ArnoldCountry

Warren Buffett on the Dollar, the Recession, Subprime and Bear Stearns

Recession? That is the problem, at every "recession" the government puts in controls that speak to the definition of "recession" but do not focus on the reality. User 190263, you are merely speaking to the definition. Who cares. Just like the word depression... who cares. I think all one needs to do is take off the blinders and broaden ones vision beyond the definition and you would realize that we are in a form of depression... one that has never been defined before due to the complexities that have been added to our economic system.

Warren Buffett on the Dollar, the Recession, Subprime and Bear Stearns

Mr. Buffet is brilliant and I saw the other day that his finance arm, Clayton, bought some sub prime loans and immediately froze their rates and would not increase them to help borowers. However, I read this this morning:

UBS Mortgage Sale a Cautionary Tale
Wall Street Journal (05/07/08) P. C2; Shah, Neil; Gullapalli, Diya; Mollenkamp, Carrick
Following on the heels of Deutsche Bank AG and Citigroup Inc., UBS AG has become the latest investment bank to sell off unwanted assets, which some observers believe indicates signs of recovery in the credit markets. UBS is unloading $15 billion in Alt-A and subprime mortgages to asset manager BlackRock Inc., reportedly for about 68 cents on the dollar. While that price represents a significant loss for UBS, Citigroup credit strategist Matt King says banks are willing to meet buyers' prices in order to shrink their portfolios and holding costs. There remain concerns that rising mortgage defaults will make it difficult for these banks to continue getting rid of troubled assets.

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As I see it, if an investor is able to buy troubled subprime loans at 68 cents on the dollar, the problem is over. Can you imagine the positive impact on the market if all of those borrowers immediately had their rates reduced to zero for 3 years and chopped their payments down to 1/3rd, all resulting in principal reductions for each payment, the consumer would save their home, the buyer of the loans would still be profitable assuming a 6% interest rate per year (discount of 32% would only lose 18%) and the principal reduction would build back equity. Of course, if that is not pallatable how about lower their rates to 3%.