Mortgage Bailout Unlikely as Media Outlets Unable to Find Sympathetic Victim

As the mortgage meltdown continues to get worse, Wall Street and politicians have started testing the waters to gauge just how much public support there is for some sort of bailout. Many bailout plans have been proposed which include hysterical calls for the Federals Reserve to drastically cut interest rates, the lifting of restrictions on GSE lending and legislation to fund some type of emergency fund with taxpayer dollars.

Here is one such amalgamation of interests calling for some sort of bailout:
http://www.msnbc.msn.com/id/20481006/site/newsweek/

Since the Congress and the President are at, or near, historic lows in the polls, neither Democrats nor Republicans can be seen to be bailing out Wall Street billionaires without risking another American revolution. So, strategies to create support for a bailout plan are focusing on the prospect of unfortunate families or children who may be subjected to the indignity of renting after a foreclosure. None of these bailout plans are likely to come to fruition, and here is why: There is not yet, and will not be, a "poster child" victim who elicits any public sympathy whatsoever.

Potential victims generally fall into one of the three following groups:

1. The unemployed are pretty much off the list of "poster children" right away, because they would be unable to make any payment and so, would be subject to foreclosure in any case.

2. Any employed family, able to make some "teaser" payment on an ARM, but facing a much larger reset payment, is also quickly crossed off the list for at least one of the following reasons:

• The house they are living in is HUGE! Did you see the size of that house? Why should they get help to live in a house bigger than mine? And they have granite countertops and two brand new SUVs in the driveway!
• Oh, look the teaser rate they can afford is more than I pay in rent. They should have no problem renting.
• They weren't very good neighbors anyhow, I will be happy to see them go.

3. The elderly victim on a fixed income who somehow accumulated an unpayable $50,000.00 HELOC against an otherwise unmortgaged property: This victim isn't going to elicit much sympathy, aren't we already paying their Social Security and medicare? And if they got flummoxed by tricky mortgage lenders and finances, maybe they are too confused to be maintaining a house. A rental would be entirely appropriate, and they may be able to salvage some equity from a quick sale.

So with 99.999% of the population likely to be judged by the public as unworthy of a taxpayer bailout, the only remaining strategy for those supporting a bailout is to whip up economic fears in the general population. This is also unlikely to work because on Wall Street, fear and greed are often in a stalemate. Members of the financial community on the winning side of a bail out are likely to be stalemated by other members of the financial community holding the opposite position.

For every dollar of political contributions supporting a bailout, there will be another dollar supporting doing nothing. Gridlock at its finest.

Bonds and Illegal Steroids

Perhaps I should start with an SAT type question:

Illegal Steroids : Barry Bonds :: _____ : Mortgage Backed Bonds

A. Investment Bankers
B. Ingorant Investors
C. Great Salesmanship!
D. Complete failure of governmental and private oversight
E. Bubble economy
F. Easy Credit

Whatever the answer, it appears that both Barry Bonds and Mortgage Backed Bonds have both acheived extreme levels of "pumpitude" and hit recent records.

Where the two types of "Bonds" diverge is in their public profile. One recent poll shows that 72% of people think Barry Bonds used illegal steroids. Pretty darned informed public if you ask me.

On the other hand, most people still have no idea of the impact of illegal steroids on their invesment returns, and this includes the professionals. I expect any type of poll on MBSs or CDOs to get responses from 72% of people such as "There's a problem with the what now?"

The Fed recently advocated for greater levels of financial education for all Americans. Let's hope it's not a "crash" course.

SecondLife.com to Fill Virtual Reality with Unsellable Houses

As the CNN Money link at the bottom of this article shows, there is no escape from the market's current real estate and credit woes. With a 3-D rendition of an unsellable $3.1 Million house appearing in Second Life, it appears credit market and real estate problems have not been contained, even to the physical universe. Virtual reality has now been invaded by monuments to market excess.

This is definitely an expanding market for Second Life. Second Life's next offering will be volume discounting for multiple properties owned by Banks. Rumor has it that they have teams of graphic designers working on 3-D images for uncut grass, and boards that can optionally be placed over windows to mirror the real life state of disrepair of bank owned properties.

The price of second life CDOs and Mortgage Backed Securities have not been set at this time.

http://money.cnn.com/2007/08/08/lifestyle/secondlife_house/

Wall Street Scolds Homeowners for 0% Home Equity - Says 0.4% Equity is Fine

As the mortgage and real estate meltdown continues, Wall Street insiders have increasingly pointed to greedy, irresponsible homeowners as the source of the problem. This is because many homeowners have loans which have financed 100% of the purchase price of their homes. "The problem here is that the unsophisticated homeowners are taking huge, greed motivated, risks when they have 0% equity in their own homes." said one investment banker.

"We, on Wall Street, are much more intelligent and take a longer view. We have taken great pains to insure our portfolios in order to mitigate our risk. One example is that many firms on Wall Street have insured $61 Billion in CDOs through a company called ACA Capital Holdings. We make prudent decisions, unlike the typical American homeowner who is, quite frankly, contemptible at times."

ACA's assets, however, are only $260 Million to insure $61 Billion of CDOs, which is 0.4% (see link at bottom). When asked if homeowners would be considered responsible if they had 0.4% equity in their homes, the investment banker responded: "We are talking about two completely unrelated lines of business, different standards apply. In ACAs case 0.4% will be more than adequate. They are insuring very smart people, not dumb homeowners."

http://www.reuters.com/article/marketsNews/idUKN0533130920070805?rpc=44