spanish moss

The Global Oil Scam: 50 Times Bigger than Madoff

Lengthy but excellent article. I'm a free trader at heart, and I grew up in a farming family. Over a long period of considering the commodities markets, I have arrived at the conclusion that commodities markets should be restricted to producers and users. Yeah, yeah, I 've heard the bull from those who talk about the liquidity speculators bring to commodities markets... but, what value is that liquidity v. a stable market for cotton, grain, food, energy and other imputs. Goldman's days are numbered in my opinion. They've moved from financial svingale's to politically connected to rapist bullies. PS: Did you notice that GS gave back its TARP money, just about the same amount of $$'s as its AIG liability of $12.9B. And then Blofield [sic] ballyhoos their conservatism and financial accumen in being able to pay it back... give me a break!

Wells Fargo Is Doing Worse than It Seems

Something worth mentioning about WFC is its long history, a very long history, of swings in the valuation of servicing rights, this goes way back beyond the acquisition of WB. Those swings have historically been based on impariments or (and what - repairments?) taken as the valuation of the servicing book rises and falls. Very sharp, very experienced minds work on the hedge that is utilized to balance market impacts on the servicing valuation. In fact, about 2 years ago, the positon of president of Wells Fargo Home Mortgage was split into two co-presidencies to have one strong leader over operations/production and another over servicing which includes collections, sub servicing (also corporate trust services, I think) and THE HEDGE of the servicing valuation and unsold pipeline. In regard to servicing valuations, when rates rise, valuation falls because servicing revenue falls as loans refinance with other lenders, when rates fall, servicing valuations rise because homeowners are less apt to refinance and that creates less threat of loans running off and diminishing the servicing revenue stream. So, when Middleton (or Richard Bove) try to paint the swing from mortgage hedging as something the company uses to meet its numbers, the record shows it has been doing that, and doing it successfully, for a long time. In order to make the case it is a bad thing, one has to balance the rise and fall of servicing valuation (impairment/ re-pairment) over the long haul with the gain/loss on the hedge. It is well executed, and more often than not is a gain due to astute exectution and an unparrelled knowledge of the mortgage business. Remember, WFC is the only institution that has a long term strategy of using mortgages to build customer relationships. It is the largest and best rated servicer in the world... ergo, while the points about servincing might hold water in a general sense to other institutions, to apply that fear to WFC ignores its exceptional track record and its strategic use of mortgages as a builder of the customer base over a very long period of time.

Declaration of Accounting Games

How bout some fact beyond just a hypothetical chart... Don't paint WFC with the same brush... the Golden West Option ARMs have longer resets that make them less toxic than most and WFC didn't do any Option ARMs on their own. The footprint of the combined WFC/WB is an earning powerhouse. When you layer the WFC philosophy and management (Cheronda aside) on top of the WB branches and customer base, you'll see a huge increase in cross sell and the earnings will take the stock to high 40's -- low 50's over the next 2-3 years. (EPS of 3.35 x 15 in 2011-2012). Those who wait for a melt down will be just waiting as WFC spreads it's superior model eastward.

Why U.S. Government Should Cut Federal Workers' Lavish Compensation

This is a grave understatment of the problem, add to it the retirement benefits of this class... While private citizens strive to make it on savings and social security, the federal elite get colas and pensions which are tied to a percentage of their highest years of pay. Have you ever noticed how older government (yes, not just federal but state) employees get bumped up to higher paying jobs?

This system can not be sustained, those who have produced have been too busy producing to notice the supports these public systems employees have built for themselves. Same on them, shame on us.

New York AG Report: Wall Street Stole Bonuses from Taxpayers

Clawbacks are appropriate in these cases. I have railed against the huberous of GS over their ability repay their TARP funds when they simply sat on the money and even hid their losses in the "orphan" month of 12/08. Wells used its money to bail-out Sheila Bair and her ill advised FDIC backed Citi takeover of WB... C was broker than WB it seems to me. Now Wells doesn't have the cash to repay like JPM or GS, but GS didn't repay its $12.9B AIG welfare and JPM didn't put anything into its takeover of WAMU.

Was the AIG Bailout a Goldman Bailout by Proxy?

I don't disagree with these conclusions and postulations, but I am extermely irked by Goldman's (Blankfiend's) huberous over repaying their TARP funds as if they are so above it all... they didn't pay back the $12.9B in AG bailout and they position themselves a superior to the likes of Wells Fargo who used it's TARP funds (which they did not want) to bailout the FDIC/Treasury's ridiculous deal to support Citi's takeover of Wachovia! The press has been silent on the issue as well.

