We need O-Joe to tell us how many companies are not defaulting right now.
Not to pick on him, but we've been dealing with this attitude from the beginning.
Gloom and doomers, purposely ignoring the "other 98%, no 97%, make that 93% paying their mortgage on time"...
These problems are real. CR and Tanta and others have outlined very real reasons why these things were going to happen....before they happened.
Bernanke, Cramer, Stein, Kudlow, and on and on, poo pooed us and tried to marginalize those who worried as chicken littles, global warming types who have been calling for the end of Amerika for years.
The truth is playing out as many of us predicted. Sebastian and O-Joe have been proven horribly wrong.
Misean, these guys have an excellent reputation. This isn't New Century or Fremont ... I believe their portfolio is mostly jumbo prime (but I could be wrong).
There were more foreclosures in the first month of this year than in any of the years from 2000-2005. If we just stay at this rate through the end of the year (without increasing) there will almost be 20000 foreclosures in San Diego alone.
Misean, I think it might be the later. The prime brokers are forcing hedge funds to delever. That means neither the prime brokers nor the hedge funds will have money to purchase that wonderous AAA product that TMA specializes in.
OT: Some people I know happened to be in Fremont "bank" in Santa Monica this morning. There was a crowd of people lined up to withdraw money. This was presumably in response to a story in the paper about the bank's problems (here) that says "two purchasers of its loans had declared it to be in default, raising the possibility that they could put it out of business".
And "The [bank] also said it was running short of cash to pay its debts and was considering putting itself up for sale. As of last week, the parent company had just $21 million in cash available and was deferring payments on some of its bonds."
Thornburg didn't specify the bank's rights in Wednesday's disclosure, but in a previous filing with the Securities and Exchange Commission, the company said that the lender has the "right to liquidate pledged collateral."
I recal many a debate on television between guys like Rich Toscano and the reassuring "experts" who would immediately point out how "we are no where near the records set in the early 90's".
Well, we're now at nearly 3X the monthly figure of the highest ever recorded in one month of the early 90's (in Aug 96, almost five years into the problem back then).
Now it's "93% are still paying their mortgage on time".
TMA is a good company that did a good job of managing risk. This shows how vulnerable the entire system is right now if they cannot pick up $28MM. How do most serious issues start?
By one of the smaller guys going teats up. This could be it, because it is under the radar of most everyone.
"Misean, these guys have an excellent reputation. This isn't New Century or Fremont ... I believe their portfolio is mostly jumbo prime (but I could be wrong)."
They have good reputation in originating jumbo loan. But the problem they have is the CDO portfolio where they leverage too much and with the recent haircut in jumbo CDO, they got margin call. This is the second time they got margin call (last time was Aug/Sept last year). And they had a conference call the first time describing the events as 100 yr flood scenario that they got margin call... Look like they just have another 100 yr flood scenario. Do not look like they can survive this one. More market chaos on jumbo CDO front as the dealer liquidate TMA's asset... Last time they get 95 cents on the dollars... May be a lot less this time...
xofruitcake: "they had a conference call the first time describing the events as 100 yr flood scenario that they got margin call... Look like they just have another 100 yr flood scenario"
I'm pretty sure those are fly-years, which are like 200 times shorter than human years.
I followed AHM's meltdown closely after making a bad bet on AHM preferreds at $2 a share. TMA looks to be heading down the same path.
The margin calls are for TMA warehouse lines of credit. Warehouse lines are where TMA would hold loans before they were packaged into the securities that were all the rage.
One thing I wasn't aware of is that warehouse lines of credit are exempt from the supervision of bankruptcy courts. It was one of the nifty tidbits tucked into the "Bankruptcy Abuse Prevention And Consumer Protection Act Of 2005".
Without the threat of bankruptcy the warehouse lenders have no incentive to work with TMA. TMA knows this and has probably sold (or committed) every asset down to the kitchen sink in an effort to satisfy margin calls.
This creates an incentive for the lenders to be the first to issue a margin call because the first to issue the margin call is most likely to get more collateral to cover them when things go bad.
The next rush will be for the banks to clean the portfolio (and force the bankrupt TMA to repo any junk) and auction it off. A lot of the fire sale assets will end up on the banks balance sheets and will eventually turn them a tidy profit.
The only asset the now bankrupt TMA has will be the servicing rights of the mortgages that it originated. TMA private labels the servicing of it's mortgages through a third party but the rights are worth something.
In AHM's case they were picked up by Wilbur Ross for 500M. But, the equity holders won't see a dime of it.
Part of the "run" on the shadow banking system is from fear but a good part is also greed.
When you say Thornburg's portfolio is "excellent", are you referring to LTV (which I can believe is low enough) or DTI (which I suspect is too high to sustainably be serviced over the long term.
(For example, in the Bay Area a couple with $100K income each buy a place for $600K which looks good on paper till one gets pregnant, loses a job, falls ill, whatever. Suddenly those primes are sub. over 5-10 years, it's amazing what a large fraction face something like this.)
The events of the past few days have made me as fed up with the system as I can be. I demand Bernanke and the heads of the 4 largest banks should be on CNN and made to answer, in no ambiguous language, the following questions:
How was possible for someone that makes $30,000 to get a mortgage for $500,000?
How can a total default of just 10% of ALL mortgages cause a epic collapse of the entire US banking system?
Why is it your mission to make the dollar worthless?
Why in the world is this MY problem?
Why are you so stupid?
Why do you make so much money for being stupid?
How can I get that job?
How do you sleep at night?
At what point do you think the average person, when faced with your silly "if the system fails you will be hurt along with everyone else" threat just say "So What!"
I undestand what you say about the excellence of their portfolio but I'm not so sure about their reputation - when this all happened first time round in Aug and their price dropped substantially - I looked at their 10-Q to see if there was a bargain so to speak and this is what struck me:
The Company has arrangements to enter into Reverse Repurchase Agreements, a form of collateralized short-term borrowing, with 21 different financial institutions and had borrowed funds from all of these firms as of June 30, 2007.
As of June 30, 2007, the Company had $24.7 billion of Reverse Repurchase Agreements outstanding with a weighted average borrowing rate of 5.26% and a weighted average remaining maturity of 15.5 months. As of December 31, 2006, the Company had $20.7 billion of Reverse Repurchase Agreements outstanding with a weighted average borrowing rate of 5.39% and a weighted average remaining maturity of 4.7 months. As of June 30, 2007, $17.5 billion of the Companys borrowings were variable-rate term Reverse Repurchase Agreements with original maturities that range from two to twelve months and $5.6 billion were structured Reverse Repurchase Agreements with original maturities that range from three to seven years. Generally, the counterparty has the right to call the structured Reverse Repurchase Agreements monthly after the first year beginning September 2007. The interest rates of these term and structured Reverse Repurchase Agreements are generally indexed to the one-month LIBOR rate and reprice accordingly. ARM Assets with a carrying value of $25.8 billion, including accrued interest, collateralized the Reverse Repurchase Agreements at June 30, 2007.
What's the big deal? They just need to split the company or, if that doesn't work, do a rights offering and "suspend" doing business for six months. Worked for the other guys.
When you say Thornburg's portfolio is "excellent", are you referring to LTV (which I can believe is low enough) or DTI (which I suspect is too high to sustainably be serviced over the long term.
TMA's book is clean. In other words, if a large portion of TMA's book goes into default resulting in substantial losses we mere mortals can kiss our butts goodbye.
The problem was leverage and the lock-up of the jumbo market. How much are 2007 vintage jumbos worth if the 2008 vintage is being written at 7%?
The other big story today was not Ambac. Instead, it was a widening of agency spreads combined with a widening of TIPS spreads. At first the two may appear unrelated: what do agencies have to do with inflation expectations? The answer has to do with faith in the Fed and the U.S. government. There is altogether too much talk of mortgage bail-outs out there. The possibility of the GSE's being used as a dumping ground makes the foreign agency buyers nervous. Its logical that those buyers would turn to TIPS rather than Treasuries. After all, there is plenty of evidence that the U.S. fiscal deficit is set to rise, and that the Fed is unconcerned about inflation also rising.
In other words, if this continues for much longer, it is simply evidence that, for our government:
You're probably right. I find it interesting that, instead of real, balanced economic growth based on income growth and increased productive capacity (like we had in the 90's), the past decade has relied on panaceas, wishful thinking and credit. These SWF's are the most recent manifestation. It is very depressing.
The most depressing aspect of our economy in the last decade is the growth of casinos. Every locality seems to think that casinos are a cure all for economic growth. Forgotten is the fact they don't actually produce anything, and the attendant social costs (crime, drugs, gambling problems ) are very high. Enough of my rant.
When Ben told banks a cramdown now was the least painful option, he was sugar coating it, and they are reacting to the sugar coating with apathy.....a feedback loop will fry components, if one doesn't act soon enough. Time is of the essence.
As for TMA:
Jumbo (High Return) Prime (Low Risk)
(Can I haz free lunch?)
My cousins are still nursing a 1.1M loan on two houses with < $80K income.....concern about return of capital will someday morph into concern about return of capital, but even Ben didn't wake them up yet with that speech yesterday.
So know I know turnips do bleed (and oh yea, if all is well why do anything. sh** I will go there for one year for 2.3M give me a call):
MBIA Inc. granted raises to some of its executives and offered bonuses to managers who stay another year as part of a plan to retain key people during a troubled period for the company.
In a regulatory filing Monday, the Armonk, N.Y.-based bond insurer said its compensation committee last month approved salary increases of as much as 60% for some executives. The committee also approved a "retention award" of as much as $2.3 million for executives who stay with the company a year
"The most depressing aspect of our economy in the last decade is the growth of casinos. Every locality seems to think that casinos are a cure all for economic growth. Forgotten is the fact they don't actually produce anything, and the attendant social costs (crime, drugs, gambling problems ) are very high. Enough of my rant.
Nuke"
That's a rant that deserves much more space. You are right on, Nuke! Disgusting.
looks to me like the IB's have lost their patience with the likes of HF's and TMA.
idoc you read my mind. As the credit situation worsens, we may be entering a new phase. This could be the beginning of the big IB's (Merrill, JPM, Goldman) declaring war on every small to mid-sized mortgage outfit that popped up on the financial landscape like crabgrass on bermuda recently.
Margin calls brought down New Century and AHM, I believe. Ironically, it could be the fact that Thornburg's assets (prime jumbos) still appear to have value that makes it a target for JPM.
Just for giggles, here is the ultimate case study in knife-catching. Some wretched soul on seekingalpha bragging about how he apparently loaded up the boat with 60,000 shares of TMA last week:
Its funny i read something on a blog about the same. Mortgage REIT Journal The blog is very informative and seems to be through. (S)He thought it was a good deal a few days ago. This one might have caught a few conservative investors / grave dancers by surprise.
I am simply amused that the US press is not really tuning into the sabre rattling going on in SA. Columbia is now facing troops on both side of its borders...and one player is a large oil producer! I called a friend in Ecuador and some folks are now stocking up on provisions expecting supply problems should war erupt.
"Venezuela deployed tanks and air and sea forces toward the Colombian border on Wednesday"
Cant wait to see the spot oil prices in the next 72 hours. (Gold hit 990 today, thank you very much!)
Wow. Hope that guy didn't actually buy.
The article from seekingalpha claims that he bought 20,000 shares of TMA around 3.81, then foolishly bought 10,000 more at 4.51.
My math says that's over 121K vaporized ... hope his wife wasn't counting on Christmas this year.
"Ambac currently intends to contribute the net proceeds from these offerings (after deducting underwriting discounts and commissions and other offering expenses payable by us) to its insurance company subsidiary Ambac Assurance Corporation in order to increase its capital position, less approximately $100 million, which it intends to retain at Ambac to provide incremental holding company liquidity to pay principal and interest on its indebtedness, to pay its operating expenses and to pay dividends on its capital stock."
So I will enter the confessional: I own TMA stock, and I will take a serious hit on this one. Even though I live in California and have watched the real estate situation very closely for a couple of years, I will confess surprise. I find the extent of the TMA'a decline breathtaking, not because I've lost a chunk of change, but because these guys aren't beginners. Keith
Well, that was a bad bet. Nice timing on the double down this afternoon too.
Since I just blew out all of it in the afterhours market maybe I can look doubley stupid when they do some deal tomorrow. Turned a perfectly good day into a mess oh well.
The surprising thing here is the margin call from JPM. Thornburgs book is incredibly sound so I can't quite understand why JPM blew them up. I wonder if JPM is under pressure from something else and they just need to get stuff off the books regardless.
Amazing chit.
"NEW YORK, March 5 (Reuters) - Underwriters for Ambac Financial Group Inc's (ABK.N: Quote, Profile, Research) mandatory convertible bonds expect the securities to pay annual interest of between 8 percent and 8.5 percent, investors who have been pitched the deal said Wednesday."
Don't worry everyone. It's contained. We are dancing on the bottom and a housing recovery is going to be here this spring. Subprime should be back in business sometime later this year as pent-up demand brings us a little bit of heaven. Then the Easter Bunny is going to give Santa Claus a reach-around.
I have been short TMA since the middle of last year. My next candidate for a dramatic drop (TMA went was at 12 about 2 weeks ago, is now under 3) is Newcastle, which is also a REIT. It specializes in CRE, subprime, and mobile home loans.
JPM is under pressure from everyone else. I can imagine that with all the writedowns, the IB's have to delever as much as possible. That means calling in credit lines and credit from everyone. Hedge Funds, Mortgage Lenders, etc
The surprising thing here is the margin call from JPM. Thornburgs book is incredibly sound so I can't quite understand why JPM blew them up. I wonder if JPM is under pressure from something else and they just need to get stuff off the books regardless.
Amazing chit.
david_in_ct
You give JPM too much credit - you MUST know about sharks and "blood in the water" - do check out LTCM or Amaranth or... why the buggers even scalp lil'ol'me, IMO, for a lousy few high hundred bucks, on my trailing stops( dips in the price that last barely seconds - just enough to take out my stops ) these recent days when I've tried to protect myself from these miserable ABK rumors at the end of the day.
I'm not pretending to understand any of this, but could it be that JPM sees a chance to pounce and take over undervalued assets under the terms of its deal with Thornburg? Thornburg is getting a margin call because the market price of these assets is down, but their actual (or eventual) value could be a lot greater--Does JPM get ahold of these assets at this point?
Oddly enough I also have a Note with TMA. You know, the perception that TMA is some great lender catering to the super rich just isn't correct. I worked (wholesale) with these guys for quite some time and they approved files that were ALT-A (stated income, full assets) at best. Now, they do have a bit more stringent requirements when it comes to reserves BUT do you know where most borrower reserves comes from in high cost areas? THEIR 401K!
Lenders allow 70% of a borrowers 401K as reserves for underwriting qualification. However, a 401K cannot be liquidated in the event of default or BK.
This being the case, many loans that I personally know of were approved based upon a borrower meeting this requirement with minimal liquid and the majority in illiquid or 401K assets.
There seems to be a disconnect between who they say is their market and what is the truth.
The Super Wealthy have private banking relationships that don't include TMA. TMA's pricing, while good, has never been on the caliber of the "elite". While they do have one of the best margins in the biz (1.875), their rates are on par with any other A paper lender.
Lastly, I wish I had the money to be considered Ultra rich...... Furthermore, I know of 17 friends & co-workers who have TMA loans. They are not super rich AND when purchased put down 10-15% which by now is probably gone.......
These guys are big Alt-A lenders. We have discussed here that Alt-A is the worst, so this is no surprise. The surprise is he went on CramerVision and pumped the company as a long term survior.
The surprising thing here is the margin call from JPM. Thornburgs book is incredibly sound so I can't quite understand why JPM blew them up. I wonder if JPM is under pressure from something else and they just need to get stuff off the books regardless.
Amazing chit.
See my 7:14 post regarding the '05 changes in bankruptcy laws with respect to warehouse lines of credit.
The changes create perfect conditions for a "run" because the first bank to issue a margin call gets whacked the least.
There is also a greed element. The margin calls/auctions are a perfect setup. LUM sued HSBC after HSBC issued a margin call and auctioned off the securities. In one auction, there was only one bidder.
ac
i have no ax to grind anymore but their mortgage book is completely clean. Out of the 34000 or so loans total 60+ delinqent is under 1%.
It is a good business model, unfortunately for them they funded the biz with callable credit lines instead of something else. Things are getting pretty wierd when the solid stuff starts getting foreclosed upon because the banks just want to do it. I don't know if this is a vulture move by JPM or they have gotten the word to just exit these business any way they can and the opportunity presented itself.
strange times
An analyst for Jefferies & Co. gave Thornburg Mortgage Inc. a one-in-four chance of bankruptcy Wednesday.
Richard Shane Jr., quoted in an Associated Press article that was citing a letter to investors, downgraded the company from a "Buy" to a "Hold."
Shane said the beating Thornburg has taken from $570 million in margin calls in the last month could prove to be too much to stay afloat.
The Associated Press quoted Shane as saying the mortgage bond market is "experiencing a daily unwinding as leveraged investors are forced to liquidate positions."
"These guys are big Alt-A lenders. We have discussed here that Alt-A is the worst, so this is no surprise."
If you go to their website you can look at the whole MBS portfolio. There is nothing wrong with it.
"Shane joined other analysts in predicting Thornburg would suspend its 25 cent first-quarter dividend and dropped his price target for the company's stock (NYSE:TMA) from $14 to $3.75. "
Last fall I was buying puts on TMA and everyone (including Tanta) told me what a great company it was. The puts were successful, somewhere in the $30's I think. Haven't tried trading the company since.
"Wednesday, Citigroup (nyse: C - news - people ) said it would sell a 30-year issue, underwriting the lion's share -- $2.1 billion, or 84.0% -- itself. The relatively long-term issue has a relatively yummy yield: 6.875% of face value"
BillD if you are gonna trade it, you'd better act fast. The next step is delisting (see NFI, NEW, etc.)
