Tuesday, August 28, 2007

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:

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.

Saturday, August 11, 2007

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.

Friday, August 10, 2007

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.


Sunday, August 5, 2007

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."


Thursday, August 2, 2007

New 100-8-20-5 SFM Mortgage Product Pulled From Market Before Launch Date

The Mortgage Bankers Association announced today that it’s much anticipated 100-8-20-5 mortgage product will not be available for sale in late 2007 as planned. The 100-8-20-5 Self Financing Mortgage (SFM) was a whole new class of mortgage product that was designed by the best financial engineers in America.

The basics of the SFM mortgage can be seen in the 100-8-20-5 numbers:
- 100% is paid to the seller for the cost of the property
- 8% is paid in modest administration and origination fees
- 20% is set aside in a new form of financial trust, which would cover at least 36 full months of missed payments by the borrower
- 5% invested in highly leveraged funds expected to make near 100% returns every year

The elegance of this product was that, thanks to the 20% set aside trust, the delinquency rate was guaranteed to be zero in the first few years. Because of the zero delinquency rate, the MBS would likely get an AAA rating by the market. Even after three years of no borrower payments, the expectation was that the highly leveraged 5% investment might have grown to 40% of original property value, and could be used to replenish the set aside trust. This would allow for another 36 or 72 months of nonpayment by the borrower. And so on.

It seems to offer a 133 LTV, but the financial engineering is complicated, and the SFM is said to have complied with all enforced and marketable mortgage standards as of January 1, 2007.

The SFM class was designed to be the successor to all ARMs written between 2004 and 2007, as well as an easy ‘no doc’ upgrade to any troubled subprime, Alt-A or even prime mortgage. What shall become of any troubled 2004-2007 vintage mortgages, now that they will not be able to convert to SFMs, is currently unclear.

Changes in the market and regulatory environment may shelve the SFM for years. There was a more conservative 100-9-30-10 SFM variant that was also put on hold indefinitely.

Federal Reserve, SEC Enlist Psychics to Help Assess Credit Risk of Hedge Funds, Investment Banks

Financial investigators for the Federal Reserve and SEC took an unusual step today in their ongoing efforts to assess credit and stock market risk. In a move normally associated with grisly, unsolvable murders, investigators called on the services of several renowned psychics to help them solve their most baffling financial conundrums.

"It's the worst job I've ever had." said one psychic. "Stock readings are not so bad. With stocks we’ve seen a lot of earnings and CEO compensation problems. They all have transfer pricing issues of course, and nobody cares."

"But when you go through the tranches of Mortgage Backed Securities, it just makes your head want to explode. You are overwhelmed by thousands of bad financial decisions all at once. There is not a person involved in the making or selling of these things who has clean hands."

When asked if the job was really that bad, the psychic said: "Yes, it is. I literally vomited 4 times while assessing a single BB- tranche. After this government contract ends, I am sticking strictly to murders."

Wednesday, August 1, 2007

No Run On US Banks or Check Cashing Outlets Foreseen in Global Market Turmoil

Finally some good news, US Banks are likely to remain solid through the market turmoil, no matter how bad things get.

"With the US savings rate near zero, most Americans aren't going to be running to their bank and demanding to withdraw much, if anything." Said one leading economist. "Savings accounts typically have a near zero balance, and checking accounts typically have just enough money to cover this month's bills. Also, Home Equity Lines of Credit are pretty much tapped out for the average American. "

Further, with millions of Americans unable to even qualify for a checking account, many will unlikely even set foot in a bank. Americas thousands of Check Cashing outlets expect a mild uptick in their "Pay Day Loans" line of business. The outlets, after large investments in infrastructure over the past 10 years, expect to be able to handle the volume.

All of this points towards pretty short lines at the bank over the next few months, no matter how this plays out.

No Credit Crunch Here, Internet Lending Business Still Booming!

Sweeping rumors of a credit crunch seem to be proven false!! Just look at the sheer volume of home finance offers on the Web.

If you even have bad credit (called subprime), there are still lots of lenders willing to finance your home at surprisingly low rates!!

A quick survery of the Web tells the tale much more clearly than pouring over money supply statistics and rate spreads. Our findings are below:

At http://www.lendingtree.com/ right now I am still offered pretty darned favorable terms with "$200,000 loan for $644/month!† Bad Credit ok!". Wow, sign me up for 400k, maybe even 600k!! They have a BIG network, over 200 lenders - so what if a couple of Mortgage companies are on the rocks, that leaves 198 lenders who will gladly fund me with bad credit.

