1 of 4's Comments

Modeling Bank of America's Share Price

Thu, 02 Jul 2009 10:18:05 -0400

I guess management has nothing to do with it?

Securitization Groups as Financial Slaughterhouses

Wed, 01 Jul 2009 11:24:52 -0400

It was thought that geographical diversification within mortgage pools would address the risk of one area suffering an economic downturn. Afterall, real estate is impacted by the local economy and reflects the strength of local incomes. The problem is that real estate prices overall were grossly inflated by the availability of easy loans. It was no longer was an issue of local economic strength, but a reflection of easy money placed in the hands of the most inept asset buyers. No amount of Wall St quant modeling could reflect the resultant human behavior. All their modeling was based on historical data, but rules to how the game was played were changed. It changed from being an issue of estimating how many subprime borrowers would default, to counting how many borrowers would default when they were upside down on their home in the face of increasing mortgage payments on a home they never had any equity in from the outset. You don't need a model to predict that result, the borrowers simply hand back the keys in droves.

Back to an Almost Record Curve

Mon, 01 Jun 2009 22:56:47 -0400

Watch, the rise in treasury yields will allow the banks to play the carry trade game and earn themselves out of this mess. They did the same back in '94.

The Final Hours of GM?

Mon, 25 May 2009 21:56:02 -0400

Unions are nothing more than an artificial restraint on the supply of labor. In a world economy, labor reliant manufacturing is easily exported to regions of lowest cost, thus defeating the geographically local artificial restraints imposed by unions. In simple terms, labor unions kill themselves. Figure it out or die.

On May 22 07:44 PM Larry M. wrote:

> A year ago .... before Wall Street Collapsed GM was I believe about
> $40 per share. Obviously the Collapse (Combined) with all the Wall
> Street GM Bashing by it's Investment Bank Ratings Agencies has Crashed
> the Broader Economy and took the Auto Industry down the Tubes.

>
> I Charge that Wall Street has Successfully Bashed GM into the dust
> for the Express Purpose of Destroying the Last of the great Manufacturing
> Labor Unions. This WAS Deliberate as such is Criminal to Deliberately
> Damage and Destroy the Economy of The United States of America.
>
>
> And that my Fellow Americans Deserves Prison Time for Economic TREASON
> agianst The United States of America by Several Wall Street Banks
> and their Ilk the CFR, the TC and the (Private) Fed Bank.

When Will Banks Start Lending Again?

Wed, 13 May 2009 13:32:30 -0400

People in the banking world I'm talking to say they're doing renewals and admin work. Pretty tough to find qualified commercial borrowers in this economy, so no one is tripping over themselves to extend loans to new borrowers. Basically, we're now looking at a Fed constructed earn out for the banks: short term rates next to zero, lend out longer term to known high quality customers at interest margins close to 4%, or buy Treasuries.

California: Trailblazing the Road to Insolvency for the Rest of Us?

Tue, 12 May 2009 17:14:29 -0400

Legalize and tax marijuana. Maybe it would jump start munchy sales, allowing Mother's Cookies to exit from Bankruptcy and start producing them beloved icing covered animal crackers?

Is the State of California Broke?

Tue, 12 May 2009 09:58:21 -0400

Yes it's true and the voters are pushing back because they resent the fact that Sacramento continues to punt on making the hard decisions. Private sector people are tired of paying ever increasing taxes for the inflated salaries and generous retirement plans of police and firefighters. On the other hand, when the issues are parsed and presented to the voters directly, few turn (vote) down benefits for the firefighters, police or teachers. Those factions all have strong unions that spend millions each election to sway voters. They're spending like crazy on the current initiatives, but this time it looks like they're going down. The last initiative, 1F, is nothing more than an uptick rule. So they can't increase pay in an economic downturn, but they'll catch it up when things turn around.

