vagrant_joe

The Dysfunctional Credit Market

Hi Felix, I enjoy reading your articles although I don't always agree with them. In this instance, maybe we could be more clear as far a WHO's credit is drying up.

By saying that credit in general is drying up, we ignore very interesting data issued a week and a half ago from the Fed showing EXACTLY the OPPOSITE
-as in Mark Perry's article earlier today (seekingalpha.com/artic...).

Someone is lying. Either the data is wrong (from the FED) or Paulson et. al. is wrong. Someone's shoveling crap and I wouldn't be surprised to see it be either one.

Close to me, my brother & some of my friends have had no problem getting approved for home-loans recently and my ex-girlfriend just got approved for a $350k loan -even though she's only been working at her job for 8 mos. with no prior history in the field (she's a nurse). Not bad for a dried up credit market with gears that have ground to a halt and no-one trusts anyone anymore.

I don't see credit drying up. I see the Fed pumping a TON of money into the system, pulling off these bogus "swaps" with other central banks to lull folks into thinking the currency isn't being devalued at the same time, and I see more and more people that have worked themselves into a position of becoming uncreditworthy (defaulting on home loans and not paying credit card bills had that sort of consequence way before Paulson yelled "fire" in a crowded building).

So, many banks have worked themselves into that same uncreditworthy situation that many of their borrowers had. It happens. I wouldn't lend a buddy money again if he didn't pay me back the first time & did the same thing with 11 other buddies. And so it is between banks -maybe. Either they get their life/business together and make some cuts in the surpluses of their lives (inflated bonus's, branches on every corner, fancy lighting and fancy buildings) or they declare bankruptcy (like their customers) and someone else gets those branches, lighting, and buildings. Life goes on. Nothing to see here. Just a few folks waving socialist flags and having a little parade -hey, there's my congressman... that bastard...!

Bailout Talks Lose Sight of the Cost Question

I was reading yesterday that $3 Billion of MBS's were unloaded at 27 cents on the dollar back in November. Morgan Stanley unloaded a bucket-full of theirs at 22 cents on the dollar back in June. I've been trying to get an idea of what the current fair market value is on these (as Congress, Bush, et al want to buy a bunch of these things with our money, it'd be nice to know whether we're paying the $55k full-sticker price for that Escalade with 22" dubs that the neighbors son, G-dawg, financed -or we're getting it for the $7,500 that it's now worth as a gas guzzler, parked on that uncut, unwatered lawn, not-washed in 6-mos., with a crack going through the middle of the windshield, and some bumper damage from the last 3x that the repo man snuck over & tried to load it up on his tow-truck, in a bad market). Since June, home prices (especially in California) have continued to deteriorate at a pretty rapid pace. Condo's that were at $40k (yeah, really small condo's) at the bottom of the trough (say, 6 years ago or so) went up to between $150k-200k at their height. Those same condo's are now in the 70-100k range -with short sales near $60k. That $60k short sale was an $87k short sale in June (when Morgan Stanley unloaded). Could it hit $40k again? Maybe. I mean, the sort of folks that bought it the last time it was around $40k aren't really making much of anything more in their paycheck now. And, unemployment may be higher now than it was at that time. We are starting to see (and this is really fun) foreclosures on properties that were recently bought as bank owned foreclosures -second time around the block. It's easy to comb through Zillow & look for isolated examples which may not always be indicative of the market as a whole. So, how much is that doggie with the broken window? Well, if it was 22 cents back in June. Pricing has dropped since then, inventories have risen, qualified applicants are going down due to more normalized credit requirements, jobs are decreasing and set for a big decrease after Christmas (going to be some great after-Xmas liquidations), and on top of that, less folks are paying that mortgage on time or at all. Does 15-18 cents on the dollar sound like a fair guesstimate?

Of course, we could devalue the currency to the point where that $40k condo is riding back at $150-200k -but then an apple would have to be about $6/bite.