In all seriousness, this brings up a point. There is a reason that serious publications like IBD tell you to stay away from stocks under $10. They are there for a reason. The companies are damaged and the market is an efficient voting mechanism that you ignore at your peril.
If you are tempted to speculate on a comeback play on one of these zombies, why not buy a bunch of out-of-the money calls instead? You will probably make equal the profits if the company comes back, while risking only the premiums. Think of them as "lottery tickets" with capital you can afford to kiss goodbye.
This advice could save a lot of folks some pain and sorrow.
Kicker:
Could be, but don't the cross defaults means everyone gets to be at the table?
And I thought CR's comment about TMC being into price-Jumbo was scary enough.
I've never been a perma-bear. When non-techies went crazy over dot-coms, that scared me and turned me bearish. This housing bubble, which I'll admit to realizing just early enough to save myself, is scarier.
Another explanation for the ballooning of agencies spreads: rumors that FNMA and its auditor are about to part company and that FNMA will announce the "mother of all write-downs."
ac
i have no ax to grind anymore but their mortgage book is completely clean. Out of the 34000 or so loans total 60+ delinqent is under 1%.
It is a good business model, unfortunately for them they funded the biz with callable credit lines instead of something else. Things are getting pretty wierd when the solid stuff starts getting foreclosed upon because the banks just want to do it. I don't know if this is a vulture move by JPM or they have gotten the word to just exit these business any way they can and the opportunity presented itself.
strange times
Well my point was really a more general one, but I think this case illustrates how US businesses in general are losing credibility as credit rot spreads everywhere.
Didn't the agencies say today they are jumping into the jumbo market.
I have a vague memory of reading and article about it. Unfortunately, between the Super Colander Tin Foil Hat and the Jo-Janta 2000 Peril Sensitive Sunglasses, I might have lost consciousness briefly.
Neil:
Why would loans to a higher quality client base be more scary?
It's not thier loan portfolio which is blowing up. It is their financing. In this market the two have very little to do with each other. This is a bank run although it is taking place on a commercial level. We are in kill the good companies now just because.
"Well my point was really a more general one, but I think this case illustrates how US businesses in general are losing credibility as credit rot spreads everywhere."
I think that the problem is more fundamental. Because of the way that the federal reserve and banking system is set up, a very few banks actually control the entire credit spigot. During times like this they can use and abuse their power even more. As I used to argue with banker, if we got rid of fractional reserve banking and the Fed did nothing put printed a fixed amount of cash each year the whole thing would probably work much better because money would seek a real market price and these bubbles and unwinds would never get so big as to threaten the system.
"Its crazy to say the two have little to do with each other - its like saying pregnancy and intercourse are unrelated."
What if instead of being a mortgage co they were a maker of waffle irons and one morning waffle iron futures went limit down. The company had a book of orders to sell waffle irons at a fine profit and the orders were money good, but the bank yanked the credit line and put them out of business.
The problem with thornburg was not the business which they seem to have conducted quite well, but the way they went about financing it.
Maybe I can buy my loan back at 70cents on the dollar from JPM.
I was convinced it was just blind and bribed pension money that was still long any of this stuff.
How could you be paying attention to the facts and not think that this stuff will be priced either much lower or very close to what it is now in 6-18 months? Or just out of business and worthless.
I'm worried i'm going to get overconfident and think I know how things work if i keep finding out how much "smart money" is still long on this crap. Who is holding home builders?
Legislation could be introduced as soon as next week, said Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee. Frank's comments came Wednesday following a closed-door economic forum convened by Frank and House Speaker Nancy Pelosi, D-Calif.
A key feature of the foreclosure-prevention bill is likely to be a government-backed fund that would purchase pools of subprime mortgages that lenders had reduced to affordable amounts for borrowers, then refinance them into loans insured by the Federal Housing Administration.
"We should be moving to get these mortgages written down and refinanced," Frank said.
On the Senate side, Banking Committee Chairman Christopher Dodd, D-Conn., has also been working on ideas for a government-backed mortgage rescue fund.
The House Democrats' economic forum came a day after Federal Reserve Chairman Ben Bernanke called on lenders to do more to prevent foreclosures, including reducing the principal that troubled borrowers owe on the loans, rather than simply freezing or reducing interest rates.
There are a few biggies that do have significant control, but I don't know that their actions are set now because of greed as much as fear.
What I suspect is happening here is akin to financial cannabilism; get what you can now - even if they could survive - because we are now in survival mode. Even though we don't see everything going on in the backrooms, the 'net/blogs permits us to get a hell of a better view of what's happening behind the scenes.
I rather feel as though I'm watching the events of 1929 unfold with color commentary. And that was fear driven.
Could be, but don't the cross defaults means everyone gets to be at the table?
The defaults are the end game...
In AHM's case there was round after round of margin calls that preceded the actual default.
In the beginning, AHM settled the margin calls with cash. After it ran out of cash it would settle the margin calls with loans from it's own portfolio (to avoid selling them on the open market, depressing prices, and triggering more margin calls).
Once AHM had committed all its cash and assets to satisfy margin calls it was game over. They couldn't satisfy the next margin call and the lenders seized everything but the desk chairs, servicing rights, and the building.
The banks that was asleep at the switch (or was trying to work with AHM) and hadn't issued margin calls by that point were left holding the bag. I think BOA ended up on the hook for about ~1B.
Those that survived the run on the sub-prime and alt-a lenders were those that only had a single warehouse line of credit. With only a single lender to work with they could avoid a firesale.
All this talk everywhere of people just walking away is getting really scary. TODAY, just today, I had 2 ex-clients call me asking questions about what are the consequences of not paying their mortgage anymore.
I've had a few over the past few months (probably 1,2, maybe 3 one month), but I was spooked today with the 2nd call.
People are starting to think about a plan B for themselves. The economic news is not looking pretty.
I think that the problem is more fundamental. Because of the way that the federal reserve and banking system is set up, a very few banks actually control the entire credit spigot. During times like this they can use and abuse their power even more. As I used to argue with banker, if we got rid of fractional reserve banking and the Fed did nothing put printed a fixed amount of cash each year the whole thing would probably work much better because money would seek a real market price and these bubbles and unwinds would never get so big as to threaten the system.
Actually, I think my real argument is fundamental beyond finance or economics really.
Credit is just a promise.
A credit bubble is just a period where many people and businesses make promises they can't keep.
The problem is that when the widespread deception is revealed everybody becomes suspect. There's so many dishonest borrowers that seemed honest at the time, how do you know you can trust anyone to return your hard-earned wealth now?
Again, there's nothing the Fed can do to make these bad promises good because in the aggregate they amount to wealth that simply does not exist.
All they can do is replace one bad promise with another to keep the deception going a bit longer.
ron- these gov't idiots are like cats trying to cover up crap on a tile floor.....as if there's a chance in hell to possibly undo everything that these same gov't idiots were told would happen long before it did.
"How could you be paying attention to the facts and not think that this stuff will be priced either much lower or very close to what it is now in 6-18 months? Or just out of business and worthless."
I bought it 2 days ago as a speculation. As I have said many time upthread, the business is fine, they are in a margin squeeze. If JPM does nothing or TMA gets some other funding the stock will probably go back to 10 where it was before the margin squeeze. I risked what I thought would be about 1.50 to try and make 6.50. I thought it was a good bet. I was wrong. I'm wrong a lot. I closed out my position on the news and took my lumps. It's the nature of the game.
Maybe I can buy my loan back at 70cents on the dollar from JPM.
LOL...
You're not the first to think of that one...
WILMINGTON, Del. (AP) - A Maryland homeowner lost her bid Friday to force American Home Mortgage Investment Corp. to let homeowners pay off their mortgages at the bargain-basement prices at which they're sold to institutional investors at bankruptcy auctions.
I work with a bunch of youth and a favorite game of theirs is "murder", a la who's the killer in a dark building? Several weeks ago, in a discussion afterwards, one of them stated that they really did get the chills thinking about what it would be like to not be able to trust anybody else.
I can't decide now whether to shelve the game for the duration or have them play it a lot more frequently to hone their skills.
I wanna adjustable principle mortgage (APM)jumbo loan from Thornburg that Mr. Bernanke is talking about. However only if the principle goes down would I want this loan. I do not want this loan if the principle is going up. I guess to be eligible for this I will need to put myself in debt more to show my financial hardship.
A key feature of the foreclosure-prevention bill is likely to be a government-backed fund that would purchase pools of subprime mortgages that lenders had reduced to affordable amounts for borrowers, then refinance them into loans insured by the Federal Housing Administration.
I suspect what will happen here is that the bank will sell the mortage to the government at a 10% discount even though it's worth maybe 50% of par.
the disclosure that they are funnelling money to the parent to pay interest on AA debt and dividends is interesting to say the least, why aren't all of these funds going to the insurance unit?
This shit gets more bizarre by the day, the IB's were reportedly bailing them out and now you have a combination of equity/convertible offerings with the brunt to the common after they dismissed a previous plan to raise equity due to adverse market conditions (WTF, today's conditions are obviously much more favorable (, and the markets spoke today with a tremendous vote of confidence.
After enough carrots are doled out, is it time to try the stick?
What I mean is, there's been a lot of freebie money committed to try to entice people to stay in their homes. If the "walk-aways" or "jingle mail" goes on long enough, shall the Congress try making foreclosure a felony or adding a heavy tax burden to those who get foreclosed? That might do the job more effectively. Kidding, of course, but worth the thought.
"and btw the way, the transports have been rallying into this commodity craziness, freakin wierd."
My airline stocks were all up today with oil 5 bucks higher. On the flip side, XTO which is the best natgas/oil e&p on the planet wsa flat with natgas up 4% and oil up 5%.
Anytime this has happened in the past it is a very bad thing for the energy complex. Ususally take a couple of days but then the TSHTF.
If you were running a bank and you knew that the endgame was that the peoples champions were going to force you and all of your peers to write down the principal on all those lovely mortgages and because of this you were going to lose a bit of coin, and you knew that the endgame was near, you would be making margin calls on companies that you knew had good assets too. I think that you would be saying to yourself, to hell with everything else, I am going to try and get a bit ahead while I still can. I also think that once the blood is in the water you will see more of this.
John Stark - it's a REIT, so it can't retain earnings for a war chest. It was raising money for long term loans in the short term markets.
Its portfolio is great in terms of default - at the end of 2007 I think they had 144 loans 60 plus out of 37,000 plus loans. .39%. BUT, in this environment, they are wrongsided every which way. First, their collateral value is declining. Second, as Tanta has tried to explain, jumbos refi in a heartbeat for better rates, so they offered basically rolling refis to their customers to retain them. So their loan terms are not helping their current spread problem. They have a lot of big loans paying low rates. Very few are going to be prepaying, so they don't have principal repayments to help them either.
The value of their portfolio has declined on risk and on comparative return to current liens.
What's really killing this company is the muni situation. You can get very good muni returns right now for a lot less risk than Thornburg can deliver. All of the problems and disturbances in the markets are offering good returns for little risk as various entities roll out of these instruments. Given Thornburg's area exposures, it can't hope to compete for cash for at least 3 or 4 more months, and probably 6 or 7.
Since this had to happen, I think it is a terrible pity that it did not happen before the conforming limits were jacked up. If Thornburg cannot manage their risks, there is no hope that FNMA and FHA can. Thornburg is caught in a lethal duration trap.
"That is the part of the game I am still working on - marking sure that when I am wrong it has far less impact than when I am right."
This one took a pretty big piece out of my hide, but I've had a really good year so I pressed it more than usual for this kind of play. I like this environment very much because there are screaming fundamental mismatches and if you stick to your knitting there are many entry points. If the total market goes no where but has huge volatility and rotation, just wait for panics and doom to buy, and get into the stuff that just got crushed ex financials. I would never put serious money into the thing that is the reason for the bear market, its only for a trade. But anything outside of it is fair game no matter what the distraction. I also follow the sentiment indicators very closely. Because we are at very strong intermediate and long term extremes I can take a very aggressive view. So far it has paid well though the ride has been more than bumpy. I expect that to continue.
DAVID_in_CT: "I bought it 2 days ago as a speculation. As I have said many time upthread, the business is fine, they are in a margin squeeze. "
I made a speculative bet on a mortgage lender that went bankrupt before (Delta Financial) and learned the hard way that credit squeezes are lethal. The problem with almost anything related to real estate (except retailers like Home Depot, or materials suppliers like USG) is that almost everyone (mortgage lenders, homebuilders, etc) is leveraged heavily. On top of them being sensitive to debt obligations, this pretty much means that equityholders may end up with nothing. When you can't borrow or secruitize then the lenders are at the mercy of the creditors.
I'm more of a newbie than you are so you already know all this but it's worth pondering what is happening. When high quality lenders like Thorburg face problems, you know the whole sector is very dangerous.
Game is still not over for Thornburg though. It should be able to raise some money by unloading its portfolio. Even with markdowns, it will probably yield more than other lenders who have lower quality assets...
I'm hoping to get them before BK. Maybe to screw JPM they will sell it to me at 1/2 off.
The loan has already been committed as collateral to one of the lenders and is long gone. TMA wouldn't have defaulted if it had loans lying around that it could use to satisfy the margin calls.
It took me a long time to wrap my head around that. In the last filing before bankruptcy AHM had almost ~1B dollars of high grade, prime loans that it owned outright. When they ran to bankruptcy court I figured that they would be liquidated and the preferreds would recover something.
But poof, the whole portfolio was gone. Management had used them all to satisfy margin calls. The lenders seized it all. Worse, they stuck AHM for ~1.5B of repos. Most likely that will wipe out any equity from the sale of the servicing unit, office buildings, and odds-and-ends.
Now, some of the run is fear but almost 1.5B of hard securities just disappeared. Tell me that there isn't greed involved.
Beginning tomorrow, Orange Countys limit on loans insured by the Federal Housing Administration will be temporarily raised to $729,750, more than double the current limit of $362,790, the U.S. Department of Housing and Urban Development announced today.
The limit, which is good until the end of the year when it reverts back to $362,790, will apply only to loans insured under a program administered by FHA, which targets low to moderate-income home shoppers.
MoM
One of TMA's big products is a libor based arm (i got one). It resets every month so you just pay libor plus your spread. They also have similar product that resets off 6month libor. From what I see on their site, the spread across all these is right around 200 basis points. (I bought mine down to 1.60 because they only figured me for 3 years duration at the time and here i am 5 years later..
I guess I underestimated just how tight cash is at the banks and stupid the Fed has been. In a case like this you think they would be better of allowing TMA to repo the stuff with the Fed, rather than have 33 billion dollars worth of fresh paper hit the street causing another set of markdowns, bk's etc. Maybe the fed just wants all non bank mortgage co's out of business or maybe they are just completely out of their depth.
But didn't a Goldman Sach's spokesman announce today that we are halfway thru the problem with mortgages? Did he mean half way to the bottom, or half way back to the top?
Hmmm..GS must be unwinding their short positions for longs.
Kicker:
If I hadn't had a bad experience with Goldman some years back I'd probably look to buy their stock for a trade. They are by far the most ruthless of the lot and have the best connections. They blew up an acquaintances fund many years ago on a trade in which they were the prime broker. They just ran him past his margin limits in a thinly traded arbitrage. My deal with them was about a contract they had written to me on an otc options position. They tried to tell me it was european instead of american, even though i had the confirm in my hand. apparently the salesperson screwed up and told the hedging desk the wrong thing. The stuff that I owned went vertical and in deep backwardation. They were only about 50% hedged and it cost them a very large chunk of change, but they were incredibly rude and nasty throughout the whole episode
On a related note, Fremont General is trading at $.50. Also, some bondholders are claiming they are in default. If they explode, do they get taken over by FDIC? Could this be the rumored $9 billion bank blowup from a couple of weeks back?
In a case like this you think they would be better of allowing TMA to repo the stuff with the Fed, rather than have 33 billion dollars worth of fresh paper hit the street causing another set of markdowns, bk's etc.
Bingo...
The only reason that CFC survived is that it owned a thrift and had access to the TAF.
Right now, the Federal Reserve is pushing on a string. The shadow banking system is collapsing but the banks can't expand their balance sheet to absorb it because they don't have the regulatory capital. The Fed can lower interest rates but that's a slow drip.
Banks need a large injection of equity now. The 200B stimulus package would have been much better spent if Congress had bought preferred shares in banks instead.
And if Greenspan hadn't allowed banks to end-run reserve requirements with sweep accounts in '95 we wouldn't be in this mess. The Fed had much greater control over the size of banks balance sheets (and M1-M3) in the 70's and 80's when most banks were reserve constrained.
david in ct is right: TMA is about financing on repo. Novastar almost got killed in 1998, Criimi Mae did get killed in 1998. CMM was a similar story to TMA except CMM had B-rated commercial paper that was bringing in cash flows but the market for that paper was not that deep.
Novastar got into "two-step" securitizing to minimize repo exposure, then CDO financing to lengthen term and fix interest rate costs, but b/t credit issues and overall landscape...you know the rest.
Reverse repurchase agreements is just another form of short-term financing.
If TMA were exclusively financed with equity investment--or bank deposits--we wouldn't be having this conversation.
I am surprised that a sovereign wealth fund or a Wally Weitz(es) hasn't stepped up with an offer to take a convertible-preferred type stake large enough to clean out the repo exposure.
But then again, those with cash are not in a rush.
"I am surprised that a sovereign wealth fund or a Wally Weitz(es) hasn't stepped up with an offer to take a convertible-preferred type stake large enough to clean out the repo exposure."
That was my bet
From the looks of the 8k they got the default notice from JPM on the 28th, so they have had a week to get it together but couldn't get it done. I thought some regional bank would come in to partner up and then just repo the book out to the Fed. They probably could have bought half the business for next to nothing and the shareholders also would have made out.
Still might happen, but now with the default declared every tom dick and harry with any sort of a claim is going to want a piece of the carcass.
"Legislation could be introduced as soon as next week"
^ if this goes through and they find a new way to have my tax money be used in keeping home prices unaffordable in my area, this JBR is going to vote straight-ticket (R) for the rest of his life.