Wells Fargo Earnings: What's Real, What's Not?

Good point, and let's remember Richard Bove's recent commentary that in spite of all the doom and gloom, 97% Home Equity loans are paying as agreed, 98% are paying something. Those borrowers have to live somewhere, not only is it incorrect to assume a complete loss on any given loan, it is wrong to assume a homeowner defaults just because their home's price is currently depressed. WFC loss projections on the Golden West paper were sober and their expanded earnings power will make up any short fall. Remember, these are they guys who didn't offer Option (PIK a Pay) ARMs, they were afraid of them. I reason that WFC's eschewing govt support in their counter offer for WB made them all the more sober. (An aside if I may: What if Citi had gotten WB, the FDIC would probably be broke by now. WFC used it TARP funds, Goldman Sachs sat on theirs and now says they can repay the paultry $10B they got in TARP... what about the $500B+/_ they got in AIG CDS relief??? Good Grief, Goldfinger, stop preening!)


On Apr 14 11:04 PM Russ Krull wrote:

> "..so, let's split the difference and say it is 53% of $95 billion.
> That is roughly $50 billion"
>
> I don't believe you can apply the default rate directly to the value
> of the loans to get a write-off value. Even in default, a mortgage
> is worth more than zero since the property securing the loan has
> some value.
>
> Lets assume the average defaulted loan balance is 150% of the underlying
> property value. That puts the average loss on a loan default at 1/3
> of the asset value. That would put the loan losses from your 53%
> default rate at $16.8 billion.
>
> Disclosure - long WFC.

When Bonuses Aren't Discretionary

Wells Fargo HOme Mortgage, one of the nation's largest mortgage companies, is a division of the bank. There were no bonuses paid to employees (in 2008) for 2007 performance... nada, zero. It is hard to imagine AIG, LEH, MER, BSC... much less the rating agencies, paying a dime of bonus to any employee for 2007 performance or thereafter. No excuse. I'm a flaming capitalist, and that means taking risk to earn reward. When the deal risk goes sideways, the reward does not materialize. Congress should enact special legislation to tax bonuses of employees of any company having receiving TARP (Banks), being taken over with Fed/FDIC/OTS assistance (MER, WM etc [and include WB too]), or was nationalized (FRE, FNM) or was closed (LEH, BSC) at 100%. The money should be earmarked to fund the various appropriations to the specific companies, thereby reducing the federal cost of the appropriations. Oh yeah... it's just a drop in the bucket to be sure... but it would be huge to the bonusee... who did not deserve it in the first place.

Gee... that's scary... sounds kinda Bolshevick... maybe I need to get in touch with myself... maybe a weekent at the Ventana Inn with the boys of AIG! We're all shareholders now... right?

What Obama Needs to Know about Tim Geithner, the AIG Fiasco and Citigroup

Excellent presentation...

Subprime mortgages were not the problem they were simply the weakest assets in the chain and were the first to be stressed when the party got long in the tooth.

Now the real issue, the AltA mortgages, generally big principal balances to people with good credit buying on speculation that the property value would rise rapidly, or that if it did not they could simply sell and get out from under the big mortgage before the option arm (PIK a Pay) went up to the fully amortized amount. The number and balance of the Alt A vs. sub prime is staggering.

It was all good... now it's all bad... and the idiots who perpetuated the mess, the bond daddys and rating agencies... well, they have been stocking those million dollar bonuses away for years... wonder what they invested in? Hedge funds I'll bet... and a house in the Hamptons or Santa Fe, or Montana...

At the end of the day, CDSs did not protect anything, they simply moved the risk down the road... now we are at the end of that road.


would risehave shown stress... now the stress has moved into the larger

The Shallowest Generation

Ouch!!! I could not agree more with this well articulated piece... but not it's conclusion... I am a Boomer, a conservative with little debt and always a saver... I have watched in fascination for years as this mess unfolded... I have much disgust for the failure of our systems and the squandered opportunity that presented itself with the Contract for America in 1994, but the liberal option is worse, far worse.

How Much Longer Must This Deleveraging Process Go On?

I read the article you attached w/ Bush speaking about goal of higher minority ownership and mortgage originators only wanting the loan to pay for a 90 day or 6 month period to be beyound the push back period... it is, as far as it goes, truthful, but does not, paradoxically, provide the big picture.

