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March 8, 1991
Interest rates are rising this morning despite weak February employment data. NonFarm Payrolls fell 184,000, and Unemployment climbed .3% to 6.5%. That's lousy news; why the perverse reaction?
There are several "whys": Chairman Greenspan has all but howled through a power megaphone that the Fed isn't going to ease again soon, and there is a continuous avalanche of debt from the Treasury.
The "why" that counts: there are more sellers of 9.50% mortgages than buyers.
While we were all busy watching Stormin' Norman, the S&L bailout was as out of control as the oil fires in Kuwait. Imagine Congress, the Senate Ethics Committee, and the Administration standing in the middle of Kuwait, eyes closed, chanting in unison, "What smoke?"
Recent developments in the Mother of All Bungles:
The Treasury asked for another $100 billion for RTC for 1991 alone. Congress said "Horrors, a thousand times no!", and yesterday gave them $30 billion to tide them over until summer.
We need "working capital" says the RTC. We have to pay off the depositors, and then have to wait for the assets to sell, and then we'll pay you back. The General Accounting Office says the RTC can't keep track of what it has, let alone sell anything.
The easiest stuff for the RTC to sell is securities: they are liquid, and there is a ready market. The directors of the RTC have found a way to freeze here, too. They say, "Gee, whiz, we aren't a securities firm Š what if some investor loses money and sues us?" No sales.
After five years of trying to sell repoed real estate for cash, the RTC has decided to offer seller financing up to 85% of value. Five years to figure that out?
The Treasury has decided that some of the 1988 S&L sales were too sweet for investors, and is trying retroactively to change the terms of the contracts. This maneuver is not likely to attract more investors, aside from being unfair, bad law, and cheating.
Speaking of cheating, the Senate Ethics Committee tiptoed away from the Keating Five about the same time that Schwarzkopf's left hook landed. Good timing. Proud of your results, were you? Wanted maximum publicity? The Republican Guard lasted longer under fire than the ethics police.
But look at the bright side. There is so little commercial new construction that RTC's inventory may start to appreciate. Any year, now.
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