And I generally hate (cultural) conservatives and glibertarians with the heat of a thousand suns.
"Banks need a large injection of equity now. The 200B stimulus package would have been much better spent if Congress had bought preferred shares in banks instead."
I don't think that is the right answer. I think the Fed window should be open to everyone with good colateral. Let the Fed set the haircut anywhere it wants. Right now the banks have way too much power.
BLOWNCUE: "If TMA were exclusively financed with equity investment--or bank deposits--we wouldn't be having this conversation. "
Yep... good point... but the thing is that's their business model: borrow short and lend long. People sitting on the sidelines may argue that doesn't make sense right now but that's their business.
BLOWNCUE: "I am surprised that a sovereign wealth fund or a Wally Weitz(es) hasn't stepped up with an offer to take a convertible-preferred type stake large enough to clean out the repo exposure. "
They are probably too small for a SWF. If they need just a little bit more, they can likely tap public investors (they did that a few months ago) but if they need a lot of money then their only hope is probably value investors, distress investors, or vultures. Some of the private equity funds that are being set up to capitalize on the meltdown in real estate assets may also be a possibility. BUT...
The unfortunate thing for a lot of distressed companies is that there are huge swaths of industries that are distressed. Investors with money have many choices so why go for this? I mean, why go for a no-name lender when brand name banks, retailers, etc are selling at multi-decade lows (valuationwise)?
Capital is very scarce... those with capital are kings right now... completely opposite what it was 3 years ago...
Yes, the cross-default clauses mean lots of firms get "seats at the table," but it's not like any negotiating is going on at that table: all the firms with repos/secured loans now get the option to sell their part of the collateral.
Financial firms blow up in such an elegant way. One day you're fine, the next day you take a liquidity hit, and all the money vanishes. No annoying, long drawn out court case with bondholders, stockholders, employees, and suppliers arguing over the left-overs - everything is just gone.
feel bad for u man. i must admit that despite being one of the biggest bears here, i bought 10000 sh of TMA at 4.00 3d ago when it tanked expecting a short covering bounce which never really came. first time i've ever really tried this. i got suspicious and thank god i sold at 4.11 for a small profit. will never try that again in a bear mkt.
JPM is the largest CDS holder by far of all the banks. this move makes me VERY suspicious that a fundamental change in attitude has occurred at the big banks in relation to their preferred clientele, HF's and mortgage brokers.
i think this is big news and that along with the big selloffs in FNM and FRE stock and the widening of their spreads as David Pearson has pointed out, along with the subpar ABK plan today, tomorrow will be a big day in the stock mkt. so look out.
David - TMA also buys a lot of hybrid ARMS with initial fixeds. It buys a lot of ARMS. They have multiple exposures. This whole environment is very unusual and they are getting slammed every which way. They do describe the risks pretty well in their 10K
Personally I believe the Fed is out of its depth at this point.
I don't believe you can give non-banks the ability to use the Fed window or the other bank assets. Banks do accept heightened scrutiny in exchange for those facilities. We don't at this time have the personnel to expand to them, and we need those facilities to work now. Banks do have other advantages compared to a company like TMA. They can get deposits, go FHLB, etc.
It is too bad about Thornburg. They are being taken out more from the effects of other people's risky behavior than their own. One can fairly argue that they should have known this could happen, but basically this is a well-run company that is being destroyed by a radical change in environment and not its own actions.
750 Fico, 67% effective LTV, wonderful performance on every trust. (Their website is very good, you can slice anyone and look at performance)
This has nothing to do with poor management. This has to do with a credit crunch like we have not seen since the 30s.
Regardless of the cause, the outcome will be the same, BK.
Because they are a non-bank they have absolutely nowhere to turn, when the banks take back their collateral they can take it to the window and get Fed$ for it, and they should be able to, it's good paper.
FT Woods writes:
Over in the side links...wtf? $700 K is not middle or low income housing. Median income in Orange County is $61,700.
Here in Sonoma it is 62K and the median home price is around $530K. NOD and foreclosures are beginning to show up in volume lately. The combination of a recession economy and unaffordable home mortgage levels has really put a hurt on the local housing market. I have already seen a 50% slide in home selling prices ( 600k to 300k) from peak in my neighborhood and based on median income and price/rent ratio's expect another large drop.
Investors have been buying several houses the past 6 months but nobody is hanging around Calif to do the renting so they stay vacant, big negative sucking machines. When people loss there job in Calif they have to leave the area, its far to expensive to hang around and try to make it somehow.
"
JPM is the largest CDS holder by far of all the banks. this move makes me VERY suspicious that a fundamental change in attitude has occurred at the big banks in relation to their preferred clientele, HF's and mortgage brokers."
I think that by killing their clients they are not exactly setting themselves up as preferred lenders of the future. I agree that there is a lot more stress in the system the last few days. The FRE knockdown is pretty hard. If you read the link to their MBS portfolio you will see that it is pretty bullet proof. I don't see the upside in shorting the hell out of them but its certainly has been working.
About the best trading I ever did was at the end of the tech crash. I remember over a period of about 6 months trading lucent and nortel. My best purchase of lucent was for 85 cents. The thing about real companies is that they die a lot slower so if you can read their balance sheets you can get a fair understanding of where there is value. As I just found out, in this game it doesn't work nearly as well.
MP, yes I know. The goal of the Fed should generally be to keep the well-run ones alive while the financial system thrashes through its agonies, but I don't think there is anything they can do for companiess like TMA.
But the rest of it - TAF money and rates - seems generally to have worked so far. However I think the Fed and Treasury need to work out something on the munis. That is the big dislocation now. Bad mortgages can't be fixed. It's this kick of the muni workouts that is pushing up the mortgages, which just implicitly devalued a bunch of these securities. Cutting rates will not do much to fix it.
"One can fairly argue that they should have known this could happen,"
Ever since August they have been trying like hell to change the financing and actual undid a huge amount of the repo finance, but in the end they were not fast enough. Its still hard for me to believe that they are going to BK the company unless the banks just bid for the portfolio at whatever lowball price and then just pass it off to their own servicing departments. If JPM gets my loan maybe i'll stop paying for a few months just to cause them grief.
It is always funny to me when the smartest guys in the room start to realize that the rules apply to them. Humility is great when you are moving up but when you are at the top, it is a career and company killer.
During the Great Depression, one of the actions of FDR was to confiscate gold and other PM; literally, if it was in a safety deposit box and the rules were that you couldn't have it, then the gub'mint confiscated it.
The IRS posted agents in banks and when you showed up to remove the contents, the IRS agent was there. Remember, this was when the country was on the gold standard. I've been aware of this history for some time, but since the gub'mint technically has no "need" of any gold contents, I'm not convinced that this would apply here.
Being fiat currency however, they might try to suck the air out of the box.
i find it interesting that New Century was a mortgage reit as well. i scored big on them last yr about this time so i started looking to short other mortgage reits like REM index, TMA, and NLY which i did last Fall. i remember very well how these 2 companies seemed relatively immune to the mortgage mess based on their portfolios. NLY especially given its agency portfolio. however, look at its price action the last wk in light of FNM, FRE, TMA, and their spreads. hmmmm.
idoc - NLY is the only REIT I have ever recommended. The management is quite conservative. They probably will be at least somewhat negatively affected by the current environment (COF), but this is one you should not short, because they may be helped almost as much by lower prepayments as they are hurt by higher borrowing costs. They invest very traditionally in very traditional mortgage securities and they invest for income, not to arbitrage values.
They are also conservative with leverage. These days, that is a great thing.
That means that Thornbug sells/delivers securities to JPMorgan Chase and agrees to repurchase the securities from JPMorgan at a later date at a higher price sufficient to cover the original sale price plus accrued interest.
When we do repos, we accept only US Treasuries as securities, demand 102% of price plus interest as collateral, and make certain that all the securities are in good form.
I wonder what JPMorgan took as collateral. Is all the paperwork in good order or is their back-office FUBAR? Does JPMorgan have a "document risk" problem if they try to sell these securities?
Hmmmm.
If Repos are now viewed as punk, then T-bills should rally and yields dive to ZIRP.
Can Treasury money market funds break the buck on the up-side? If the T-Bill market price is above the amortized cost, will the management firms bail out the funds by relieving the funds of the T-Bills at the lower amortized cost, instead of the market price?
Reading that seekingalpha egg-face-moment from "Jack" is illuminating.
Watching him twist in the comments is even more so.
To summarize he presents his trade as a screaming (but high risk) buy, and details the huge amounts of shares he bought around $4, justifying it based on the "enterprise value" of THM.
Now it is $2 after hours and there is a good chance they may go bankrupt, he justifies his trade as still smart, and says he'll hold it open. If it goes to zero, his overall portfolio will still by positive on the day, and presumably week and month.
But he won't back up the truck for more at $2, which is weird.
If for him the trade was such a small amount of risk vs his entire portfolio he should not have presented it a smart trade to readers. Who among them could say that losing $20k on a day (or double that if it folds) will still leave them positive overall? He did not disclose the tiny percentage of his entire portfolio the trade apparently represents.
It is financial writing like that that is partly responsible for the can't-lose attitude in bubble markets.
Grant Thornton issued an adverse opinion on internal control and procedure but overall an unqualified opinion on consol fin statments.
I can't copy and paste, here's the blurb:
-snip-
Management has concluded that the material weakness in internal controls resulted from the fact that they were unable to obtain the necessary evidence under SAB 59 to support its initial conclusion that a material portion of its unrealized losses were recoverable as of 12/31/2007.
-snip-
Elsewhere management says its take remediary steps and thinks deficiency will not reoccur in future reports.
$282M of excess capital as of 12/31/07 per management.
Weitz got agreement to purchase (up to?) add. 900,000 shares
Tough story to start following if you're new to it but RWT does provide a lot of information.
As I used to argue with banker, if we got rid of fractional reserve banking and the Fed did nothing put printed a fixed amount of cash each year ...
I'm sure you realize this was Milton Friedman's prescription too. In the decades since he prescribed it, numerous academic pieces have been written that expose all kinds of flaws that result from this policy. Ask your favorite monetarist for references.
Bernanke has been pretty good on this; generally, he's done the right thing,'' said Democratic Senator Sherrod Brown of Ohio, a member of the Senate Banking Committee. Paulsonhas moved too slowly'' and ``we need to do way better than we've done as a government,'' he said in a Bloomberg Television interview. Ohio has the sixth-highest foreclosure rate.
he call for forgiving portions of home loans may spur opposition from bond investors concerned it will reduce the value of mortgage-backed securities, which have already slid and caused banks to post billions of dollars of credit losses.
We could not imagine that the policy response would be to pour napalm on the fire,'' said Julian Mann, who helps manage $3.4 billion of bonds at First Pacific Advisors LLC.I'm going to demand higher and higher rates'' to buy mortgage debt if the collateral is altered, he said.
Bernanke has also indicated a greater willingness to consider using government funds. He told lawmakers last week that it was worthwhile'' to consider using public money if the housing contraction worsens. Paulson said the use of taxpayer money was anon-starter.''
`The risks are very high that the steamroller is not going to be stopped,'' said Mark Zandi, chief economist of Moody's Economy.com in West Chester, Pennsylvania. ``The window's going to close very quickly, and they have about six to 12 weeks to figure out what's next.''
Meanwhile Mark and The Boys will keep giving out AAA Ratings!
Federal Reserve Bank of Cleveland President Sandra Pianalto said slowing U.S. economic growth will help bring the inflation rate down from an ``elevated'' level.
I made a speculative bet on a mortgage lender that went bankrupt before (Delta Financial) and learned the hard way that credit squeezes are lethal.
Oy.
Delta would announce in their press releases and SEC filings that 70% (or 90, or whatever) of their loans were rated A, but then if you dug around in the footnotes you'd find out that they had their own rating system that was a little different from everybody else's and "A" at Delta meant the FICO was at least 500 and it had been at least two years since the borrower had filed Ch. 13.
I always thought they were asking for a D&O suit for deliberate misrepresentation but I suppose it was all there in the footnotes, after all....
Truly.. the very IDEA of personal responsibility has totally disappeared from the American psyche - I'm starting to agree with Jas Jain.
No, it hasn't disappeared entirely. But it takes a considerable amount of personal stamina to live below the levels of your neighbors while knowing that they are ass deep in debt (while you have a few pesos in the bank). Living near the bottom (but not on it) teaches you a considerable amount of humility.
Lets see what happens over the next 24 months. My view is that the worst of the failures should be cleared out by NYE '09/'10. Lets see who isn't naked when the tide goes all the way out.
idoc, you raised an excellent point that IBs are tightening credit and hedge funds and other leveraged players are going to get squeezed.
Do you think the IBs are just getting religion or being forced as their own capital keeps getting sliced and the Arabs are not in a mood to be the complete back stop? If its the latter which I personally suspect the unwind of leverage will take a few surprising turns.
Lawmakers take aim at CEO compensation
High profile former Wall Street CEOs and the head of the nation's largest home lender will testify before a Congressional committee examining the link between executive pay and the mortgage crisis...
Why were executives at the helm of some of the world's largest banks compensated so richly even as their industry was being pummeled by the mortgage meltdown?
Lawmakers will pursue this question Friday when the House Committee on Oversight and Government Reform hears testimony from two former Wall Street CEOs, Charles Prince and Stanley O'Neal, and the chief of the nation's largest mortgage lender, Angelo Mozilo.
At issue are the salaries, bonuses, perks and stock awards that the executives received as the companies under their leadership took enormous losses on bad bets related to mortgage backed securities. Calls for accountability have become increasingly louder as the housing market continues to deteriorate and homeowners across the country face foreclosure.
Henry Waxman, the Democratic congressman who chairs the Committee, has developed a reputation as an aggressive reformer during his thirty years representing the Los Angeles area on Capitol Hill.
As a ranking member on the Committee, Waxman has tackled issues ranging from the high cost of prescription drugs to waste, fraud, and abuse in government contracting. Most recently, Waxman's committee made headlines when it held a series of high-profile hearings on the illegal use of steroids in major league baseball. Lawmakers take aim at CEO compensation - Rep. Henry Waxman, D-Calif. (1) - CNNMoney.com
FFDIC
Morality and sense of personal responsibility is only for the commoners.
In our Houses of Lords (THE country clubs) is always "Better luck next time old chap"
The truth is playing out as many of us predicted. Sebastian and O-Joe have been proven horribly wrong.
Average Joe
Who has been wrong all along so far since as of the last quarter there is no recession. There have been predictions here for any new quarter for years now on this blog.
Today's news could not have been worse, yet the market actually rose. I would pay attention to this as it means a turnaround - all the negativity is priced in and any positive surprise is a catalyst for an upturn.
That said this week is almost as important as the Jan 22nd week. It's the great retest. If the bears cannot follow thru their case is lost IMO. Tomorrow and Friday have the biggest potential for a turnaround (also in PMs). Very interesting times.
P.S. Is their a time stop when bears give up on the recession, or will it just be prolonged into the next quarter eternally?
david_in_ct - Sorry bout your loss's man. Twas a reasonable bet. Feel like someone should be apologizin to ya on behalf of those postin in poor taste by "pilin on".
.....credit belongs to the man in the arena....vs..those poor and timid souls who know neither victory or defeat....etc
I think I finally figures this out after slamming my head on the table a few times:
Re: Board of Governors of the Federal Reserve System
The Board is "normally" comprised of 7 governators, however, after Chairman Greenspan left, Roger Ferguson headed for the exit and then Ben grabbed The Big Chair.
(*Because appointments of members are staggered there are currently only five members on the board.)
The current members of the Board of Governors are:
Ben Bernanke, Chairman
Donald Kohn, Vice-Chairman
Frederic Mishkin
Randall Kroszner
Kevin Warsh 35 ????
** He also took coursework in market economics
He went on to study law at Harvard University and received a J.D. (cum laude) in 1995
** From 1995 to 2002, Warsh worked for Morgan Stanley
From 2002 to 2006, he was Special Assistant to the President for Economic Policy and Executive Secretary of the National Economic Council.
Warsh joined the Federal Reserve Board on February 24, 2006
All current members of the Board of Governors have taken office during the presidency of George W. Bush.
Carlyle Capital Gets Default Notice on Margin Calls (Update2)
By Joseph Galante
March 6 (Bloomberg) -- Carlyle Capital Corp., the publicly traded credit fund backed by private-equity firm Carlyle Group, said it received a notice of default after failing to meet a margin call yesterday.
The Guernsey, U.K.-based fund didn't meet four of seven margin calls totaling more than $37 million received yesterday, it said today in a statement. It expects to receive at least one more notice of default related to yesterday's margin calls, according to the statement.
Has anyone read of any viable suggestions to intelligently deal with current events? 'Don't scare the children' doesn't appear to be working. Everyday, I have less and less confidence in the decision making of the folks in charge.
Re-reading Roubini's Testimony:
Can the Fed and Policy Makers Avoid a Systemic Financial Meltdown? Most Likely Not. Eight reasons why I am skeptical that such a systemic risk scenario can be avoided.
First, an aggressive monetary easing with the reduction of the Fed Funds rate to reduce the risk of a deeper and more protracted recession.
Second, a strong provision of liquidity to financial markets to reduce the liquidity crunch in interbank and money markets.
Third, an robust attempt to coordinate a private rescue of the monolines to prevent their rating downgrade and thus avoid another round of writedowns in the financial system.
Fourth, avoiding a more severe credit crunch by an aggressive support of the recapitalization of the financial system through capital injections by sovereign wealth funds (SWF).
Fifth, attempts to reduce the number of foreclosures among distressed homeowners and provide measure of support of the housing markets.
Sixth, the Fed and other financial regulators have concentrated on trying to avoid the liquidity and insolvency problems of banks and other depository institutions.
Seventh, the Fed and financial regulators and supervisors are walking a very fine line between transparency/recognition of losses and forbearance.
Eighth [...] this is the first crisis of financial globalization and
securitization. Reforming this system is urgent to restore confidence in the financial system and reduce the risks of boom and busts in asset prices and credit that are becoming increasingly self- destructive.
