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March 23, 1990
The big news this week is what didn't happen. The bond market did not crash in response to a .5% leap in the Consumer Price Index, nor to a big gain in the supposedly "under control" core inflation rate.
This anticrash is a most improbable response to bad inflation numbers. So improbable that it justifies a change in the interest rate forecast for the near term mortgage rates may have topped out. At least, the likelihood of further increases is lower than any time since Christmas.
A tighter Fed has restored some confidence in the bond market, and simultaneously incresed the chances of a late summer recession. Though the rate trend is no longer straight up, you should expect some wild price swings daytoday.
The Chairman of RTC, William Seidman, has come under pressure from all sides to increase the pace of sale of $4 billion in repoed assets. In a speech last week, Seidman delivered the honest news: "Losses can only be stemmed by swift sale to private sector buyers." And, "Where we don't know what the real market value is, we are going to cut the price until we sell."
Congress, in its typically courageous way, wants all gain and no pain. Can't sell below appraised value, can't let buyers make too much money, can't carry financing, and if hindsight ever says you sold assets too cheap, we'll hold hearings and ruin your lives.
Reality intrudes. The assets are not worth what was hoped (that's the main reason nothing is getting sold), and are declining in value while Congress dithers.
So, Seidman suddenly has White House support for fast sales. Does RTC know how to sell? New evidence says they don't have a clue.
The Friday, March 16 Wall Street Journal contained a huge ad in which the FDIC offered $4.5 million in performing VA and FHA loans. That's a day or two origination volume for a medium mortgage bank, which would be sold to any of several hundred larger firms.
The cost of such a sale would be about two tenths of a percent in commission, and one, maybe two long distance phone calls. Nine grand at the outside.
The one day cost of the Journal ad was $20,000. If instead of running the ad, the FDIC had offered a $20,000 sales incentive, the FDIC would have needed police dogs to keep the brokers under control.
Ah, well. $4.5 million sold, $399,995,500,000 to go.
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