Pimco's Gross: Looking at the New Capitalism

Tue, 05 May 2009 16:06:14 -0400

Obama can try all he wants to redefine capitalism. He may even succeed so within the U.S. on an interim basis, but the long term result will be that capital will flee to the areas of highest return. It's like unions can place an artificial restraint on the supply and price of labor, but if they aren't competitive in the long run, those jobs flee the U.S.

Stress Testing: What's Your Bank's AQ?

Mon, 04 May 2009 12:58:35 -0400

That's the first thing that struck me: why is Wells on the Good Bank list and yet the leaks on the Stress Test results are saying they need to raise $10 bn of capital?

Is their rank being distorted in the AQ by the recent run up in their share price? Is there something about their underwriting standards that is not being capture by the inputs to the AQ test? I think it's a combination of the two. I personally think that Wells pretty much ring fenced the potential damage from acquiring Wachovia. I think the stress testing done by the government was probably skewed towards further downside cases on real estate, particularly commercial, and Wells is and has been primarily a bank focused on commercial real estate. However, Wells has traditionally been a conservative underwriter on commercial real estate and may be getting painted with the excesses in lending that went on in this area. It's a tough call to make unless you had access to the details in their books.

On May 04 12:00 PM Vikingblood wrote:

> Wells Fargo is under your Good Bank list ... last time I looked,
> they were asked to raise an additional 10 Billion in Capital.

Treasurys Are Getting Crushed

Mon, 04 May 2009 11:52:22 -0400

When the Treasury has the printing presses running at red line 24/7, you can be damn certain there will be some "crowding out" in the market. Yields will have to rise to absorb all these IOUs. Just sayin.

BTW I had a private discussion with the devil. He said "wear two condoms and a surgical mask and dive in. You'll be fine."

Buffett: I Wouldn't Buy Newspapers 'At Any Price'

Sun, 03 May 2009 13:51:59 -0400

Just canceled my local paper. Their local coverage had dwindled to nothing. They got rid of their guy who covered fishing and he was replaced by some pudgy surfer chick. All the front page articles have been on-line the day before. They cut their business section to 2 pages and include that at the back of the front section. The only remaining use I had for the paper was to cover spills while doing oil changes on the cars.

Evidence That End of Housing Price Collapse Is Not Far Off

Thu, 23 Apr 2009 14:04:25 -0400

He3re In Orange County, CA, they're reporting consecutive month-over-month price increases in housing. Not so for inland Riverside and San Bernadino. Still, it's the early sign of a bottom. Coastal properties are most desirable and recover the quickest. Least desirable is the stuff much further inland. That's where people who could not afford coastal bought. That stuff is still spiraling downward.

SEC Exploring Remedies for Short-Selling Manipulation

Mon, 02 Mar 2009 22:54:40 -0500

Bravo!

1) Reinstate some form of the uptick rule.

2) Eliminate naked short selling.

3) Suspend mark-to-market accounting for financials.

This more than any capital injection or stimulus, will stabilize the markets. Then they can go in and sift through the wreckage to determine true asset values in a normal market. In the absence of these changes, they are merely attacking the next hotspot that flares up in a huge firestorm.

FASB: The Damage Has Been Done

Tue, 24 Feb 2009 23:01:28 -0500

Take mark-to-market accounting and add in naked short shelling in the absence of the uptick rule and you get.....the disastrous current market downtown fueled by speculation as what underlying asset values CURRENTLY are.

Is Windows 7 Just a Vista Service Pack?

Tue, 03 Feb 2009 22:58:14 -0500

I've heard reviews on the radio for Windows 7 and they were saying it is the best Windows since NT2000. It's what Vista should have been. Based on that, I'm holding off a laptop purchase until it's available.

The Problem with Option ARMs

Fri, 26 Dec 2008 12:53:14 -0500

An ARM without the negative amortisation minimum always made better sense. You still had the option to pay down when the big paycheck came, but there never was the deferral or negative amortisation option. That would make qualifying for the loan more strict.

What Corporate Yield Spreads Are Telling Us About Equities

Thu, 18 Dec 2008 10:26:26 -0500

File under this time it's different. Gravity has been altered.