Even if they do write 97% LTV loans, it'll only marginally increase the overall sum that is eventually defaulted on(outright or through significant inflation).
Does it matter if the government eventually steps in and supports the GSE's? Not really, when that time comes the losses will be there no matter what, either through outright default, government bailout then outright default, or government bailout then inflated to a very small fraction of the original real value.
Credit contraction, scarcity, sentiment, and fear are going to wipe out even the most "bullet proof" of mortgage, MBS, CDO, interest rate derivative, and equity based balance sheets.
Those that will survive will have productive assets owned outright. Ability to reduce expenditures as income declines is crucial to this environment.
THE BUSH RECORD!
Accomplishments: Changed pollution laws for power and oil companies and made Texas the most polluted state in the Union. Replaced Los Angeles with Houston as the most smog ridden city in America. Cut taxes and bankrupted the Texas government to the tune of billions in borrowed money. Set record for most executions by any Governor in American history.
Became president after losing the popular vote by over 500,000 votes, with the help of my fathers appointments to the Supreme Court.
Accomplishments as president:
Attacked and took over two countries.
Spent the surplus and bankrupted the treasury. Shattered record for biggest annual deficit in history.
Set economic record for most private bankruptcies filed in any 12 month period. Set all-time record for biggest drop in the history of the stock market. First president in decades to execute a federal prisoner. First president in US history to enter office with a criminal record. First year in office set the all-time record for most days on vacation by any president in US history. After taking the entire month of August off for vacation, presided over the worst security failure in US history.
Set the record for most campaign fund-raising trips than any other president in US history. In my first two years in office over 2 million Americans lost their job.Cut unemployment benefits for more out of work Americans than any president in US history. Set the all-time record for most foreclosures in a 12 month period. Appointed more convicted criminals to administration positions than any president in US history.
Set the record for the least amount of press conferences than any president since the advent of television. Signed more laws and executive orders circumventing the Constitution than any president in US history. Presided over the biggest energy crises in US history and refused to intervene when corruption was revealed. Presided over the highest gasoline prices in US history and refused to use the national reserves as past presidents have.
Cut healthcare benefits for war veterans. Set the all-time record for most people worldwide to simultaneously take to the streets to protest me (15 million people), shattering the record for protest against any person in the history of mankind. ://www.hyperreal.org/~dana/marches/)
Dissolved more international treaties than any president in US history.
My presidency is the most secretive and un-accountable of any in US history. Members of my cabinet are the richest of any administration in US history. (the 'poorest' multi-millionaire, Condoleezza Rice has an Chevron oil tanker named after her).
Had more states to simultaneously go bankrupt than any president in the history of the United States.
Presided over the biggest corporate stock market fraud of any market in any country in the history of the world.Created the largest government department bureaucracy in the history of the United States. Set the all-time record for biggest annual budget spending increases, more than any president in US history. First president in US history to have the United Nations remove the US from the human rights commission. First president in US history to have the United Nations remove the US from the elections monitoring board.
Removed more checks and balances, and have the least amount of congressional oversight than any presidential administration in US history. Rendered the entire United Nations irrelevant. Withdrew from the World Court of Law. Refused to allow inspectors access to US prisoners of war and by default no longer abide by the Geneva Conventions. First president in US history to refuse United Nations election inspectors (during the 2002 US elections).
All-time US (and world) record holder for most corporate campaign donations. My biggest life-time campaign contributor presided over one of the largest corporate bankruptcy frauds in world history (Kenneth Lay, former CEO of Enron Corporation).
Spent more money on polls and focus groups than any president in US history.
Based on the current pattern of stock market losses and falling home values, household net worth is estimated to have declined by about $1 trillion in the fourth quarter and about $1.5 trillion to $2 trillion this quarter, depending on where stock prices settle. That would be the largest drop since the tech bubble burst in 2000. These sharp declines, at a time when job and income prospects are fading, are sure to add to the angst already evident in gauges of consumer confidence, which are at levels seen only in past recessions.
We have a national US decline in house prices (something we were recently reassured "would never happen"), broken credit markets, rescues of major lenders, nationalization of a UK bank, 15%+ decline in US equities. And yes, we are in a recession according to a growing number of respected voices.
But nevermind says O-Joe, we naysayers of this Great Bull market are all wrong!
O-Joe, please stick around for comic relief! You're killing me! (Hey, do you work for the government?)
Last week's U.S. Supreme Court decision to allow individual participants to sue 401(k) plan administrators will put further pressure on financial advisers to ensure that they are adhering to their fiduciary status, industry observers say.
"Ignorance is not bliss when it comes to their belief on whether they're a fiduciary or not. The, 'Gee, I'm just a dumb broker,' defense doesn't work," he said.
"Our take is this is just another example of the stakes going up for advisers and a reminder of how serious this business is," said Fielding Miller, chief executive of Raleigh, N.C.-based Captrust Financial Advisors Inc., which manages about $20 billion in assets. "If a participant can go after a plan administrator for not following instructions, they certainly can go after an adviser."
Meanwhile, the decision was clearly a victory for investors, which was surprising as many of this court's recent decisions have gone against individual investors, Mr. Stoltmann said.
"Credit default swaps resemble an insurance policy, as they can be used by debt owners to hedge, or insure against credit events such as a default on a debt obligation.
However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can be used to speculate on changes in credit spread.
Credit default swaps are the most widely traded credit derivative product"
repeat ...there is no requirement to actually hold any asset or suffer a loss...
it is a casino...and the bets out weigh real productivity don't they.
KnotRP,
Reportedly, Waxman will slap a cease & desist on Mozillo preventing him from tanning until 2015. After he turns pasty & pudgy he will run for Congress.
...
The idea is to stoke investor demand for securities made up of more expensive mortgages -- so-called jumbo loans -- backed by Fannie and Freddie, the two biggest mortgage financers in the country. That would drive interest rates lower and spur home buying and refinancing.
...
California Gov. Arnold Schwarzenegger said the new limits will "help California's housing market rebound."
"No other state has been more impacted by the ongoing mortgage crisis than California, and the announcement today ... will help more working Californians achieve the American dream of homeownership through less expensive and more secure loans," he said in a statement.
...
It's cause the smart people simply don't want to be involved in the Fed. They've all bailed because anyone that understands debt and fiat money knew what was coming and got the hell out of the way.
It's quite pathetic to me that so many smart people on this blog don't understand how intentional this crash has been.
Anytime you decrease both interest rates and lending standards you will get increased demand and rising prices. Combined with the uneducated public that is force fed propaganda in lethal proportions you end up with quite a bubble and subsequent bust.
Quite simply it was planned economic destruction of a nation state through debt cancer. Call me a nut, but this conclusion is based on the actual actions of the wealthy elite and those in power.
New York Fed president and FOMC vice chairman Timothy Geithner (voter), Boston Fed president Eric Rosengren and St. Louis Fed president William Poole will speak at separate events.
U.S. Pending home sales data will also be released and economists expect further declines with January recording a drop of 0.8% following Decembers 1.5% decline.
All times in EST.
Thursday:
8:00 US Fed's Rosengren speaks at economic breakfast in Massachusetts
8:30 CA Building Permits (MoM) JAN Exp: +1.0% Prior: +0.4%
8:30 US Initial Jobless Claims 1-Mar Exp: +360K Prior: +373K
8:30 US Continuing Claims 23-Feb Exp: 2805K Prior: 2807K
9:00 US Fed's Consumer Advisory Council Meets on Mortgage Lending
10:00 US Pending Home Sales (MoM) JAN Exp: -1.0% Prior: -1.5%
10:00 US Mortgage Delinquencies 4Q
10:00 CA Ivey Purchasing Managers Index FEB Exp: 56.0 Prior: 56.2
10:30 US EIA Natural Gas Storage Change 29-Feb Exp: -142 Prior: -151
13:00 US Fed's Geithner speaks about financial Challenges in New York
13:30 US ICSC Chain Store Sales (YoY) FEB Exp: +0.6% Prior: +0.5%
17:00 US TSYs Paulson speaks on Financial Literacy in Oakland California
19:30 US Fed's Rosengren speaks on Risk Management at Chicago Fed Bank
20:00 US Fed's Poole speaks at University of Illinois in Springfield
So they can further their sick agenda of power and control. The power of the united states was a great tool that has served their purpose but it's time has come.
They have installed their fiat regimes in almost every country on earth over the last century. Now they are attempting to remove the "reserve currency" status of the US, and systematically stripping away national sovereignty the world over. Likely to set up a regional or world currency, and possibly to (officially) declare marshal law in the US.
They want to manage peak energy, peak food, and eventually peak population, while keeping the public so ignorant as to not challenge their power.
Mr. Gramlich's resignation will leave two open positions on the seven-member Federal Reserve Board. The other vacancy will be created by the departure of Ben S. Bernanke, who has been nominated to become chairman of the Council of Economic Advisers.
In recent years, Federal Reserve governors have displayed few partisan divisions over monetary policy. Though board members frequently disagree about the timing or the nuances of policy issues, they have tended to agree about placing top priority on restraining inflation.
Mr. Gramlich's departure will be part of a broader change at the Fed, which will culminate with the retirement of Alan Greenspan, the Fed chairman, early next year.
President Bush, now faced with replacing Mr. Gramlich, has not yet nominated someone to succeed Mr. Bernanke. Nor has he hinted at the biggest decision of all - a successor to Mr. Greenspan.
President Bush is working to prevent a recession, but the group of advisers meant to help him achieve this vital goal is woefully understaffed. In fact, the three-member Council of Economic Advisers is limping by with just a single adviser.
The reason: a lingering impasse between Senate Democrats and the Bush administration regarding the choice of nominees.
Some economists worry the impasse could affect the administration's ability to respond to the economic downturn. "By not confirming the appointments, the Senate is acting to deprive the White House of some of the best economic advice available," a former chairman of the CEA, Gregory Mankiw of Harvard University, said.
For more than six months, the president has been unable to fill the vacancies because top Democrats are refusing to approve his nominees until the White House agrees to the Democrats' choices for vacancies at the Securities and Exchange Commission.
With the deadlock now dragging into March, the administration's chances of being able to fully staff the current CEA are dwindling. Already, one of Mr. Bush's nominees, Dennis Carlton of the University of Chicago, has taken his name out of the running. He had been waiting since August to be considered by the Senate.
The remaining nominee, Donald Marron, also of the University of Chicago, is awaiting "an up or down vote," as the administration searches for a nominee to replace Mr. Carlton, a White House spokeswoman, Emily Lawrimore, said.
That leaves the CEA with just one top-ranking member, its chairman, Edward Lazear. With the White House rushing to respond to an economic downturn, the chairman is "spread way too thin," a former CEA member, Andrew Samwick of Dartmouth College, said.
Are you kidding me? After 8 years of near single party rule in all branches of government, the 'party of responsibility' is now saying 'It's the Dems fault'.
Give me a break. I would say I hope McCain wins the election because it's a poisoned chalice and the Repugs will have to clean up their own mess for once, but if they had 100 Senators, 435 Congresspeople, 1 president and 9 SC Justices you'd still find a way to say 'but we're powerless before the Dems - it's their fault.'
Just bugger off, and for once in your life you and your ilk take responsibility for your actions over the last 30 years and where they have brought the USA and the world.
As I used to argue with banker, if we got rid of fractional reserve banking
That means getting rid of banking, period.
What do banks do? They take deposits and loan most of that money back out, while keeping a fraction in reserve. Fractional reserve banking.
That's the point of having banks. Intermediaries between people who have money to lend and people who want to borrow money. Like supermarkets are intermediaries between people who produce food and people who consume it.
If you got rid of banks, this process would just go on through less regulated vehicles from loan sharks to options markets.
I can''t believe I read all the way through and no one posted concerning TMA:
We are all subprime now.
Granted, I had no idea what it truly meant so long ago when it was floated (by Tanta last August?) but this has been an education. Listening to what mp, MoM, and David in CT are saying,...
Almost makes me glad I've got no money to be invested in the market,...except that the pain is coming to all of us anyway, because,...(Do I have to say it?)
Robbie:
david_in_ct - Sorry bout your loss's man. Twas a reasonable bet. Feel like someone should be apologizin to ya on behalf of those postin in poor taste by "pilin on".
.....credit belongs to the man in the arena....vs..those poor and timid souls who know neither victory or defeat....etc"
Thanks for the sentiments. One of my favorite sililoqueys.
The vast majority of the people here are on the other side of my bets either literally or rhetorically. So it would be surprising not to take some flack. I take a lot less than O-Joe and Sebastion who get beat on pretty mercilessly for simply posting their views.
I could spend my reading time on stock bulletin boards in the places where I have long bets but then I would get views where though the thinking might be different than mine the bets would be the same.
I have been on the buy side all year expect for a 24 hour short of the nasdaq after the first huge spike off the bottom and that was just to get my general stock delta to zero. Until recently I have ownly been buying natural resource type names and I have been fortunate with my picking. I only retain one good sized position in that arena and it is down to 40% of its peak exposure and accounts for about 15% of my portfolio.
This little foray cost me about 5% of my portfolio. The thing that irked me the most was my add on in the afternoon. I thought that there would be a sell the news thing on the Ambac announcement but also thought it would not go very far based on the eetup, which is why I jumped in against the decline. Got the market part right...
I tend to be pretty 'undiversified' and take more risk than would pass any fiduciary guidelines as to how to manage a portfolio, but it in the end it has worked pretty well for me over the years.
Like most other human beings I am emotionally risk averse so the pain vs pleasure of equal dollar loss and gain is very skewed to the pain side. Even though there is nothing I can do to change this, I can consciously recognize it and I use it for informational purposes. I have generally learned to monitor my own emotional state and take the other side of it in extremes, it is often very unpleasant but it very much helps the bottom line which is the goal of this particular game.
Thanks
d
"If you got rid of banks, this process would just go on through less regulated vehicles from loan sharks to options markets."
We could have perfectly fine banks where the banks invested your capital, but while they did so it was not available to you or you got some sort of bank paper in return Banks would be free to float their own paper just like anyone else. The idea is to separate investment which involves putting capital at risk from banking which should just store your money and facilitate transactions.
We would still have bubbles and runs, but there would be no governmentally sponsered position of power and the scope would be much smaller and in the end much fairer. This is how it worked prior to the Fed. There is no reason why JPM or C or BAM as private enterprises should be have a virtual infinite governmentally sponsered advantage over other investors by dint of their lines to the Fed.
"March 6 (Bloomberg) -- UBS AG probably sold 25 billion Swiss francs ($24 billion) of holdings backed by Alt-A mortgages in a ``fire sale,'' JPMorgan Chase & Co. said, raising its estimate of credit writedowns to 18.5 billion francs."
Respectfully, I disagree. I'm a huge bear but I need to have something to counteract my tendencies and offer as a reality check. IBD does not exhibit the cheerleader mentality of a CNBC and seems much more focused on stocks than the WSJ. They will tell their readership to get out of the market and stay in cash at times, and warn them from buying former leaders, something you will never read in the rest of the financial press.
If you assume flat (not lower) sequential earnings in Q1-2 08, TTM P/Es by the end of the 2nd quarter will be about 75 on the Dow, 40 on the Nasdaq, 60 on the Russell and 25 on the S&P. This is mainly because Q2 07 was an all-time blow-out earnings record.
The downturn in earnings is not temporary or cylical. There are four permanent headwinds that U.S. earnings face:
Higher corporate tax burdens
Higher financing costs (think Citi)
Higher energy costs
Higher health care and pension liability costs
In this environment, here is where P/E ratios should be heading:
Well, CR, no offense intended but lots of guys in C and MER and MS and BSC, etc., etc. had "excellent reputations" until they suddenly didn't.
Chris
The point some of you seem unable to grasp here is that what's happening now is the good are being punished with the bad. You don't really know anything about the loans Thornburg made, but you're assuming they were ultra-risky Alt-A or something.
They weren't they really were prime jumbo loans with very low default rates. Their market dried up because of factors that had nothing to do with them.
Do you all think the muni auction-rate market dried up because of defaults among muni debt issuers? It had nothing to do with that.
Some of you have been predicting a complete break down in markets and now that it's happening, you don't recognize it.
Thornburg's Strong Credit Quality Attracts Rainwater, CEO Says
2008-01-28 18:54 (New York)
By David Mildenberg
Jan. 28 (Bloomberg) -- Thornburg Mortgage Inc., the lender that sold $21.9 billion of assets in August due to a cash shortage, drew an investment from Richard Rainwater because it has relatively few bad loans, Chief Executive Officer Larry Goldstone said.
Investors can look at us and they cannot really see a black hole of never-ending credit losses coming,'' Goldstone said in a Bloomberg Television interview.It is a great investment market opportunity, probably the best I've seen.''
Rainwater, the Texas real estate and energy investor, bought a 5.5 percent stake in Santa Fe, New Mexico-based Thornburg last week, Goldstone said. We have attracted a number of very sophisticated, very mortgage-savvy investors over the last six months,'' he said.
Thornburg specializes injumbo'' home loans of more than $417,000 to people with good credit. It raised $212 million through two stock sales in early January.
The company gained 30 cents, or 2.9 percent, to $10.62 in New York Stock Exchange composite trading today. It has gained
15 percent this year.
--With reporting by Pimm Fox in New York. Editors: Gregory Mott, Jeff Plungis.
ps. don't think your a nut, but wondering what your theory is on why.
Its poosible just for the sheer fun of doing it???
As far as i can see a lot off Sociophats are at the top spots in your country, so to ask for a motiv is may to much to ask.. IMHO they just do it and dont care...
Thornburgh has prudent lending guidelines and made good loans with the info they had at the time(as demonstrated by the low default rate). Unfortunately the collateral backing these loans is deteriorating. The falling price of the homes backing the loans is causing the margin calls.
If you look at the S&P's closes, we had the retest of 1310 a couple of days ago, with every divergence in the book.
Dr. Elder would call the S&P a clear trading buy here. It could run to the 1380s without violating the downtrend line. Surely 5% is worth playing for in this market.
