dcxavier

Sifting Through 100 Companies That Passed the Deep Value Screen

I don't trust the accounting of the foreign companies.

When It Rains, It Pours

JohnJohn, now you're reverting to the class warfare line, some groups are more priveleged than others. I stopped reading the New York Times article after they starting crying about the woman who is living on $50K in dividends per year. By my reckoning, she must have a least a one million dollar stock portfolio.

Someone has to take a hit for these failures. The best and fairest way to ensure this doesn't happen in the future is to make those pay who enabled it to happen.

When It Rains, It Pours

Hi jcrash, you have swallowed the bait hook, line and sinker.

I'm not signing on to the House Republican plan in full either. And how is opposing a plan proposed by a Republican treasury secretary and supported by a Republican president being obstructionist? If you want to talk politics, the Democrats have the votes to pass this if they want. But they have no clue either, the reason they want the "fourth leg" is so they can blame others when it fails.

What I am proposing is basically the way the RTC worked, and worked well in the 1990's. Remember that?

When It Rains, It Pours

Say NO to Paulson's "welfare for billionaires" plan. The WaMu model from last night is the way to go.

Under Paulson's plan, the taxpayer would have purchased mortgages from WaMu and close to full value to reliquify the bank and take them off the books. That would free WaMu to make more loans and ease the credit crunch. Uh huh. That also would have bailed out Bonderman and others who made foolish investments in these zombies. I think Paulson can't bear to see his beloved Goldman Sachs, leveraged 25:1, go BK. It's this taxpayer bailout of fat cats that has everyone but the rent seeking politicians against it.

Here's what to do. Make failure a prerequisite for taxpayer money. the government acquires the assets, then auctions them off to the highest bidders. Stock and bond holders should get wiped out. Will this cost money? Sure, but I don't think it will be as much as Paulson's plan, but the benefits go to the innocent creditors, and people who are willing to risk their own money have an opportunity to pick up assets on the cheap. This will work especially well for mortgage backed securities, which no one says they can accurately price. Let's auction them off after failure to people spending their own money, that establishes no fooin' prices for these securities.

If your insolvent, too bad, lights out, no more gravy train. It doesn't matter who you are. We're going to take you over and sell your assets to people putting their own capital into the market.

Would Better Disclosure Have Saved WaMu?

The quantity of the disclosures were adequate. The quality of the disclosures were terrible. The first thing JPM did was write down the assets they acquired by $31B. In other words, WM was completely insolvent, yet according to their books, they had 7.8% Tier 1 capital. It was phony baloney accounting to keep the gravy train coming. I'm sure KKK knew, but it's amazing that the BOD and Bonderman were completely clueless.

Robin Hood in Reverse: In Defense of the U.S. Taxpayer

"Valuation of troubled assets is clearly the thorniest issue"

That's where the 1990's RTC concept looks good. Make failure a prerequisite for government takeover, don't buy assets from solvent firms. Don't reward the managers that got us into this mess. Then auction the assets to the highest bidder. It will establish a true market price for the assets and encourage new capital.

Robin Hood in Reverse: In Defense of the U.S. Taxpayer

To recapitalize the failing banks, we taxpayers are going to end up buying the crappiest securities at inflated prices. Some securites, like residuals from subprime and HELOC securitizations, are legitimiately carried on books at zero, so many properties have been foreclosed and sold off that they can never have value. Yet watch us pay real tax money to buy them, it will be like finding a winning lottery ticket on the ground for some banks. Here's another game to watch for. Suppose you have a securitiy worth 80 cents on the dollar. Watch it get restructured into two securities, one worth the full dollar and the other worth nothing, then the nothing part gets sold to you know who. That's essentially what the securitization process is all about anyway, it will be done in a special way to exploit this bailout.

And what's really bad about the process is that the same managements that got us into the trouble will remain in place, and they'll probably get big bonuses for bringing home the taxpayer bacon. The comment about TPG is dead nuts on.

WaMu: Speculative Value Play

The most questionable area of the loan portfolio is the HELOC/seconds. They already write off more on the seconds than they do on all the primary loans, which include Option ARM's. Seconds take 100% of the loss before the primary loan loses one cent.

