to ROB a bank is to own one, I am glad you learned the lessons about the villians in my book and decided to become one yourself and apply that knowledge” (sigh)

    Warren Mosler Reply:

    there is still a lot of excess capacity and unemployment is still going up.

    we are all just guessing what the fed will do, as they could do anything, but seems they are on hold until they see things turning decisively and the output gap falls.


  5. Warren Mosler Says:

    the majority of my investments were with my partners at AVM as a matter of team spirit.

    They were down maybe 35% on average.

    Which of my calls in the last year are you pointing to, apart from guessing wrong what the fed would do 18 months ago with prices going up and the economy muddling through? When they did cut i have said all along the cuts are deflationary and contractionary. and i did call for the the automatic stabilizers to start reversing things right around year end.

    I’ve said from 06 the deficit was too small and agg demand would soften and fall until the weak economy got the deficit up to 5% or so.

    I’d also hoped Congress would simply do another fiscal adjustment in q3 last year (i called for a payroll tax holiday) because the q2 adjustment resulted on well over 2% positive growth. But deficiphobia prevailed and they let it all go down until the automatic stabilizers rescued us.


    Michael Jackson - Dead with 500 million in debt Reply:

    “Which of my calls in the last year are you pointing to, apart from guessing wrong what the fed would do 18 months ago with prices going up and the economy muddling through?”

    It should all be in your web history – if you didn’t delete my postings. I would post link after link from schiff, mish, puplava, daughty, bearish web boards, countering your upbeat optimism that things were not “so bad.” I kept asking for answers to the liar loans and ninja loans and would get no rational responses from anyone here how that was smart or good on the macro scale.

    I recall your constant theme was things are not so bad and I was just being disruptive. Things may not be so bad, but had you ignored the bearish case and not adjusted your portfolio accordingly, you would be down, 35% in your case. I lost 4% in 07 being bearish too early, but was up 11% in 08. I am flat so far this year.

    “I’ve said from 06 the deficit was too small and agg demand would soften and fall until the weak economy got the deficit up to 5% or so.”

    Ok, well it seems to be you are saying the automatic stabilizers will do thier job, unemployment may remain at the higher rate for some time, but the financial assets shouldn’t have another downleg. I disagree. I think there are still a lot of crooks and liars out there large and in charge, and the tower of babel didn’t fall far enough to be given a good shaking out. I still see too many useless shopping machine princesses living la vida loca on student loans and daddy’s credit card to think things have changed for the better.


  6. Winslow R. Says:

    Not totally surprised you are also a real estate investor as I recall running across one of your purchases at a probate court in my backyard.

    California is still spiraling downward though not enough to keep me from expanding my position in the market. I wouldn’t have been in the position to capitalize (as it is still near impossible to get investor loans) if I hadn’t been reading your blog for the last few years.

    Overall, I’ve done well following your framework.



  7. Warren Mosler Says:

    good to hear that. which purchase?


  8. Winslow R. Says:

    The purchase was court confirmed in San Diego in late Sept 2007. A 19 acre parcel,I believe in St. Croix for some 452k? – all from memory ….

    This quote from the file caught my eye at the time as normally a beneficiary doesn’t complain about getting paid too much….

    “In this case, one of the benes objected to the Notice of Proposed Action, which notified the benes of this estate that the
    corp was going to sell the land in the Virgin Island for allegedly more than its appraised value.”


    Homer Hoyt Reply:

    That is odd, why would a benefactor complain about getting paid TOO MUCH? Wouldn’t that be like these state governers complaining they don’t want more money?

    Why would Warren want the land so badly he would overpay from the already inflated appraisal? ;)

    As a kiid I once complained to my mom she put too much spinach on my plate, but then I grew up and watched Popeye and realized the more spinach the better.


    Warren Mosler Reply:

    sounds like a 20 acre piece with very nice ocean views zoned residential that adjoined a piece I already had.

    25,000 an acre that you can subdivide into 1/2 lots

    did i say land was attractive down here?


    Homer Hoyt Reply:

    Ocean views? So you can get a clearer view of the coming hurricane about to wash away your house? ;) What are insurance rates going to do over the decades as the water levels rise and more tsuanmi’s wash away those ocean view properties?

    I used to live in Hawaii, and those ocean views are great until some corrupt imminent domain attorney gets ahold of you and re-educates you about property rights for the good of the many.

    A USVI resident had just moved away and wanted to sell me his USVI property last year, he ran a jewelry business down there. I told him I wanted to be warren mosler’s nieghbor, he said he had never heard of warren mosler?!? I spent a little time trying to help him learn about the inventor of mosler’s law and our future president.

    I couldn’t understand why he wanted to leave paradise and 4% tax rates for florida and the mainland. He said he got very tired of the island life. Had to wait in line 30min at most fast food places and got slow food that was cold. He also complained about the school for his kids and the shopping for his wife – LOL! I told him yes, there is lots more shopping for her now. (sigh)

  9. Bb Says:

    So when fed sees oil and demand really start to pick up they will start raising rates probably following the markets as always happens. So the risk of deflation is now over in your opinion


    Warren Mosler Reply:

    looks like we go sideways for a while.

    domestic demand muddles through around flat, eurozone on the edge of collapse, asia starting to use fiscal adjustments for domestic demand.


  10. Bb Says:

    Warren I finished reading Leon levys book and it seems that your econmic mindset is built upon Jerome levys work. I saw your presentation at the levy organization. Is their anyone that uses his work now and applies it to the bond and equity markets . Also can you recommend any books written by Jerome levy


    Warren Mosler Reply:

    The only Levy thing I ever saw was his ‘profit equation’ a few years back. And yes, he saw profits as a function of deficit spending, best I can tell.

    Haven’t seen any books.


  11. zanon Says:

    My question is: what happens next in US Equity markets? Will S&P 500 fall again? Will it continue to boom? Will it just tread water?


  12. Warren Mosler Says:

    I don’t have a strong opinion about any of those three choices.

    it will probably move on the next shock


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