Wow, this debate still goes on; the view that Thornburg as being "good" and that the good are being punished along with the bad is ridiculous. A margin call is a margin call is a margin call.
Elementary money management ( which means less return in safe times of course ) keeps you out of trouble.
If you don't practice money management and your collateral ( that you contractually agreed to) deteriorates and you get a margin call and you don't have alternative lines of credit lined up ( which costs in good times of course ), or spare cash lying around ( which costs you in good times of course ) then you are in default !
When you pledged your collateral you should be aware of how much its value can shrink - how much the people you pledged it too can manipulate it; its just what you are PAID to do.
That's not "good", its not "bad" it just "IS" - business. - Deal with it - go bankrupt or whatever; its NOT the end of the world.
yogurt wrote: "What do banks do? They take deposits and loan most of that money back out, while keeping a fraction in reserve. Fractional reserve banking."
If only it were so simple, yogurt, we wouldn't be in such a complicated, convoluted mess.
Here's a great video that (perhaps) merits reposting from time to time: Money as Debt
To summarize: Bank A takes in x as a deposit. Using fractional reserves of 10%, A lends 9x to bank B, which logs it as a deposit. B uses its fractional reserve limitations to lend 90x to bank C. Bank C follows suit, lending out 900x, and so on. Now, if bank C lends (only) 100x to bank A, bank A is now free to lend out 900x on what began as x.
So while you're technically correct, "they lend out most of it", they mostly create money out of thin air.
It gets even more staggeringly arcane when the new and wildly innovative "products" are considered because these are leveraged far less conservatively than bank deposits. This is the shadow banking system.
"\tUBS 'highly likely' to have sold Alt-A loans, analyst says (UBS, AZ) by Steve Goldstein
\tLONDON (MarketWatch) -- UBS (UBS) is "highly likely" to have sold its 25 billion Swiss franc ($24.1 billion) prime Alt-A portfolio in a fire sale, according to J.P. Morgan analyst Kian Abouhossein, noting press speculation on the subject. He increased his estimate for 2008 credit criss write-downs to 18.5 billion francs from 15 billion francs. "We see the speculated level of 70 cents on the dollar as realistic in a fire sale," he said, adding the current market price is probably 84 cents on the dollar. The broker kept an overweight rating on the Swiss bank."
Now how do you suppose that Mr. Abouhossein knows what they sold and can even speculate as to the price level? Nice Chinese Wall at Chase.
You would think that Mr. A. would be clever enough not to put this kind of stuff in writing.
I predict a miraculous stick-save just a few points below Dow 11.6, S&P 1270 - in other words, just far enough below to suck in the technical shorts - driven by inexplicable late-day futures buying.
On the same day as a massive repo. And the program trading stats are inexplicably delayed by a week due to technical problems.
Um, Bill, way wrong on the fractional reserve business. With a 10% reserve, Bank A gets a deposit of x and can loan out 0.9x to somebody who deposits in Bank B. Total money supply maxes out at 1/(reserve %) or 10X in this case.
reason New Century, TMA, and mortgage reits dump quickly is b/c of lack of capital cushion which immediately gets distributed out as reit dividends.
warehouse lending model defunct. vulnerable to margin calls from the likes of JPM and other IB's desperate for cash now. think Peloton, TMA and other HF's. could actually be a target for them b/c of good assets.
price action of FNM, FRE, with widening of spreads spells trouble. probably FCB's dumping.
NLY still at highs. low risk short. dropped below technical support. to expect these guys to be lone survivor unrealistic IMO.
The dollar Index is tumbling...we just might break the 72 area today...sorry to say My fellow Americans....your Green Paper is now going into worthless territory....Pitch forks and Torches...anyone?...anyone>?
at least you have some company in the bear camp. American Association of Individual Investors survey came out and and fully 22% were bullish. You've done and scared all my bull friends away except for those probably too comatose to hit the sell button.
"The dollar Index is tumbling...we just might break the 72 area today"
USD value is not part of the Fed's charter. Paulson had better start focusing on this. The Fed's best bet is to leave rates alone and increase the TAFs.
The government may not be in a position to do much. It seems their latest trick is to "hide" some of the problem in the FHA.
at least you have some company in the bear camp. American Association of Individual Investors survey came out and and fully 22% were bullish. You've done and scared all my bull friends away except for those probably too comatose to hit the sell button.
The market isn't down nearly enough to have sentiment this extreme. It makes me wonder if sentiment indicators are broken. With only 22% of investors bullish, who's buying?
I wonder if a lot of the market support is hail-Mary plays by pension funds who need that mythical 8%. The recent shift from bonds to equities and commodities by PBGC and CALPERs are examples.
In this case, maybe the "smart money" has become the "dumb money". But, can a pension fund manager justify 8% real returns to his auditors when he's sitting mostly on sub-six percent bonds with rising spreads?
Maybe they'll let you squeak by if you can point to your new allocation in equities and commodities with their unknown future returns. But commodities? For a pension fund? Give me a break!
Maybe there is a desperate shift in reserves from Treasuries to SWF who are picking up equities and supporting the market. But, how does a SWF move 200B dollars into equities without somebody getting wind of it. The SEC ain't going to be looking to hard at anybody who front-runs a SWF who's planning a big move into the market.
The shift to 130/30 funds is skewing the market? Large numbers of boomers buying on auto-pilot with their 401K accounts? (again needing that 8% return)
USD value is not part of the Fed's charter. Paulson had better start focusing on this. The Fed's best bet is to leave rates alone and increase the TAFs.
The TAF has mostly done its job of driving down deposit rates. There is a limit to how much more impact an expansion of the TAF can have since banks are capital constrained.
The Fed's going to have to lower interest rate again in the fact of increasing inflation. That should steepen the yield curve and increase banks NIM (net interest margin) and help them weather the storm.
But, the collapse of the shadow banking system will still leave the economy with a lot less "money" than it had before. It's going to be a decade or more before investors believe that things like ABCP, ARS, VRDOs and the like are "money".
For the market to reach equilibrium, a lot of people who need real in-the-bank money are going to take losses. And those people with real in-the-bank money are going to need higher returns to justify trading their money for assets.
The Fed cutting in the face of high commodity prices and rising inflation will only prolong the pain. A 7% yield looks mighty fine to someone with cash if he believes that inflation will run sub-2%. Not so great if it's at 4% and rising.
"Gloom and doomers, purposely ignoring the "other 98%, no 97%, make that 93% paying their mortgage on time"..."
And they were right to do so. Imagine a doctor telling you: "You have a cancerous nodule in your lung that is 1/4 inch in diameter. Cheer up man! This occupies only 0.002% of you total body mass. Things are great!
kicker:
"The TAF has mostly done its job of driving down deposit rates. There is a limit to how much more impact an expansion of the TAF can have since banks are capital constrained."
The fed could put a stop to this credit implosion in about 5 minutes. All they would have to do is put out a term sheet on what they were willing to repo in the mortgage market and at what haircut. That would put a certain floor under credit that might not be able to find a home. If they don't do something of the sort it is possible that the entire banking system comes to a complete halt.
I don't know why any bank would be seeking to write mortgages of any kind at this point since you can buy as many as you like in the market at far better rates than you could write and you have no closing costs or anything else. Same goes with an awful lot of commercial paper etc. And if you can't get anyone to repo the stuff then the leverage in the system will basically go to zero. Maybe Ben is going to rewrite his thesis.
"zackattack writes:
I predict a miraculous stick-save just a few points below Dow 11.6, S&P 1270 - in other words, just far enough below to suck in the technical shorts - driven by inexplicable late-day futures buying. "
so which is it, zack, a buy or a sell? Can't have it both ways, or are you a Carlysle employee? Doh!
first?
Yahoo is showing TMA down 40.88% at 6:15 (delayed quotes.)
ohhhhhhhhh snap! That's gonna leave a mark.
More geniuses flailing around circling the toilet drain.
These guys were supposedly savy as well.
eh, not so much.
Cheers,
They couldn't scrape up $28 million? Oy.
Again,
We need O-Joe to tell us how many companies are not defaulting right now.
Not to pick on him, but we've been dealing with this attitude from the beginning.
Gloom and doomers, purposely ignoring the "other 98%, no 97%, make that 93% paying their mortgage on time"...
These problems are real. CR and Tanta and others have outlined very real reasons why these things were going to happen....before they happened.
Bernanke, Cramer, Stein, Kudlow, and on and on, poo pooed us and tried to marginalize those who worried as chicken littles, global warming types who have been calling for the end of Amerika for years.
The truth is playing out as many of us predicted. Sebastian and O-Joe have been proven horribly wrong.
I wanna live in Santa Fe and go to the O-pe-ra and make big money working four hours a day!!!
Gonna be some killer reo deals soon.
Maybe I'll retire to Santa Fe!
Someday this war's gonna end...
"The truth is playing out as many of us predicted. Sebastian and O-Joe have been proven horribly wrong."
O-Joe, at least, is just in it for the chicks....
So we know who their counterparty was... they are into JPM for $320 large.
Wondering if JPM's counterparty is one of the insurers they bought swaps from.
35 billion in default swaps and under a billion in market cap is an opportunity to sell kleenex and depends to a handful of trader's and investors.
I the word think "cascade" might be come the new "subprime" i.e. "the word" in 2007 you know when things were contained....
Ok, now cascade away....
Well, the thing is, when 93% of the public pays their mortgages, but the paper is leveraged 15:1...
Misean, these guys have an excellent reputation. This isn't New Century or Fremont ... I believe their portfolio is mostly jumbo prime (but I could be wrong).
Best to all.
Boy, I sound angry huh.
I'm not as angry as I sound.
Pointing out the housing bubble has been like seeing a UFO and having no one believe you for about two years now.
The aliens have landed.
can everyone collect on there contracts if they bet on default?
Very scary foreclosure numbers in San Diego right now.
Annual foreclosures in San Diego:
2000: 1380
2001: 826
2002: 909
2003: 566
2004: 553
2005: 559
2006: 2065
2007: 8416
January, 2008: (ONE MONTH)
1461
There were more foreclosures in the first month of this year than in any of the years from 2000-2005. If we just stay at this rate through the end of the year (without increasing) there will almost be 20000 foreclosures in San Diego alone.
Numbers from:
InnoVest's Foreclosure Forum
Anyone else here expecting we reach a short period of time where you have to pay cash to buy a house?
CR,
Oh I know the reputation...but really...$28M...can't come up with it?
Either they've been silly and haven't increased cash reserves, or they've been running around in circles screaming:
"These are good assets! Why can't we get a good price!"
If it's the later (and I was being snarky earlier as it likely is) this whole credit crunch thingy is going to get MUCH worse.
Cheers,
Misean, I think it might be the later. The prime brokers are forcing hedge funds to delever. That means neither the prime brokers nor the hedge funds will have money to purchase that wonderous AAA product that TMA specializes in.
OT: Some people I know happened to be in Fremont "bank" in Santa Monica this morning. There was a crowd of people lined up to withdraw money. This was presumably in response to a story in the paper about the bank's problems (here) that says "two purchasers of its loans had declared it to be in default, raising the possibility that they could put it out of business".
And "The [bank] also said it was running short of cash to pay its debts and was considering putting itself up for sale. As of last week, the parent company had just $21 million in cash available and was deferring payments on some of its bonds."
From Yahoo news on TMA:
Thornburg didn't specify the bank's rights in Wednesday's disclosure, but in a previous filing with the Securities and Exchange Commission, the company said that the lender has the "right to liquidate pledged collateral."
d_rumsfeld:
good reminder.
I recal many a debate on television between guys like Rich Toscano and the reassuring "experts" who would immediately point out how "we are no where near the records set in the early 90's".
Well, we're now at nearly 3X the monthly figure of the highest ever recorded in one month of the early 90's (in Aug 96, almost five years into the problem back then).
Now it's "93% are still paying their mortgage on time".
Anyone else here expecting we reach a short period of time where you have to pay cash to buy a house?
Cash? Sure, banks will accepts Euros, pounds, remibi(sp), Mexican pesos. Anything but American dollars.
Hey, JP Morgan has been failing me for four years now. No sympathy here.
I wish them much pain, really.
So if they have to liquidate securities into an uncooperative market, this will probably cause prices to drop and lead to more writedowns, huh. Neat.
TMA is a good company that did a good job of managing risk. This shows how vulnerable the entire system is right now if they cannot pick up $28MM. How do most serious issues start?
By one of the smaller guys going teats up. This could be it, because it is under the radar of most everyone.
I believe their portfolio is mostly jumbo prime
It's more like super-jumbo & ultraprime. Their typical loan is like $750k, and they have something like a 0.25% delinquency rate.
This is a great chart of San Diego Trustee Deeds filed. Try setting the start year to 1982.
http://www.sddt.com/Finance/EconomicIndicators.cfm
A near vertical rise in the past 2 years.
"Misean, these guys have an excellent reputation. This isn't New Century or Fremont ... I believe their portfolio is mostly jumbo prime (but I could be wrong)."
They have good reputation in originating jumbo loan. But the problem they have is the CDO portfolio where they leverage too much and with the recent haircut in jumbo CDO, they got margin call. This is the second time they got margin call (last time was Aug/Sept last year). And they had a conference call the first time describing the events as 100 yr flood scenario that they got margin call... Look like they just have another 100 yr flood scenario. Do not look like they can survive this one. More market chaos on jumbo CDO front as the dealer liquidate TMA's asset... Last time they get 95 cents on the dollars... May be a lot less this time...
Well, at least it's contained.
idoc writes:
BT...s_my_industries
WSJ Error Page - WSJ.com
looks to me like the IB's have lost their patience with the likes of HF's and TMA.
xofruitcake: "they had a conference call the first time describing the events as 100 yr flood scenario that they got margin call... Look like they just have another 100 yr flood scenario"
I'm pretty sure those are fly-years, which are like 200 times shorter than human years.
The aliens have landed.
LOL.
It is pretty much as bad as Mars Attacks or "V", isn't it?
It's also kinda like "They Live". Kudlow, Cramer, Greenspan, they all make good simulacra of actual humans.
Millions of americans and hundreds of neighborhoods are going to be materially harmed if not financially destroyed in this downturn.
Heckuva job, Bernie.
Cascade...
Cross Defaults anyone.
WSJ Error Page - WSJ.com
Cheers,
I followed AHM's meltdown closely after making a bad bet on AHM preferreds at $2 a share. TMA looks to be heading down the same path.
The margin calls are for TMA warehouse lines of credit. Warehouse lines are where TMA would hold loans before they were packaged into the securities that were all the rage.
One thing I wasn't aware of is that warehouse lines of credit are exempt from the supervision of bankruptcy courts. It was one of the nifty tidbits tucked into the "Bankruptcy Abuse Prevention And Consumer Protection Act Of 2005".
Without the threat of bankruptcy the warehouse lenders have no incentive to work with TMA. TMA knows this and has probably sold (or committed) every asset down to the kitchen sink in an effort to satisfy margin calls.
This creates an incentive for the lenders to be the first to issue a margin call because the first to issue the margin call is most likely to get more collateral to cover them when things go bad.
The next rush will be for the banks to clean the portfolio (and force the bankrupt TMA to repo any junk) and auction it off. A lot of the fire sale assets will end up on the banks balance sheets and will eventually turn them a tidy profit.
The only asset the now bankrupt TMA has will be the servicing rights of the mortgages that it originated. TMA private labels the servicing of it's mortgages through a third party but the rights are worth something.
In AHM's case they were picked up by Wilbur Ross for 500M. But, the equity holders won't see a dime of it.
Part of the "run" on the shadow banking system is from fear but a good part is also greed.
CR,
When you say Thornburg's portfolio is "excellent", are you referring to LTV (which I can believe is low enough) or DTI (which I suspect is too high to sustainably be serviced over the long term.
(For example, in the Bay Area a couple with $100K income each buy a place for $600K which looks good on paper till one gets pregnant, loses a job, falls ill, whatever. Suddenly those primes are sub. over 5-10 years, it's amazing what a large fraction face something like this.)
Troy:
I am here to chew bubble-gum and default. And I'm all outta bubble-gum.
idoc,
Damn phone.
Cheers,
The events of the past few days have made me as fed up with the system as I can be. I demand Bernanke and the heads of the 4 largest banks should be on CNN and made to answer, in no ambiguous language, the following questions:
How was possible for someone that makes $30,000 to get a mortgage for $500,000?
How can a total default of just 10% of ALL mortgages cause a epic collapse of the entire US banking system?
Why is it your mission to make the dollar worthless?
Why in the world is this MY problem?
Why are you so stupid?
Why do you make so much money for being stupid?
How can I get that job?
How do you sleep at night?
At what point do you think the average person, when faced with your silly "if the system fails you will be hurt along with everyone else" threat just say "So What!"
didn't our beloved David_in CT just say he BOUGHT shares of TMA? smart boy David.
AJ - Rich Toscano is awesome.... He's been blogging about this for a good long time too.... Good stuff....
CR,
I undestand what you say about the excellence of their portfolio but I'm not so sure about their reputation - when this all happened first time round in Aug and their price dropped substantially - I looked at their 10-Q to see if there was a bargain so to speak and this is what struck me:
The Company has arrangements to enter into Reverse Repurchase Agreements, a form of collateralized short-term borrowing, with 21 different financial institutions and had borrowed funds from all of these firms as of June 30, 2007.
As of June 30, 2007, the Company had $24.7 billion of Reverse Repurchase Agreements outstanding with a weighted average borrowing rate of 5.26% and a weighted average remaining maturity of 15.5 months. As of December 31, 2006, the Company had $20.7 billion of Reverse Repurchase Agreements outstanding with a weighted average borrowing rate of 5.39% and a weighted average remaining maturity of 4.7 months. As of June 30, 2007, $17.5 billion of the Companys borrowings were variable-rate term Reverse Repurchase Agreements with original maturities that range from two to twelve months and $5.6 billion were structured Reverse Repurchase Agreements with original maturities that range from three to seven years. Generally, the counterparty has the right to call the structured Reverse Repurchase Agreements monthly after the first year beginning September 2007. The interest rates of these term and structured Reverse Repurchase Agreements are generally indexed to the one-month LIBOR rate and reprice accordingly. ARM Assets with a carrying value of $25.8 billion, including accrued interest, collateralized the Reverse Repurchase Agreements at June 30, 2007.