WM hasn't written down the value of the non-performing loans either. Banks have great flexibility about when to write down the value of the loans. There are numerous anecdotal reports about WaMu refusing short sales, I believe because it would force them to recognize a loss. By refusing an offer, they can keep the non performing loan at full value on the books.

Clueless KKK estimates that WM will lose $19B on mortgages, note that does not include upcoming billions in credit card losses which started last quarter. Compare delinquency rates and loss provisions with Capital One to see what I mean. So why don't they reserve the $19B? It would put the bank below minimum Tier 1 capital requirements if they did. One good puff of wind would topple this house of cards.

Five Stocks to Own Now that the Dow Has Bottomed

MER sold securitized tranches at an average of 22 cents on the dollar, not mortgages. Depending on seniority of the tranches, some are worth full value, others may be worthless. This article contains a decent description of the securitization process. MER obviously held a big slug of junior tranches.

www.moodys.com.br/bras...

Citi, Merrill, WaMu: Death Spiral Financing

The "death spiral" clause TPG inserted isn't meant to be taken at face value. What it does is give them a place at the negotiating table if further investment is required. No one is going to sink more dollars into WM if a big slug of it goes right out the door to TPG and crew. The TPG crew owns about half the bank now. If WM continues down it's current path and requires more capital, TPG may be faced with the dilemma, do they want to own 20% of a solvent bank or 50% of nothing. I'll wager on the former.

WaMu's Suspect Mortgage Pool

As bad as this securitization appears, I take issue with one of your statements..."The problem should be clear. In no way shape or form, should any package of liar loans been rated AAA."

The A-1 tranche is typically 50% of the entire securitization. It has first dibs on all interest and principal payments. Because of that, it carries a low interest rate. I'm guessing that 30-40% of the interest collected goes to holders of the A-1. Since 70% of the loans are still viable, the A-1 is more than well covered. So are the next few tranches in line. The A-1 also gets the first 50% of the repaid principal. It appears that 5-10% of the mortgages have been closed out due to sale or foreclosure. All that principal has paid down owners of the A-1. In addition, these loans were written to about 80% LTV. So the house could take a 20% hit in value and not affect the securitization at all. ((Side note: Second mortgages written on these properties are where the absolute disaster is occurring.)) The 30% delinquent properties could be bulldozed at zero value like you said, and the A-1's and a couple other senior tranches would still be paid off in full.

The big issue in the securitizations are the mezzanine and B/C/D's. These were typically also rated AAA based on backward looking loss analysis. But when housing prices were in the bubble, a buyer could default on the property immediately, and the bank come out whole because the value of the property rose so much in the interim. Heck, defaulting homeowners sometimes made money reselling the house. Those were the figures the so-called analysts used to rate the securitizations. That isn't happening any more.

Real Estate and Financials: Sell the Rally

In John Mauldin's most recent newsletter, he points out that new home sales are running at an annual rate of 526K. Meanwhile, housing starts are at 947K/year and permits are at 927K/year. Now, what do you think will happen to home builders?

How To Buy a Bank (and Other Beaten-Down Stocks)

About WM. Sure they were $2.6B cash flow positive, but $2B of it came from a $1B preferred issuance plus another $1B bond offering. Not exactly sustainable. Go to pages WM-14 and WM-15 of the 8-K with the latest earnings release and see how NPA and actual writeoffs are ramping out of control, especially the HELOC. And if you think that $327B in assets, including $50B face value of HELOC is still worth $327B, then I have a bridge in Brooklyn to sell you. There's a reason they took $7B in cash, it was to maintain Tier 1 capital and prevent insolvency. If housing price keep fall another 10-20% in CA, AZ and FL, the $7B won't be enough.

Mortgage Resets: Subprime May Be Ending, Option ARMs Have Just Begun

WM did a ton of seconds over their own Option ARM's. What's bad is that they generally didn't get rid of them by securitization, there are about $40B true seconds sitting on their books.

Mortgage Resets: Subprime May Be Ending, Option ARMs Have Just Begun

Where you're going to see the huge losses isn't in the Option ARM's, but in the second mortgages that were also part of the financing. Many of these loans were financed 80% primary, 20% second. The second loses 100% of its value before the primary Option ARM loses one penny. The WM 8-K page 15 from two days ago stated that there were larger writeoffs from HELOC than subprime, and HELOC writeoffs seem to be growing exponentially over the last few quarters.