As of today http://www.homeloantrust.com/ is going to give me 4 offers, with "Rates as low as 2.9%" And again, "Bad Credit - Okay". One extra thing they offer is help to "Pay-Off Credit Cards", which would probably really help some people.

At https://www.lendgo.com/ I am still told their service requires "No Credit Checks!" and "Bad Credit OK!"

There are too many others to list, you get the idea. In conclusion, it seems pretty obvious that for now there is nothing to worry about.

Tuesday, July 31, 2007

International Banking Conspiracy Proven False Today as Bankers Duped by "Liar Loans"

Hundreds of thousands of Webmasters find themselves red-faced today as their carefully crafted conspiracy theories are beginning to unravel, or at least need updating in the face of the subprime mini-crisis. A simple Google search for "International Banking Conspiracy" will turn up at least 1,910,000 hits, and the jist of them all is that somehow "Bankers" have duped the average person into giving the banker's all of their hard earned money.

But today's developments have financiers around the world scrambling to assess just how badly Joe Q Public has duped them out of Billions of dollars. Todays developments include the near collapse of AHM (American Home Mortgage) stock and Moody's realization that perhaps many more than anticipated of the Alt-A loans might never be repaid (see this link http://www.bloomberg.com/apps/news?pid=20601087&sid=a_Wr2eJ6sESE&refer=home ).

As the grim truth about just how badly Joe Q Public has ripped off investment bankers, slick hedge fund managers, and the local credit union became more apparent today, one hedge fund manager was quoted as saying "It's like I have been robbed, I feel so violated".

Reached for comment outside his 3,700 sq. ft. house, Joe Q Public said: "Do I owe you money? No? Hey, great, can I borrow some money, just like $50,000.00, I promise I will pay you back."

Webmasters of banking conspiracy websites vow to 'never give up the fight' and promise to update their conspiracy theories to account for what is an obvious trick by the Bankers to create 'phony' losses in their never ending quest to enslave the population of the western world.

Monday, July 30, 2007

No You Can't Have Your Money Back, I Lost it, or Spent it on My Yacht.

Another exerpt link to a CNN Money Article. According to the article He buys himself a 142 ft Yacht and later must stop honoring investor requests for redemptions! he is selling his Yacht due to some bad investments presumably...

"Devaney's fund has run into trouble lately. A spokesman for the firm told Reuters on July 3 that it had stopped honoring request from some of its investors for redemptions, or withdrawal, of investments."


Ford Spends $150,000,000 Developing US Standard Electric Car - Car Division Later Purchased For 10 Cents on the Dollar by New Rival.

Doesn't $150 Million look like a lot of money when written out as $150,000,000? But you can't blame Ford, gas was cheap between 1999 and 2006, who could possibly have known it would go up and there might really be a market for electric cars? Someone eventually bought their well developed product for 15 million, just 10% of what Ford put into it. The new company will compete with Ford in the near future. What a waste.

Quotes from the CNN money article are below along with a link to the original article. The comedy writes itself today:

With its eye on the California market, Ford pumped $150 million into the company to design a next-generation City that met European and U.S. safety standards. But when it looked like the automakers were going to kill the California regulation, Ford promptly sold Think to a Swiss electronics company.

By 2006, Think was in bankruptcy. Willums, meanwhile, was about to leave his firm for private foundation work, having made a mint from his investment in REC, an $8 billion Norwegian solar energy company. But the little electric car manufacturer caught his eye.

"So I called the two other key investors in REC about buying Think," says Willums, 60. "We didn't know anything about the car business. But we knew how to build successful businesses."
Willums picked up Think, its factory, and Ford's nearly completed design for a new-model City for the fire-sale price of about $15 million. That freed him to think about how to create a 21st-century car company. Much had changed since Ford sold Think: Global warming was dominating the headlines, the Iraq war had Americans on edge about energy security, and governments were beginning to provide generous tax breaks for electric cars.


Sunday, July 29, 2007

The week ahead: Traders, Brokers Hoping for Increased Panic and Volume on Subprime Worries

"We can make a killing when we know the panic has set in." say top wall street institutional traders. That's because the lifeblood of traders is volatility, whether it's up or down.

There's lots of money to be made short selling stocks as they plummet in a panic inspired free fall. And the increased volume can bring bigger commissions into the brokerage houses as well. "The average investor will exit for a while, but they'll be back when they see the DOW up 500 or 1000 points in 5 months - or whenever they get bored of 5.05% money market returns." said one savvy trader. "We usually have a nice rally around Christmas when the fund managers are trying to make year end bonuses, they'll be back by then."