Form 10-Q
They were borrowing short to lend long - with all the risks that THAT entails. Same old, same old I thought to myself..
Reputation ?
-K
Hey, TMA is coming back a little:
THORNBURG MTG INC(NYSE: TMA)
After Hours: 2.14 1.26 (37.06%) as of 6:54PM ET on 03/05/08
tnx yield up 3.19% with .irx down 7.21%. wow, not good.
sk,
Nice pull.
Cheers,
What's the big deal? They just need to split the company or, if that doesn't work, do a rights offering and "suspend" doing business for six months. Worked for the other guys.
idoc writes:
tnx yield up 3.19% with .irx down 7.21%. wow, not good.
I just check the "Visitors Online" number now. It seems to be a better proxy
ades,
LOL.
Cheers,
damn. we on this blog are just too early. i had these guys shorted at around $11 last Sept and just lost patience around Oct. now look at them.
Apparently, the Arabs want to buy Lennar. Sorta how the Japanese bought Pebble Beach and Rockefeller center during the last bust.
Overseas buyer for Lennar? - Lansner on Real Estate : The Orange County Register
that .tnx ramp is a good indication as to glods ramp.
Off topic -- ABX Cliff Diving
Bloomberg: Peloton ABS Fund Investors May Get Nothing Back
http://www.bloomberg.com/apps/news?pid=20601087&sid=aP.udhzEprpU&refer=home
Apparently Peloton held leveraged positions of $17 billion in ABX indices.
uke,
watch out for those HB buyout rumors. remember Buffett? the mkt uses them to ramp and short squeeze.
When you say Thornburg's portfolio is "excellent", are you referring to LTV (which I can believe is low enough) or DTI (which I suspect is too high to sustainably be serviced over the long term.
TMA's book is clean. In other words, if a large portion of TMA's book goes into default resulting in substantial losses we mere mortals can kiss our butts goodbye.
The problem was leverage and the lock-up of the jumbo market. How much are 2007 vintage jumbos worth if the 2008 vintage is being written at 7%?
The other big story today was not Ambac. Instead, it was a widening of agency spreads combined with a widening of TIPS spreads. At first the two may appear unrelated: what do agencies have to do with inflation expectations? The answer has to do with faith in the Fed and the U.S. government. There is altogether too much talk of mortgage bail-outs out there. The possibility of the GSE's being used as a dumping ground makes the foreign agency buyers nervous. Its logical that those buyers would turn to TIPS rather than Treasuries. After all, there is plenty of evidence that the U.S. fiscal deficit is set to rise, and that the Fed is unconcerned about inflation also rising.
In other words, if this continues for much longer, it is simply evidence that, for our government:
the gig is up.
Cross Defaults? Counterparty risk? Small Pox?
Idoc:
You're probably right. I find it interesting that, instead of real, balanced economic growth based on income growth and increased productive capacity (like we had in the 90's), the past decade has relied on panaceas, wishful thinking and credit. These SWF's are the most recent manifestation. It is very depressing.
The most depressing aspect of our economy in the last decade is the growth of casinos. Every locality seems to think that casinos are a cure all for economic growth. Forgotten is the fact they don't actually produce anything, and the attendant social costs (crime, drugs, gambling problems ) are very high. Enough of my rant.
Oh my Glod!
I don't know...Thornburg jumbo's etc.
My brain just wandered around and found this gem. Can't even explain it.
I'm LMAO....
Enjoy.
YouTube -
Cheers,
god i miss the good old days....
da '80's
Unfreakinbelievable-
Page expired - MSN Money
When Ben told banks a cramdown now was the least painful option, he was sugar coating it, and they are reacting to the sugar coating with apathy.....a feedback loop will fry components, if one doesn't act soon enough. Time is of the essence.
As for TMA:
Jumbo (High Return) Prime (Low Risk)
(Can I haz free lunch?)
My cousins are still nursing a 1.1M loan on two houses with < $80K income.....concern about return of capital will someday morph into concern about return of capital, but even Ben didn't wake them up yet with that speech yesterday.
So know I know turnips do bleed (and oh yea, if all is well why do anything. sh** I will go there for one year for 2.3M give me a call):
MBIA Inc. granted raises to some of its executives and offered bonuses to managers who stay another year as part of a plan to retain key people during a troubled period for the company.
In a regulatory filing Monday, the Armonk, N.Y.-based bond insurer said its compensation committee last month approved salary increases of as much as 60% for some executives. The committee also approved a "retention award" of as much as $2.3 million for executives who stay with the company a year
CR "I believe their portfolio is mostly jumbo prime"
Yup this is their claim to fame
"The most depressing aspect of our economy in the last decade is the growth of casinos. Every locality seems to think that casinos are a cure all for economic growth. Forgotten is the fact they don't actually produce anything, and the attendant social costs (crime, drugs, gambling problems ) are very high. Enough of my rant.
Nuke"
That's a rant that deserves much more space. You are right on, Nuke! Disgusting.
Mr. Beach - nice chart, thx
risk capital - and here I have been watching the banks
Barely-
amazing story!
Every locality seems to think that casinos are a cure all for economic growth.
The next bubble?
looks to me like the IB's have lost their patience with the likes of HF's and TMA.
idoc you read my mind. As the credit situation worsens, we may be entering a new phase. This could be the beginning of the big IB's (Merrill, JPM, Goldman) declaring war on every small to mid-sized mortgage outfit that popped up on the financial landscape like crabgrass on bermuda recently.
Margin calls brought down New Century and AHM, I believe. Ironically, it could be the fact that Thornburg's assets (prime jumbos) still appear to have value that makes it a target for JPM.
Just for giggles, here is the ultimate case study in knife-catching. Some wretched soul on seekingalpha bragging about how he apparently loaded up the boat with 60,000 shares of TMA last week:
Catch a falling MOAB
Now that's gonna hurt!
C_S,
Its funny i read something on a blog about the same. Mortgage REIT Journal The blog is very informative and seems to be through. (S)He thought it was a good deal a few days ago. This one might have caught a few conservative investors / grave dancers by surprise.
I should have just posted the actual article: Mortgage REIT Journal: Obligatory Thornburg Blurb
I am simply amused that the US press is not really tuning into the sabre rattling going on in SA. Columbia is now facing troops on both side of its borders...and one player is a large oil producer! I called a friend in Ecuador and some folks are now stocking up on provisions expecting supply problems should war erupt.
"Venezuela deployed tanks and air and sea forces toward the Colombian border on Wednesday"
Cant wait to see the spot oil prices in the next 72 hours. (Gold hit 990 today, thank you very much!)
Nicaragua breaks Colombia ties
| Reuters
Curious about how JPM Chase is involved in this story.
Started reading "Panic of 1907" and the one who really held it together was ... JP Morgan.
So who's gonna fill his shoes today?
And yeah, I thought of David in Ct this PM when I heard the story.
Wow. Hope that guy didn't actually buy.
The article from seekingalpha claims that he bought 20,000 shares of TMA around 3.81, then foolishly bought 10,000 more at 4.51.
My math says that's over 121K vaporized ... hope his wife wasn't counting on Christmas this year.
ades,
I know 30 year old women who talk like that.
It has survived well into the current times.
Cheers,
from the ambac release, this is amazing-
"Ambac currently intends to contribute the net proceeds from these offerings (after deducting underwriting discounts and commissions and other offering expenses payable by us) to its insurance company subsidiary Ambac Assurance Corporation in order to increase its capital position, less approximately $100 million, which it intends to retain at Ambac to provide incremental holding company liquidity to pay principal and interest on its indebtedness, to pay its operating expenses and to pay dividends on its capital stock."
Expired
So I will enter the confessional: I own TMA stock, and I will take a serious hit on this one. Even though I live in California and have watched the real estate situation very closely for a couple of years, I will confess surprise. I find the extent of the TMA'a decline breathtaking, not because I've lost a chunk of change, but because these guys aren't beginners. Keith
Well, that was a bad bet. Nice timing on the double down this afternoon too.
Since I just blew out all of it in the afterhours market maybe I can look doubley stupid when they do some deal tomorrow. Turned a perfectly good day into a mess oh well.
The surprising thing here is the margin call from JPM. Thornburgs book is incredibly sound so I can't quite understand why JPM blew them up. I wonder if JPM is under pressure from something else and they just need to get stuff off the books regardless.
Amazing chit.
"NEW YORK, March 5 (Reuters) - Underwriters for Ambac Financial Group Inc's (ABK.N: Quote, Profile, Research) mandatory convertible bonds expect the securities to pay annual interest of between 8 percent and 8.5 percent, investors who have been pitched the deal said Wednesday."
Ambac converts expected to have 8-8.5 pct coupon
| Reuters
c_s,
Murder and mayhem eh.
Hoocoodanode!
Cheers,
Don't worry everyone. It's contained. We are dancing on the bottom and a housing recovery is going to be here this spring. Subprime should be back in business sometime later this year as pent-up demand brings us a little bit of heaven. Then the Easter Bunny is going to give Santa Claus a reach-around.
Independent mortgage lenders: countdown to extinction.
"...and to pay dividends on its capital stock"
Your winnings, sir!
I have been short TMA since the middle of last year. My next candidate for a dramatic drop (TMA went was at 12 about 2 weeks ago, is now under 3) is Newcastle, which is also a REIT. It specializes in CRE, subprime, and mobile home loans.
Here is my write-up:
Newcastle, one of the USA’s biggest commercial RE investors, posts gigantic loss and decline in book value « Greg’s Law & Economics Blog
JPM is under pressure from everyone else. I can imagine that with all the writedowns, the IB's have to delever as much as possible. That means calling in credit lines and credit from everyone. Hedge Funds, Mortgage Lenders, etc
Misean, these guys have an excellent reputation. This isn't New Century or Fremont ...
Honestly, what's an "excellent reputation" worth in the US anymore?
This is the kind of damage that no amount of rate cuts or bailouts can fix.
The surprising thing here is the margin call from JPM. Thornburgs book is incredibly sound so I can't quite understand why JPM blew them up. I wonder if JPM is under pressure from something else and they just need to get stuff off the books regardless.
Amazing chit.
david_in_ct
You give JPM too much credit - you MUST know about sharks and "blood in the water" - do check out LTCM or Amaranth or... why the buggers even scalp lil'ol'me, IMO, for a lousy few high hundred bucks, on my trailing stops( dips in the price that last barely seconds - just enough to take out my stops ) these recent days when I've tried to protect myself from these miserable ABK rumors at the end of the day.
-K
r_c,
Well those are AAA rates. I must be AAAAA++++ because I can get better than that from a freaking credit card.
Not that I have many.
Cheers,
I'm not pretending to understand any of this, but could it be that JPM sees a chance to pounce and take over undervalued assets under the terms of its deal with Thornburg? Thornburg is getting a margin call because the market price of these assets is down, but their actual (or eventual) value could be a lot greater--Does JPM get ahold of these assets at this point?
Oddly enough I also have a Note with TMA. You know, the perception that TMA is some great lender catering to the super rich just isn't correct. I worked (wholesale) with these guys for quite some time and they approved files that were ALT-A (stated income, full assets) at best. Now, they do have a bit more stringent requirements when it comes to reserves BUT do you know where most borrower reserves comes from in high cost areas? THEIR 401K!
Lenders allow 70% of a borrowers 401K as reserves for underwriting qualification. However, a 401K cannot be liquidated in the event of default or BK.
This being the case, many loans that I personally know of were approved based upon a borrower meeting this requirement with minimal liquid and the majority in illiquid or 401K assets.
There seems to be a disconnect between who they say is their market and what is the truth.
The Super Wealthy have private banking relationships that don't include TMA. TMA's pricing, while good, has never been on the caliber of the "elite". While they do have one of the best margins in the biz (1.875), their rates are on par with any other A paper lender.
Lastly, I wish I had the money to be considered Ultra rich...... Furthermore, I know of 17 friends & co-workers who have TMA loans. They are not super rich AND when purchased put down 10-15% which by now is probably gone.......
For a good laugh read the Yahoo message boards on this stocks. All the longs are dreaming up reasons why this is the "buy of the century"
Hey at least it's a good tax deduction so long as you don't hold on for more than 1 year.
These guys are big Alt-A lenders. We have discussed here that Alt-A is the worst, so this is no surprise. The surprise is he went on CramerVision and pumped the company as a long term survior.
John Stark,
"but could it be that JPM sees a chance to pounce and take over undervalued assets"
Wouldn't be a surprise. The question is, are these assets yet undervalued.
Now, of course, JP might be able to hold these until some recovery takes place.
Cheers,
The surprising thing here is the margin call from JPM. Thornburgs book is incredibly sound so I can't quite understand why JPM blew them up. I wonder if JPM is under pressure from something else and they just need to get stuff off the books regardless.
Amazing chit.
See my 7:14 post regarding the '05 changes in bankruptcy laws with respect to warehouse lines of credit.
The changes create perfect conditions for a "run" because the first bank to issue a margin call gets whacked the least.
There is also a greed element. The margin calls/auctions are a perfect setup. LUM sued HSBC after HSBC issued a margin call and auctioned off the securities. In one auction, there was only one bidder.
Luminent Sues HSBC Over Inequitable Bond Sales -- Seeking Alpha
ac
i have no ax to grind anymore but their mortgage book is completely clean. Out of the 34000 or so loans total 60+ delinqent is under 1%.
It is a good business model, unfortunately for them they funded the biz with callable credit lines instead of something else. Things are getting pretty wierd when the solid stuff starts getting foreclosed upon because the banks just want to do it. I don't know if this is a vulture move by JPM or they have gotten the word to just exit these business any way they can and the opportunity presented itself.
strange times
Kicker:
Could be, but don't the cross defaults means everyone gets to be at the table?
d
Kicker,
Check.
Cheers,
Analyst says Thornburg faces chance of bankruptcy
An analyst for Jefferies & Co. gave Thornburg Mortgage Inc. a one-in-four chance of bankruptcy Wednesday.
Richard Shane Jr., quoted in an Associated Press article that was citing a letter to investors, downgraded the company from a "Buy" to a "Hold."
Shane said the beating Thornburg has taken from $570 million in margin calls in the last month could prove to be too much to stay afloat.
The Associated Press quoted Shane as saying the mortgage bond market is "experiencing a daily unwinding as leveraged investors are forced to liquidate positions."
Analyst says Thornburg faces chance of bankruptcy - New Mexico Business Weekly:
"These guys are big Alt-A lenders. We have discussed here that Alt-A is the worst, so this is no surprise."
If you go to their website you can look at the whole MBS portfolio. There is nothing wrong with it.
"Shane joined other analysts in predicting Thornburg would suspend its 25 cent first-quarter dividend and dropped his price target for the company's stock (NYSE:TMA) from $14 to $3.75. "
Great job Shane!
The super rich have debt?
TMA's ownership profile is the following:
70% non-institutional (retail guys)
20% investment managers
2% brokerage firms
1% "strategic" entities
Looks like the little guy gets left holding the smoking bag of doo-doo (surprise.)
Of the institutional longs, the largest position is held by (drumroll please ...)
Legg Mason Capital! step right up for the grand squicking!
Last fall I was buying puts on TMA and everyone (including Tanta) told me what a great company it was. The puts were successful, somewhere in the $30's I think. Haven't tried trading the company since.
Shiti news.
"Wednesday, Citigroup (nyse: C - news - people ) said it would sell a 30-year issue, underwriting the lion's share -- $2.1 billion, or 84.0% -- itself. The relatively long-term issue has a relatively yummy yield: 6.875% of face value"
Citi Turns To Bond Market - Forbes.com
Cheers,
BillD if you are gonna trade it, you'd better act fast. The next step is delisting (see NFI, NEW, etc.)
In all seriousness, this brings up a point. There is a reason that serious publications like IBD tell you to stay away from stocks under $10. They are there for a reason. The companies are damaged and the market is an efficient voting mechanism that you ignore at your peril.
If you are tempted to speculate on a comeback play on one of these zombies, why not buy a bunch of out-of-the money calls instead? You will probably make equal the profits if the company comes back, while risking only the premiums. Think of them as "lottery tickets" with capital you can afford to kiss goodbye.
This advice could save a lot of folks some pain and sorrow.
Kicker:
Could be, but don't the cross defaults means everyone gets to be at the table?
And I thought CR's comment about TMC being into price-Jumbo was scary enough.
I've never been a perma-bear. When non-techies went crazy over dot-coms, that scared me and turned me bearish. This housing bubble, which I'll admit to realizing just early enough to save myself, is scarier.
Got Popcorn?
Neil
Another explanation for the ballooning of agencies spreads: rumors that FNMA and its auditor are about to part company and that FNMA will announce the "mother of all write-downs."
ac
i have no ax to grind anymore but their mortgage book is completely clean. Out of the 34000 or so loans total 60+ delinqent is under 1%.
It is a good business model, unfortunately for them they funded the biz with callable credit lines instead of something else. Things are getting pretty wierd when the solid stuff starts getting foreclosed upon because the banks just want to do it. I don't know if this is a vulture move by JPM or they have gotten the word to just exit these business any way they can and the opportunity presented itself.
strange times
Well my point was really a more general one, but I think this case illustrates how US businesses in general are losing credibility as credit rot spreads everywhere.
randy,
Didn't the agencies say today they are jumping into the jumbo market.
I have a vague memory of reading and article about it. Unfortunately, between the Super Colander Tin Foil Hat and the Jo-Janta 2000 Peril Sensitive Sunglasses, I might have lost consciousness briefly.
Cheers,
Neil:
Why would loans to a higher quality client base be more scary?
It's not thier loan portfolio which is blowing up. It is their financing. In this market the two have very little to do with each other. This is a bank run although it is taking place on a commercial level. We are in kill the good companies now just because.