My sense is that there are a lot of players in the chain who could and now wish they had done things differently... the lower on the chain one goes, the better protected the player... because all the upstream types, the Mortgage Insurance companies writing coverage on the loans (down to 80% LTV) , the I-Banks bundling Alt-A and subprime credits into securitizations, the agencies rating the Asset Backed Securities, the AIGs providing credit enhancements, including with various other entities the writing of Collateral Default Swaps... and the hedge funds who took vast sums of capital from the very wealthy and leveraged it 50x, 70x and more to buy bad paper with a good yield... for a season.

I think the culprits are more toward the top than the politicians and the mortgage smoes and the home buyers. But... none of those three are innocent either... expecially the home buyers who were buying over thier heads and especially when they were buying over their heads for speculative purposes rather than housing... which returns us to the clip of Bush... I don't think he was advocating all minorities buy a house using cheap financing and sell before the teaser rate expired to make a bunch of money. No, he and other public policy types were trying to put people into homes that woud be shelter for their families... it is the top of the financial food chain that is looking at housing as a source of continued investment products upon which to profit... and that boys and girls is the disconnect... the perspective on one is housing... of the other it is ABS, CDS, CDO and other alphabetical buggers that have kilt the golden goose and ushered in a wave of anti-capitalism. Here endeth the opinion.

Leverage 101: The Real Cause of the Financial Crisis

Great point, abuses are not so new, just highly leveraged, and likely emboldened by the cover of credit default swaps, but in a melt down, all the swaps cancel each other out.

AND!!! Interesting post from earlier reflects a new mentality. Instead of buy a house, keep a house, the kids, the neighborhood, the schools... accept the pull backs cause it's home, not an investment... right? NOW the mentaility is that it is not smart to keep the house when it is underwater... damn the kids, damn the neighborhood, damn the schools... a house (evre since since COBRA of 1986) is an investment. Don't do the right thing, do the smart thing is apparently the new mantra.

I agree about leverage, but the new mantra changes the math too... and not for the better. IMHO

Is Buffett Buying American Express for Berkshire Hathaway?

Would you please explain the Risk Based v. Economic Capital spreads in the link attached to the article. The two comparisons reflected: 1) RBC to EC and 2) BP spreads... seem to favor different Bank Holding Companies. EG, WFC has low RBC:EC and a high spread. Is the RBC:EC spread better than the spread in bps? These comparisons are not intuitive to me and I would appreciate some more discussion. Thanks

Bank of America Buys Countrywide - Who Gains and Loses?

I believe you are spot on. Of course, I would rather you were wrong, but I'm not at all sure you are.

On the Cleveland lawsuits, I think it would be nice to see the entities Cleveland has sued counter sue Cleveland for not providing police and fire protection to the vacant properties in order to perserve equity for the borrowers (yes, under Durand, lenders must return equity to borrowers). No equity you say, then also sue the borrowers, sellers, realtors, (oops Realtors) and appraisers for over valuing the properties securing the loans.

Now I'm on my soapbox, but let's not allow the plaintiff's bar to add insult to injury by driving up the cost of everything in this country. Insurance, housing, pharmacuticals, health care, cigarettes, on and on ad nauseum...

Thanks, I feel better now!

Is Countrywide Financial the Next Enron?

I don't doubt your conclusion regarding CFC, it is certainly a possibility, particularly with the falling real estate market and the huge volume of Option ARMs CFC (and others) wrote.

However, I am less sanguine about your positioning borrowers as innocents. Most borrowers know a good loan from a bad loan, and it they don't they know financial lingo, the do know a) "there is no such thing as a free lunch", and b) "if it's too good to be true, it probably isn't true", etc.

My take is that the vast, vast majority of borrowers were complicit in taking low payment options to acquire real estate at any cost lest they should not participate in the huge appreciation fueled by low cost payments in tandem with both cheap and easy money.


Regardless as to whether we agree or disagree, about borrower complicity or innocence, there is plenty of blame to go around. In addition to borrower greed, there are lenders and mortgage brokers who offered the products, Realators who profited from them, regulators who ignored them, and investment bankers, hedge funds and credit reporting agencies who pushed them.

At the end of the day, I think the old axiom, if you want to dance you have to pay the fiddler, is appropriate, and borrowers will be, and should be, paying along with lenders, mortgage brokers, Realtors, and all those the Wall Street schmoes.