"What we are all hoping for in the next few weeks, is that joe public looks in the mirror, blinks, and runs screaming from previously well thought out asset allocation decisions. We all know that people love to dump good stocks and funds indiscriminately when panic sets in, and that's what we are hoping for. It gives us an opportunity to make money on the way down - or snap up some bargains for our personal 401k plans."

IRONY Index Rises as AHM Investors Complain of Missed Payment

In a shocking move to those holding AHM (American Home Mortgage) stock over the weekend, AHM announced that it would have to 'delay' a dividend payment. (See link to Reuters article at bottom.)

"Investors expect to be paid their dividends on time, as promised" said one investment banker whose fund leveraged a disproportionaltely large share of AHM in their 'Guaranteed High Returns' fund. "When I buy a stock, and that stock announces a dividend, I have an 100% expectation that the dividend be paid, and on time. " he said. Further: "The market, as we know it, is simply going to break down and grind to a halt if institutional investors are forced to examine whether each particular company they are involved with has the ability to make good on it's promises."

He concluded with: "I know that AHMs customer base generally provided little documentation proving their ability to pay, but I banked on that dividend announcement filed with the SEC. As a sophisticated investor who manages billions, I do not expect to be exposed to this kind of risk. This is an unexpected outrage."

Link to Reuters article follows:

Saturday, July 28, 2007

In Depth Analysis: Minimum Wage to Top $40.00 by 2021, $80.00 by 2026.

After successfully passing a minimum wage hike every year, for the next 3 years, the Democrats, led by Ted Kennedy want to build on their success. The Democrats have just passed the The Fair Minimum Wage Act of 2007 which raises the minimum amount from $5.15 to $5.85 to $6.55 next year and then $7.25 in 2009. Kennedy is proposing a new minimum wage of $9.50 in 2011.

Market Factors noted that going from "about $5.00" to "about $10.00" by 2011 is, in fact, a doubling of the minumum wage in 5 short years. Using state-of-the-art software, our numbers show that based on planned initiaves, should they continue, the minumum wage may double again and hit about $20.00 by 2016 and about $40.00 by 2021.

"We weren't having much luck with the rest of our agenda, so we have decided to stick with what we know we can acomplish." said one Democratic insider. "We may or may not have a minimum wage bill pass every year, but we feel pretty confident we can double, or nearly double, the minimum wage every 5 years. It keeps our base happy and if we could get these increases passed sooner, much sooner, it may really help with the current market liquidity problems."

Friday, July 27, 2007

US, China Headed to Court Over Credit, Cell Phone Bills

A barely noticed development in this weeks credit meltdown was a lawsuit by the People's Republic of China in a California small claims court naming the USA as defendant seeking damages of $5,000.00 US and return of real property.

The foundation for China's claim is that some time in the past, the USA granted China Most Favored Nation Status and they began a long relationship. During that relationship China claims that the USA failed to pay rent on several occasions as well as ran up $800.00 in shared cell phone charges in the spring of 2007. As well, China claims to be holding "some very large" I.O.U.'s and says it has been unable to convince the USA to exchange anything of any real value for what it calls "worthless paper" in court documents.

China claims that US Treasury bills and other I.O.U.'s given to China in place of real payment have little prospect of being redeemable in exchange for certain household and infrastructure items that China would like to purchase. "I was always telling the USA, 'You have to start working and making something we need, like power plants or computers. But the USA found it more convenient to write checks to other countries to do that work for them. I told them they would overdraft our joint checking account, and in fact, we did incur several overdraft fees which I ended up paying." Those fees totalled $76.50 according to documents filed with the lawsuit.

Further, China claims that it's relationship with the USA has ruined it's credit and that it's relationship with the USA was one-sided with China constantly having to pick up the tab for one expensive item after another. Court papers quote China as saying "I thought we were going to have a long and prosperous relationship, and so, I didn't mind being the hard worker in the family. But now I can see that the USA just used me to provide for it's affluent lifestyle."

Legal experts say that the USA's provision to China of I.O.Us and Treasury Bills could be interpreted as evidence of a promise to pay.

Reached for comment early Saturday morning, a spokesman for the USA said that "China and the USA were never living together and many of the items China gave us were really gifts. We did have a relationship, but we continued to trade with other countries throughout the relationship. We always paid our share of the rent, and as for the gifts, many of those countries know what we are like, and they know that even when we promise to pay them back, we don't really mean it. As for the cell phone bill, there is no way we ran up a cell phone bill of $800.00 this past spring, no way, they would have to show us the phone records."

The USA admitted that "some of the overdraft fees on the checking account may be ours, but we are not so good with numbers or record keeping". The US said they would be responding with documents in court to support their position, if they still can find them.