So if Thornburg takes the hit, is there a "gang tackle" on the other mortgage lenders of good-repute, i.e. First Horizon, et al?
OT - I think that I'm going to pull my passport out of the safety deposit box and take a trip to Argentina to do some research.
david_in_ct,
"We are in kill the good companies now just because."
The big boys have too much crapola on the books. Not just because.
Cheers,
It's not thier loan portfolio which is blowing up. It is their financing. In this market the two have very little to do with each other.
Its crazy to say the two have little to do with each other - its like saying pregnancy and intercourse are unrelated.
Without financing( or sufficient depth, and length and frequency and before my mind gets even deeper into Benny Hill mode I'll stop ) ...
-K
"Well my point was really a more general one, but I think this case illustrates how US businesses in general are losing credibility as credit rot spreads everywhere."
I think that the problem is more fundamental. Because of the way that the federal reserve and banking system is set up, a very few banks actually control the entire credit spigot. During times like this they can use and abuse their power even more. As I used to argue with banker, if we got rid of fractional reserve banking and the Fed did nothing put printed a fixed amount of cash each year the whole thing would probably work much better because money would seek a real market price and these bubbles and unwinds would never get so big as to threaten the system.
quote update from Yahoo:
THORNBURG MTG INC(NYSE: TMA)
After Hours: 2.00 1.40 (41.18%) as of 7:59PM ET on 03/05/08
"Its crazy to say the two have little to do with each other - its like saying pregnancy and intercourse are unrelated."
What if instead of being a mortgage co they were a maker of waffle irons and one morning waffle iron futures went limit down. The company had a book of orders to sell waffle irons at a fine profit and the orders were money good, but the bank yanked the credit line and put them out of business.
The problem with thornburg was not the business which they seem to have conducted quite well, but the way they went about financing it.
Maybe I can buy my loan back at 70cents on the dollar from JPM.
homedad43, I would not keep a damn thing in a saftey deposit box these days.
I was convinced it was just blind and bribed pension money that was still long any of this stuff.
How could you be paying attention to the facts and not think that this stuff will be priced either much lower or very close to what it is now in 6-18 months? Or just out of business and worthless.
I'm worried i'm going to get overconfident and think I know how things work if i keep finding out how much "smart money" is still long on this crap. Who is holding home builders?
sk,
I'll bite,
YouTube -
Cheers,
Legislation could be introduced as soon as next week, said Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee. Frank's comments came Wednesday following a closed-door economic forum convened by Frank and House Speaker Nancy Pelosi, D-Calif.
A key feature of the foreclosure-prevention bill is likely to be a government-backed fund that would purchase pools of subprime mortgages that lenders had reduced to affordable amounts for borrowers, then refinance them into loans insured by the Federal Housing Administration.
"We should be moving to get these mortgages written down and refinanced," Frank said.
On the Senate side, Banking Committee Chairman Christopher Dodd, D-Conn., has also been working on ideas for a government-backed mortgage rescue fund.
The House Democrats' economic forum came a day after Federal Reserve Chairman Ben Bernanke called on lenders to do more to prevent foreclosures, including reducing the principal that troubled borrowers owe on the loans, rather than simply freezing or reducing interest rates.
David in Ct -
There are a few biggies that do have significant control, but I don't know that their actions are set now because of greed as much as fear.
What I suspect is happening here is akin to financial cannabilism; get what you can now - even if they could survive - because we are now in survival mode. Even though we don't see everything going on in the backrooms, the 'net/blogs permits us to get a hell of a better view of what's happening behind the scenes.
I rather feel as though I'm watching the events of 1929 unfold with color commentary. And that was fear driven.
And yeah, I thought of David in Ct this PM when I heard the story.
homedad43 | 03.05.08 - 8:03 pm | #
Looks like he is going to have to move from Cos Cob to New Have
Could be, but don't the cross defaults means everyone gets to be at the table?
The defaults are the end game...
In AHM's case there was round after round of margin calls that preceded the actual default.
In the beginning, AHM settled the margin calls with cash. After it ran out of cash it would settle the margin calls with loans from it's own portfolio (to avoid selling them on the open market, depressing prices, and triggering more margin calls).
Once AHM had committed all its cash and assets to satisfy margin calls it was game over. They couldn't satisfy the next margin call and the lenders seized everything but the desk chairs, servicing rights, and the building.
The banks that was asleep at the switch (or was trying to work with AHM) and hadn't issued margin calls by that point were left holding the bag. I think BOA ended up on the hook for about ~1B.
Those that survived the run on the sub-prime and alt-a lenders were those that only had a single warehouse line of credit. With only a single lender to work with they could avoid a firesale.
All this talk everywhere of people just walking away is getting really scary. TODAY, just today, I had 2 ex-clients call me asking questions about what are the consequences of not paying their mortgage anymore.
I've had a few over the past few months (probably 1,2, maybe 3 one month), but I was spooked today with the 2nd call.
People are starting to think about a plan B for themselves. The economic news is not looking pretty.
I'm in NJ. Not exactly foreclosure hell....So far
Curious, I wrote TMA has an excellent reputation (good management) - I didn't mean to imply anything about their portfolio.
Best to all.
I think that the problem is more fundamental. Because of the way that the federal reserve and banking system is set up, a very few banks actually control the entire credit spigot. During times like this they can use and abuse their power even more. As I used to argue with banker, if we got rid of fractional reserve banking and the Fed did nothing put printed a fixed amount of cash each year the whole thing would probably work much better because money would seek a real market price and these bubbles and unwinds would never get so big as to threaten the system.
Actually, I think my real argument is fundamental beyond finance or economics really.
Credit is just a promise.
A credit bubble is just a period where many people and businesses make promises they can't keep.
The problem is that when the widespread deception is revealed everybody becomes suspect. There's so many dishonest borrowers that seemed honest at the time, how do you know you can trust anyone to return your hard-earned wealth now?
Again, there's nothing the Fed can do to make these bad promises good because in the aggregate they amount to wealth that simply does not exist.
All they can do is replace one bad promise with another to keep the deception going a bit longer.
Kicker,
Just think about when the bigger boys get hit...crossing the Atlantic and the Pacific.
Deflation anyone?
Cheers,
ron- these gov't idiots are like cats trying to cover up crap on a tile floor.....as if there's a chance in hell to possibly undo everything that these same gov't idiots were told would happen long before it did.
ac,
"All they can do is replace one bad promise with another to keep the deception going a bit longer."
It's why I call the monoline AAA ratings a legal fiction.
Cheers,
"How could you be paying attention to the facts and not think that this stuff will be priced either much lower or very close to what it is now in 6-18 months? Or just out of business and worthless."
I bought it 2 days ago as a speculation. As I have said many time upthread, the business is fine, they are in a margin squeeze. If JPM does nothing or TMA gets some other funding the stock will probably go back to 10 where it was before the margin squeeze. I risked what I thought would be about 1.50 to try and make 6.50. I thought it was a good bet. I was wrong. I'm wrong a lot. I closed out my position on the news and took my lumps. It's the nature of the game.
Maybe I can buy my loan back at 70cents on the dollar from JPM.
LOL...
You're not the first to think of that one...
WILMINGTON, Del. (AP) - A Maryland homeowner lost her bid Friday to force American Home Mortgage Investment Corp. to let homeowners pay off their mortgages at the bargain-basement prices at which they're sold to institutional investors at bankruptcy auctions.
Page expired - MSN Money
ac -
I have to agree.
I work with a bunch of youth and a favorite game of theirs is "murder", a la who's the killer in a dark building? Several weeks ago, in a discussion afterwards, one of them stated that they really did get the chills thinking about what it would be like to not be able to trust anybody else.
I can't decide now whether to shelve the game for the duration or have them play it a lot more frequently to hone their skills.
I wanna adjustable principle mortgage (APM)jumbo loan from Thornburg that Mr. Bernanke is talking about. However only if the principle goes down would I want this loan. I do not want this loan if the principle is going up. I guess to be eligible for this I will need to put myself in debt more to show my financial hardship.
Oil up. Mikkei up. Well that makes sense.
Yahoo! Finance - Business Finance, Stock Market, Quotes, News
Cheers,
A key feature of the foreclosure-prevention bill is likely to be a government-backed fund that would purchase pools of subprime mortgages that lenders had reduced to affordable amounts for borrowers, then refinance them into loans insured by the Federal Housing Administration.
I suspect what will happen here is that the bank will sell the mortage to the government at a 10% discount even though it's worth maybe 50% of par.
"You're not the first to think of that one..."
I'm hoping to get them before BK. Maybe to screw JPM they will sell it to me at 1/2 off.
Misean-
the disclosure that they are funnelling money to the parent to pay interest on AA debt and dividends is interesting to say the least, why aren't all of these funds going to the insurance unit?
This shit gets more bizarre by the day, the IB's were reportedly bailing them out and now you have a combination of equity/convertible offerings with the brunt to the common after they dismissed a previous plan to raise equity due to adverse market conditions (WTF, today's conditions are obviously much more favorable (
, and the markets spoke today with a tremendous vote of confidence.
and btw the way, the transports have been rallying into this commodity craziness, freakin wierd.
ac,
I suspect a 1% hair cut.
Then hearings where congang critters scratch their heads saying hoocoodanode.
Cheers,
I thought it was a good bet. I was wrong. I'm wrong a lot.
I lost a chunk of change on AHM but it was still a good bet. Even a wrong bet in hindsight can still be a good bet.
After enough carrots are doled out, is it time to try the stick?
What I mean is, there's been a lot of freebie money committed to try to entice people to stay in their homes. If the "walk-aways" or "jingle mail" goes on long enough, shall the Congress try making foreclosure a felony or adding a heavy tax burden to those who get foreclosed? That might do the job more effectively. Kidding, of course, but worth the thought.
r_c,
What's odd is the limited amount. LOL. Truly this is all horse poopoo.
Cheers,
david,
That is the part of the game I am still working on - marking sure that when I am wrong it has far less impact than when I am right.
"and btw the way, the transports have been rallying into this commodity craziness, freakin wierd."
My airline stocks were all up today with oil 5 bucks higher. On the flip side, XTO which is the best natgas/oil e&p on the planet wsa flat with natgas up 4% and oil up 5%.
Anytime this has happened in the past it is a very bad thing for the energy complex. Ususally take a couple of days but then the TSHTF.
weather helm- armed nat'l guard is convincing ....door-to-door
If you were running a bank and you knew that the endgame was that the peoples champions were going to force you and all of your peers to write down the principal on all those lovely mortgages and because of this you were going to lose a bit of coin, and you knew that the endgame was near, you would be making margin calls on companies that you knew had good assets too. I think that you would be saying to yourself, to hell with everything else, I am going to try and get a bit ahead while I still can. I also think that once the blood is in the water you will see more of this.
p.s. sorry about the run on sentences.
david,
Yes XTO is a topnotch outfit - they turn out two barrels at a minimum for each barrel of proved reserves they acquire.
John Stark - it's a REIT, so it can't retain earnings for a war chest. It was raising money for long term loans in the short term markets.
Its portfolio is great in terms of default - at the end of 2007 I think they had 144 loans 60 plus out of 37,000 plus loans. .39%. BUT, in this environment, they are wrongsided every which way. First, their collateral value is declining. Second, as Tanta has tried to explain, jumbos refi in a heartbeat for better rates, so they offered basically rolling refis to their customers to retain them. So their loan terms are not helping their current spread problem. They have a lot of big loans paying low rates. Very few are going to be prepaying, so they don't have principal repayments to help them either.
The value of their portfolio has declined on risk and on comparative return to current liens.
What's really killing this company is the muni situation. You can get very good muni returns right now for a lot less risk than Thornburg can deliver. All of the problems and disturbances in the markets are offering good returns for little risk as various entities roll out of these instruments. Given Thornburg's area exposures, it can't hope to compete for cash for at least 3 or 4 more months, and probably 6 or 7.
Since this had to happen, I think it is a terrible pity that it did not happen before the conforming limits were jacked up. If Thornburg cannot manage their risks, there is no hope that FNMA and FHA can. Thornburg is caught in a lethal duration trap.
"That is the part of the game I am still working on - marking sure that when I am wrong it has far less impact than when I am right."
This one took a pretty big piece out of my hide, but I've had a really good year so I pressed it more than usual for this kind of play. I like this environment very much because there are screaming fundamental mismatches and if you stick to your knitting there are many entry points. If the total market goes no where but has huge volatility and rotation, just wait for panics and doom to buy, and get into the stuff that just got crushed ex financials. I would never put serious money into the thing that is the reason for the bear market, its only for a trade. But anything outside of it is fair game no matter what the distraction. I also follow the sentiment indicators very closely. Because we are at very strong intermediate and long term extremes I can take a very aggressive view. So far it has paid well though the ride has been more than bumpy. I expect that to continue.
DAVID_in_CT: "I bought it 2 days ago as a speculation. As I have said many time upthread, the business is fine, they are in a margin squeeze. "
I made a speculative bet on a mortgage lender that went bankrupt before (Delta Financial) and learned the hard way that credit squeezes are lethal. The problem with almost anything related to real estate (except retailers like Home Depot, or materials suppliers like USG) is that almost everyone (mortgage lenders, homebuilders, etc) is leveraged heavily. On top of them being sensitive to debt obligations, this pretty much means that equityholders may end up with nothing. When you can't borrow or secruitize then the lenders are at the mercy of the creditors.
I'm more of a newbie than you are so you already know all this but it's worth pondering what is happening. When high quality lenders like Thorburg face problems, you know the whole sector is very dangerous.
Game is still not over for Thornburg though. It should be able to raise some money by unloading its portfolio. Even with markdowns, it will probably yield more than other lenders who have lower quality assets...
The aliens have landed.
But their greatest book is "To serve borrowers."
I'm hoping to get them before BK. Maybe to screw JPM they will sell it to me at 1/2 off.
The loan has already been committed as collateral to one of the lenders and is long gone. TMA wouldn't have defaulted if it had loans lying around that it could use to satisfy the margin calls.
It took me a long time to wrap my head around that. In the last filing before bankruptcy AHM had almost ~1B dollars of high grade, prime loans that it owned outright. When they ran to bankruptcy court I figured that they would be liquidated and the preferreds would recover something.
But poof, the whole portfolio was gone. Management had used them all to satisfy margin calls. The lenders seized it all. Worse, they stuck AHM for ~1.5B of repos. Most likely that will wipe out any equity from the sale of the servicing unit, office buildings, and odds-and-ends.
Now, some of the run is fear but almost 1.5B of hard securities just disappeared. Tell me that there isn't greed involved.
Misean, It has survived well into the current times. Tell that to my wife. She thinks bangs are the sh*t.....
On a different note this has been one of the better threads for learning! Thanks all!!!
................
"it will probably yield more than other lenders who have lower quality assets..."
the dividend will be cut any day, the yield will be 0.00%
Over in the side links...wtf? $700 K is not middle or low income housing. Median income in Orange County is $61,700.
O.C.s FHA loan limit raised to $729,750
Beginning tomorrow, Orange Countys limit on loans insured by the Federal Housing Administration will be temporarily raised to $729,750, more than double the current limit of $362,790, the U.S. Department of Housing and Urban Development announced today.
The limit, which is good until the end of the year when it reverts back to $362,790, will apply only to loans insured under a program administered by FHA, which targets low to moderate-income home shoppers.
MoM
One of TMA's big products is a libor based arm (i got one). It resets every month so you just pay libor plus your spread. They also have similar product that resets off 6month libor. From what I see on their site, the spread across all these is right around 200 basis points. (I bought mine down to 1.60 because they only figured me for 3 years duration at the time and here i am 5 years later..
I guess I underestimated just how tight cash is at the banks and stupid the Fed has been. In a case like this you think they would be better of allowing TMA to repo the stuff with the Fed, rather than have 33 billion dollars worth of fresh paper hit the street causing another set of markdowns, bk's etc. Maybe the fed just wants all non bank mortgage co's out of business or maybe they are just completely out of their depth.
But didn't a Goldman Sach's spokesman announce today that we are halfway thru the problem with mortgages? Did he mean half way to the bottom, or half way back to the top?
Hmmm..GS must be unwinding their short positions for longs.
Kicker:
If I hadn't had a bad experience with Goldman some years back I'd probably look to buy their stock for a trade. They are by far the most ruthless of the lot and have the best connections. They blew up an acquaintances fund many years ago on a trade in which they were the prime broker. They just ran him past his margin limits in a thinly traded arbitrage. My deal with them was about a contract they had written to me on an otc options position. They tried to tell me it was european instead of american, even though i had the confirm in my hand. apparently the salesperson screwed up and told the hedging desk the wrong thing. The stuff that I owned went vertical and in deep backwardation. They were only about 50% hedged and it cost them a very large chunk of change, but they were incredibly rude and nasty throughout the whole episode
On a related note, Fremont General is trading at $.50. Also, some bondholders are claiming they are in default. If they explode, do they get taken over by FDIC? Could this be the rumored $9 billion bank blowup from a couple of weeks back?
In a case like this you think they would be better of allowing TMA to repo the stuff with the Fed, rather than have 33 billion dollars worth of fresh paper hit the street causing another set of markdowns, bk's etc.
Bingo...
The only reason that CFC survived is that it owned a thrift and had access to the TAF.
Right now, the Federal Reserve is pushing on a string. The shadow banking system is collapsing but the banks can't expand their balance sheet to absorb it because they don't have the regulatory capital. The Fed can lower interest rates but that's a slow drip.
Banks need a large injection of equity now. The 200B stimulus package would have been much better spent if Congress had bought preferred shares in banks instead.
And if Greenspan hadn't allowed banks to end-run reserve requirements with sweep accounts in '95 we wouldn't be in this mess. The Fed had much greater control over the size of banks balance sheets (and M1-M3) in the 70's and 80's when most banks were reserve constrained.
david in ct is right: TMA is about financing on repo. Novastar almost got killed in 1998, Criimi Mae did get killed in 1998. CMM was a similar story to TMA except CMM had B-rated commercial paper that was bringing in cash flows but the market for that paper was not that deep.