Free Marketeers for Wage and Price Controls

Fri, 12 Dec 2008 20:53:47 -0500

rwoods says that bankruptcy is not the answer and asks who would fund those legacy costs. Well, bankruptcy is the answer because you discharge those costs or cut them back to reality. Nothing is set in stone at that point, not even a golden retirement.

Why AIG Gets Billions While GM Gets Scorn

Fri, 12 Dec 2008 20:47:29 -0500

The UAW manages an estimated $80 billion pension fund. Let them invest in and save GM.

In Defense of the CDS Market

Tue, 09 Dec 2008 23:53:50 -0500

Well stated.

On Dec 09 05:31 PM TomArmistead wrote:

> CDS, like any other form of insurance, is useful.
>
> Being insurance, CDS should be regulated as such: 1) there should
> be a requirement of insurable interest 2) those who write the coverage
> should be regulated to be sure their capital is adequate.
>
> If CDS had been regulated along these common sense lines, a lot of
> financial mayhem would have been prevented.
>

Is Real Estate Investing Our Best Shot at Wealth?

Thu, 04 Dec 2008 12:43:56 -0500

Real estate, it's the asset that keeps on giving.....in the form of maintenance and upkeep.

Gisele Bundchen - Predictor of Currency Movements?

Wed, 26 Nov 2008 14:27:55 -0500

Yeah but she got paid and her rack is very nice.

Berkshire's Puts: Not Such a Great Idea

Tue, 25 Nov 2008 21:40:15 -0500

Felix, Buffet's investment in GS was a preferred investment with a 10% coupon that's a tax free dividend yield to a corporate like BRK-A. With that he got warrants for GS stock priced at $115. Yes the warrants are way out of the money, but Buffet has lost nothing on his investment in GS. Claiming that he has lost money on his position in GS is factually incorrect and only highlights your ignorance.

The Difference Between Rubin and Paulson

Tue, 25 Nov 2008 17:21:20 -0500

There is truth to what they're saying. Investment Bankers are dealmakers and they rush from one deal to the next like a kid opening Xmas presents. There's no broader view or plan as to where they're going, only the next deal. The cycle usually ends when the music stops.

All that said, I would not normally attribute broader views to traders. Their focus is even more narrow than the deal makers and their goal is just to make money regardless of market direction.

O.C. Housing Market: Sales Are Booming, Prices Are Not

Fri, 21 Nov 2008 02:50:18 -0500

Matt, I live in Fullerton which is in North OC. Long time subscriber of the OC Register and agree that they do a good job covering the Real Estate Market here. Their Business Editor, Jonathan Lansdner was squawking about the over priced real estate market back as far as 2004. At the peak, the median priced home financed using a traditional fixed 30 year mortgage would have consumed 68% of the average household income in OC. When you consider that the underwriting standard for the GSE is a max 38% of income for a 30 year fixed rate mortgage, then you knew that those homes were being bought with ARMs and it was a non-sustainable situation.

I myself worked at WAMU from 2001 to 2004 in their failed effort to build a commercial bank in California. Based on the mortgage activity I saw there, I knew the market was not sustainable. When the Fed started to raise rates, the easy money mortgage refinancings resulting from 50-year low rates on 30-year USTBs started to dry up. The push was for new purchase loans and with the ever increasing real estate prices the shift was towards ARMs, Option ARMs and subprime to keep the game going. There were people in my office with high school degrees making half a million a year answering the phone to originate mortgages. They all thought it was due to their smarts and good looks. I knew it would not last. I also felt that prices would break back to about 2003 and they have. My big mistake was not proactively taking advantage of the impending burst of the bubble.

All that said, I agree with your assessment. The real estate market here has past the worst phase of the subprime crisis. The next washout will be due to collateral damage from the credit crunch and recessionary downturn. Most of the subprime damage has been concentrated in the central part of OC where the lower income housing is. The higher priced housing has just sat and those owners are riding it out, holding their breaths (myself included). We'll see, but I think the worst is over.

