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."


sb said...

Love this blog but I wish you provided a way to send submissions in private...

How about a story about homeowners freezing funds until a little liquidity returns to the housing market? Homeowners should prevent banks from withdrawing funds from their homes until sales return to normal.

(it amazes me that Bear Stearns can perform a margin call on itself to extract any value that remains, then tell investors -- from the Caymans -- that nothing is left. Why not just steal their money in broad daylight? It would have taken a lot less effort!)

Market Factors said...

Thanks sb! I don't know how to do that without publishing my email address, but maybe I will get a google email adress or something? Anything would be appreciated :)

I was trying to post once a day there, but got busy. I might be able to catch up a little on the weenend. Maybe 5 times a week is more realistic :)

I didn't even know Bear could do that, and I bet their investors didn't either. How very tricky of them :)

EricInDC said...

Great Postings! Love your blog!