Steve

Three Problems with the Fannie / Freddie Mortgage Modifications

Tue, 11 Nov 2008 20:05:54 -0500

Paying "rent" in the form of tax deductible mortgage payments is far better than simply paying rent. Uncle same is subsidizing the mortgage payments.

Furthermore, your conclusion that they would be better off walking away from the current situation where they are merely "paying rent" and getting into a better housing situation with upside is based on the false assumption that their credit record would allow them to do so.

Lot of people took out 30 year mortgages due in 5 or 7 years on the assumption that they'd only be in the home for less than 5 or 7 years and thus would not face the higher reset rate on the balloon that was due. How is this any different than the refinancing risk on the balloon at the end of your 10-year recovery scenario?

I'm sorry, but your description here wreaks of a prevailing attitude that purchasers of real estate are entitled to capital gains while the downside risk is only to be born by the lender.

On Nov 11 05:32 PM RJMoran wrote:

> I have to agree with PK...
> The last time prices fell 30% in Southern California, it took 10
> yrs to get back to the 'top' or 'break even' point for the mortgage.
> In other words, IF you bought a $600K house that is NOW worth $400K,
> even if the government modifies your loan, you are essentially paying
> 'rent'. In the forward 10 yrs of paying your mortgage, you'll NEVER
> accumulate ANY equity and will only get you out @ your original $600K.
> You're essentially servicing a loan like a renter is paying a landlords
> mortgage! You are 'renting' your own house till the mortgage is
> paid OR you move and STILL have a balloon payment to pay off...WHY
> would anyone do this!? Walking away and getting into another situation
> where there is at least SOME upside Equity potential would be THE
> only answer for these people! Sorry...

Obama's Green Obsession: More Harm Than Good?

Tue, 11 Nov 2008 13:54:12 -0500

"I notice you don't say FOR WHAT TIME PERIOD? You are an idiot....."

Sorry Alldonewithtech, but maybe you need to read up on what a kilowatt hour (KWh) is:

* Watts is the rate of use at this instant.
* Watt-hours is the total energy used over time.

To measure use over a period of time, we use watt-hours, not watts. The way it works is, watts or kilowatts for the amount at a given instant, and watt-hours or kilowatt-hours for the amount over a period of time. 1 KWh is 1000 watts over an hour's timeframe.

AIG: New Math for Understanding What Went Wrong

Tue, 11 Nov 2008 11:05:26 -0500

The historical data used to model did not reflect the positive feedback loop that increased availability of mortgage funds to the least sophisticated borrowers/buyers would have on home prices.

The Downside of CDS Demonization

Thu, 06 Nov 2008 23:13:02 -0500

"the more we think we're safe, the riskier things actually are."

One of the great failings of this financial crisis is the result of the originate for distribution mortgage market. No one held the mortgages on their balance sheet as they went down the distribution pipe to become CDOs. No bank capital was allocated to them. No one in their right mind would hold those subprime junk mortgages. After they got packaged up into securities, suddenly banks were willing to hold them. The yields looked good versus the regulatory capital required against them. Then, as you've pointed out, the risk was hedged with CDS to the extent possible. Ultimately the real losses came on the underlying debt securities, yet without the CDS how much of these junk securities would have been absorbed in the market? The CDS market acted like a security blanket cajoling Banks into buying and hedging this junk when they never would have held the individual mortgages in the first place because they knew the risk. So, to argue that CDS was not the problem is to ignore the fact that it facilitated the whole crisis.

AIG and the Free Lunch Myth

Wed, 05 Nov 2008 13:48:58 -0500

"You should start increasing the price-fast! You should also pay sharp attention to that gnawing feeling in your stomach that these folks know a hell of a lot more than you do about what's going on."

Billp's comment is spot on. Also, AIG (and the entire CDS market) violates a fundamental law in the insurance indusrty: you can only sell insurance to those who have an insurable interest. Which means buyers of the CDS must hold the underlying security or debt to have an insurable interest. This restriction alone would have eliminated the speculation and really contained the CDS market.