Novastar got into "two-step" securitizing to minimize repo exposure, then CDO financing to lengthen term and fix interest rate costs, but b/t credit issues and overall landscape...you know the rest.
Reverse repurchase agreements is just another form of short-term financing.
If TMA were exclusively financed with equity investment--or bank deposits--we wouldn't be having this conversation.
I am surprised that a sovereign wealth fund or a Wally Weitz(es) hasn't stepped up with an offer to take a convertible-preferred type stake large enough to clean out the repo exposure.
But then again, those with cash are not in a rush.
"I am surprised that a sovereign wealth fund or a Wally Weitz(es) hasn't stepped up with an offer to take a convertible-preferred type stake large enough to clean out the repo exposure."
That was my bet
From the looks of the 8k they got the default notice from JPM on the 28th, so they have had a week to get it together but couldn't get it done. I thought some regional bank would come in to partner up and then just repo the book out to the Fed. They probably could have bought half the business for next to nothing and the shareholders also would have made out.
Still might happen, but now with the default declared every tom dick and harry with any sort of a claim is going to want a piece of the carcass.
"Legislation could be introduced as soon as next week"
^ if this goes through and they find a new way to have my tax money be used in keeping home prices unaffordable in my area, this JBR is going to vote straight-ticket (R) for the rest of his life.
And I generally hate (cultural) conservatives and glibertarians with the heat of a thousand suns.
"Banks need a large injection of equity now. The 200B stimulus package would have been much better spent if Congress had bought preferred shares in banks instead."
I don't think that is the right answer. I think the Fed window should be open to everyone with good colateral. Let the Fed set the haircut anywhere it wants. Right now the banks have way too much power.
BLOWNCUE: "If TMA were exclusively financed with equity investment--or bank deposits--we wouldn't be having this conversation. "
Yep... good point... but the thing is that's their business model: borrow short and lend long. People sitting on the sidelines may argue that doesn't make sense right now but that's their business.
BLOWNCUE: "I am surprised that a sovereign wealth fund or a Wally Weitz(es) hasn't stepped up with an offer to take a convertible-preferred type stake large enough to clean out the repo exposure. "
They are probably too small for a SWF. If they need just a little bit more, they can likely tap public investors (they did that a few months ago) but if they need a lot of money then their only hope is probably value investors, distress investors, or vultures. Some of the private equity funds that are being set up to capitalize on the meltdown in real estate assets may also be a possibility. BUT...
The unfortunate thing for a lot of distressed companies is that there are huge swaths of industries that are distressed. Investors with money have many choices so why go for this? I mean, why go for a no-name lender when brand name banks, retailers, etc are selling at multi-decade lows (valuationwise)?
Capital is very scarce... those with capital are kings right now... completely opposite what it was 3 years ago...
david_in_ct,
Yes, the cross-default clauses mean lots of firms get "seats at the table," but it's not like any negotiating is going on at that table: all the firms with repos/secured loans now get the option to sell their part of the collateral.
Financial firms blow up in such an elegant way. One day you're fine, the next day you take a liquidity hit, and all the money vanishes. No annoying, long drawn out court case with bondholders, stockholders, employees, and suppliers arguing over the left-overs - everything is just gone.
david in ct
feel bad for u man. i must admit that despite being one of the biggest bears here, i bought 10000 sh of TMA at 4.00 3d ago when it tanked expecting a short covering bounce which never really came. first time i've ever really tried this. i got suspicious and thank god i sold at 4.11 for a small profit. will never try that again in a bear mkt.
JPM is the largest CDS holder by far of all the banks. this move makes me VERY suspicious that a fundamental change in attitude has occurred at the big banks in relation to their preferred clientele, HF's and mortgage brokers.
i think this is big news and that along with the big selloffs in FNM and FRE stock and the widening of their spreads as David Pearson has pointed out, along with the subpar ABK plan today, tomorrow will be a big day in the stock mkt. so look out.
David - TMA also buys a lot of hybrid ARMS with initial fixeds. It buys a lot of ARMS. They have multiple exposures. This whole environment is very unusual and they are getting slammed every which way. They do describe the risks pretty well in their 10K
Personally I believe the Fed is out of its depth at this point.
I don't believe you can give non-banks the ability to use the Fed window or the other bank assets. Banks do accept heightened scrutiny in exchange for those facilities. We don't at this time have the personnel to expand to them, and we need those facilities to work now. Banks do have other advantages compared to a company like TMA. They can get deposits, go FHLB, etc.
It is too bad about Thornburg. They are being taken out more from the effects of other people's risky behavior than their own. One can fairly argue that they should have known this could happen, but basically this is a well-run company that is being destroyed by a radical change in environment and not its own actions.
It needs to be said: Small spuds. Wake me up when the IBs crumble. Until then, ::YAWN::
"...this is a well-run company that is being destroyed by a radical change in environment and not its own actions."
This isn't just happening with financials, you know.
There is nothing wrong with their portfolio.
750 Fico, 67% effective LTV, wonderful performance on every trust. (Their website is very good, you can slice anyone and look at performance)
This has nothing to do with poor management. This has to do with a credit crunch like we have not seen since the 30s.
Regardless of the cause, the outcome will be the same, BK.
Because they are a non-bank they have absolutely nowhere to turn, when the banks take back their collateral they can take it to the window and get Fed$ for it, and they should be able to, it's good paper.
FT Woods writes:
Over in the side links...wtf? $700 K is not middle or low income housing. Median income in Orange County is $61,700.
Here in Sonoma it is 62K and the median home price is around $530K. NOD and foreclosures are beginning to show up in volume lately. The combination of a recession economy and unaffordable home mortgage levels has really put a hurt on the local housing market. I have already seen a 50% slide in home selling prices ( 600k to 300k) from peak in my neighborhood and based on median income and price/rent ratio's expect another large drop.
Investors have been buying several houses the past 6 months but nobody is hanging around Calif to do the renting so they stay vacant, big negative sucking machines. When people loss there job in Calif they have to leave the area, its far to expensive to hang around and try to make it somehow.
"
JPM is the largest CDS holder by far of all the banks. this move makes me VERY suspicious that a fundamental change in attitude has occurred at the big banks in relation to their preferred clientele, HF's and mortgage brokers."
I think that by killing their clients they are not exactly setting themselves up as preferred lenders of the future. I agree that there is a lot more stress in the system the last few days. The FRE knockdown is pretty hard. If you read the link to their MBS portfolio you will see that it is pretty bullet proof. I don't see the upside in shorting the hell out of them but its certainly has been working.
About the best trading I ever did was at the end of the tech crash. I remember over a period of about 6 months trading lucent and nortel. My best purchase of lucent was for 85 cents. The thing about real companies is that they die a lot slower so if you can read their balance sheets you can get a fair understanding of where there is value. As I just found out, in this game it doesn't work nearly as well.
MP, yes I know. The goal of the Fed should generally be to keep the well-run ones alive while the financial system thrashes through its agonies, but I don't think there is anything they can do for companiess like TMA.
But the rest of it - TAF money and rates - seems generally to have worked so far. However I think the Fed and Treasury need to work out something on the munis. That is the big dislocation now. Bad mortgages can't be fixed. It's this kick of the muni workouts that is pushing up the mortgages, which just implicitly devalued a bunch of these securities. Cutting rates will not do much to fix it.
Ministry of Truth writes: I would not keep a damn thing in a saftey deposit box these days.
Care to elaborate?
"One can fairly argue that they should have known this could happen,"
Ever since August they have been trying like hell to change the financing and actual undid a huge amount of the repo finance, but in the end they were not fast enough. Its still hard for me to believe that they are going to BK the company unless the banks just bid for the portfolio at whatever lowball price and then just pass it off to their own servicing departments. If JPM gets my loan maybe i'll stop paying for a few months just to cause them grief.
MoM
what is NLY's exposure?
It is always funny to me when the smartest guys in the room start to realize that the rules apply to them. Humility is great when you are moving up but when you are at the top, it is a career and company killer.
DCRogers:
During the Great Depression, one of the actions of FDR was to confiscate gold and other PM; literally, if it was in a safety deposit box and the rules were that you couldn't have it, then the gub'mint confiscated it.
The IRS posted agents in banks and when you showed up to remove the contents, the IRS agent was there. Remember, this was when the country was on the gold standard. I've been aware of this history for some time, but since the gub'mint technically has no "need" of any gold contents, I'm not convinced that this would apply here.
Being fiat currency however, they might try to suck the air out of the box.
...but basically this is a well-run company that is being destroyed by a radical change in environment and not its own actions.
MaxedOutMama
Truly.. the very IDEA of personal responsibility has totally disappeared from the American psyche - I'm starting to agree with Jas Jain.
Sheesh - as I look at my gnomes in Zurich and thank the stars they exist.
-K
David-in-lala land,
I recommend a subscription to Bill Fleckenstein's newsletter in order to improve your investment decisions.
other good ones are
Richard Suttmeir
Positive Patterns
Capital and Crisis
Pay particular attention to Kicker,Rich, idoc,Allen M and AC.
Good thread, all.
David got me thinking and I realized I hadn't looked at Weitz & Co. and RWT.
Redwood Trust out, 1.1B markdown but dividend intact:
Error 404
Redwood Trust CEO says large loss misleading - Marin Independent Journal
Redwood Review, quarterly commentary:
Error 404
Weitz & Co. 4q07 commentary, very interesting reading, dinged on CFC, exposure to Fannie, Freddie, AIG at time of pub:
Weitz Funds
i find it interesting that New Century was a mortgage reit as well. i scored big on them last yr about this time so i started looking to short other mortgage reits like REM index, TMA, and NLY which i did last Fall. i remember very well how these 2 companies seemed relatively immune to the mortgage mess based on their portfolios. NLY especially given its agency portfolio. however, look at its price action the last wk in light of FNM, FRE, TMA, and their spreads. hmmmm.
longtime:" Pay particular attention to Kicker,Rich, idoc,Allen M and AC."
Thanks for the advice, there's always a lot to learn. Its why I came here in the first place.
A free house with every saving account opened.
idoc - NLY is the only REIT I have ever recommended. The management is quite conservative. They probably will be at least somewhat negatively affected by the current environment (COF), but this is one you should not short, because they may be helped almost as much by lower prepayments as they are hurt by higher borrowing costs. They invest very traditionally in very traditional mortgage securities and they invest for income, not to arbitrage values.
They are also conservative with leverage. These days, that is a great thing.
Hmmm.
Default on a reverse repo.
Let me puzzle this out.
That means that Thornbug sells/delivers securities to JPMorgan Chase and agrees to repurchase the securities from JPMorgan at a later date at a higher price sufficient to cover the original sale price plus accrued interest.
When we do repos, we accept only US Treasuries as securities, demand 102% of price plus interest as collateral, and make certain that all the securities are in good form.
I wonder what JPMorgan took as collateral. Is all the paperwork in good order or is their back-office FUBAR? Does JPMorgan have a "document risk" problem if they try to sell these securities?
Hmmmm.
If Repos are now viewed as punk, then T-bills should rally and yields dive to ZIRP.
Can Treasury money market funds break the buck on the up-side? If the T-Bill market price is above the amortized cost, will the management firms bail out the funds by relieving the funds of the T-Bills at the lower amortized cost, instead of the market price?
I'll have to read SEC Rule 2a7 again.
NorkaWest
Reading that seekingalpha egg-face-moment from "Jack" is illuminating.
Watching him twist in the comments is even more so.
To summarize he presents his trade as a screaming (but high risk) buy, and details the huge amounts of shares he bought around $4, justifying it based on the "enterprise value" of THM.
Now it is $2 after hours and there is a good chance they may go bankrupt, he justifies his trade as still smart, and says he'll hold it open. If it goes to zero, his overall portfolio will still by positive on the day, and presumably week and month.
But he won't back up the truck for more at $2, which is weird.
If for him the trade was such a small amount of risk vs his entire portfolio he should not have presented it a smart trade to readers. Who among them could say that losing $20k on a day (or double that if it folds) will still leave them positive overall? He did not disclose the tiny percentage of his entire portfolio the trade apparently represents.
It is financial writing like that that is partly responsible for the can't-lose attitude in bubble markets.
Can't get Redwood Review opened.
Grant Thornton issued an adverse opinion on internal control and procedure but overall an unqualified opinion on consol fin statments.
I can't copy and paste, here's the blurb:
-snip-
Management has concluded that the material weakness in internal controls resulted from the fact that they were unable to obtain the necessary evidence under SAB 59 to support its initial conclusion that a material portion of its unrealized losses were recoverable as of 12/31/2007.
-snip-
Elsewhere management says its take remediary steps and thinks deficiency will not reoccur in future reports.
$282M of excess capital as of 12/31/07 per management.
Weitz got agreement to purchase (up to?) add. 900,000 shares
Tough story to start following if you're new to it but RWT does provide a lot of information.
David_in_CT said:
As I used to argue with banker, if we got rid of fractional reserve banking and the Fed did nothing put printed a fixed amount of cash each year ...
I'm sure you realize this was Milton Friedman's prescription too. In the decades since he prescribed it, numerous academic pieces have been written that expose all kinds of flaws that result from this policy. Ask your favorite monetarist for references.
Re: an Treasury money market funds break the buck on the up-side?
Fun stuff
Bernanke has been pretty good on this; generally, he's done the right thing,'' said Democratic Senator Sherrod Brown of Ohio, a member of the Senate Banking Committee. Paulsonhas moved too slowly'' and ``we need to do way better than we've done as a government,'' he said in a Bloomberg Television interview. Ohio has the sixth-highest foreclosure rate.
he call for forgiving portions of home loans may spur opposition from bond investors concerned it will reduce the value of mortgage-backed securities, which have already slid and caused banks to post billions of dollars of credit losses.
We could not imagine that the policy response would be to pour napalm on the fire,'' said Julian Mann, who helps manage $3.4 billion of bonds at First Pacific Advisors LLC.I'm going to demand higher and higher rates'' to buy mortgage debt if the collateral is altered, he said.
Bernanke has also indicated a greater willingness to consider using government funds. He told lawmakers last week that it was worthwhile'' to consider using public money if the housing contraction worsens. Paulson said the use of taxpayer money was anon-starter.''
`The risks are very high that the steamroller is not going to be stopped,'' said Mark Zandi, chief economist of Moody's Economy.com in West Chester, Pennsylvania. ``The window's going to close very quickly, and they have about six to 12 weeks to figure out what's next.''
Meanwhile Mark and The Boys will keep giving out AAA Ratings!
Boob talk:
Federal Reserve Bank of Cleveland President Sandra Pianalto said slowing U.S. economic growth will help bring the inflation rate down from an ``elevated'' level.
Boob, retard, slut!
Sivaram Velauthapillai writes:
I made a speculative bet on a mortgage lender that went bankrupt before (Delta Financial) and learned the hard way that credit squeezes are lethal.
Oy.
Delta would announce in their press releases and SEC filings that 70% (or 90, or whatever) of their loans were rated A, but then if you dug around in the footnotes you'd find out that they had their own rating system that was a little different from everybody else's and "A" at Delta meant the FICO was at least 500 and it had been at least two years since the borrower had filed Ch. 13.
I always thought they were asking for a D&O suit for deliberate misrepresentation but I suppose it was all there in the footnotes, after all....
Frozen Hedge Funds the new Growth Industry?
Hedge Funds Frozen Shut
Truly.. the very IDEA of personal responsibility has totally disappeared from the American psyche - I'm starting to agree with Jas Jain.
No, it hasn't disappeared entirely. But it takes a considerable amount of personal stamina to live below the levels of your neighbors while knowing that they are ass deep in debt (while you have a few pesos in the bank). Living near the bottom (but not on it) teaches you a considerable amount of humility.
Lets see what happens over the next 24 months. My view is that the worst of the failures should be cleared out by NYE '09/'10. Lets see who isn't naked when the tide goes all the way out.
Lets see who isn't naked when the tide goes all the way out.
RayOnTheFarm | 03.06.08 - 12:06 am
Thanks for that lovely imagery, especially when we're talking about Paulsen, Bernanke, etc.
idoc, you raised an excellent point that IBs are tightening credit and hedge funds and other leveraged players are going to get squeezed.
Do you think the IBs are just getting religion or being forced as their own capital keeps getting sliced and the Arabs are not in a mood to be the complete back stop? If its the latter which I personally suspect the unwind of leverage will take a few surprising turns.
Freemont General gets default notice on $3.15 billion in mortgages (On FDIC's problem bank list)
Fremont General gets default notice on $3.15 billion in mortgages
Can one of you mortgage experts comment on the impact of this? Are they really going to write loans at 97% LTV in declining markets?
FHA Raises Mortgage Limits In High-Cost California Counties
FHA Raises Mortgage Limits In High-Cost California Counties - WSJ.com
FHA, Relic of Past, Is Rebounding
FHA, Relic of Past, Is Rebounding - WSJ.com
Lawmakers take aim at CEO compensation
High profile former Wall Street CEOs and the head of the nation's largest home lender will testify before a Congressional committee examining the link between executive pay and the mortgage crisis...
Why were executives at the helm of some of the world's largest banks compensated so richly even as their industry was being pummeled by the mortgage meltdown?
Lawmakers will pursue this question Friday when the House Committee on Oversight and Government Reform hears testimony from two former Wall Street CEOs, Charles Prince and Stanley O'Neal, and the chief of the nation's largest mortgage lender, Angelo Mozilo.
At issue are the salaries, bonuses, perks and stock awards that the executives received as the companies under their leadership took enormous losses on bad bets related to mortgage backed securities. Calls for accountability have become increasingly louder as the housing market continues to deteriorate and homeowners across the country face foreclosure.
Henry Waxman, the Democratic congressman who chairs the Committee, has developed a reputation as an aggressive reformer during his thirty years representing the Los Angeles area on Capitol Hill.
As a ranking member on the Committee, Waxman has tackled issues ranging from the high cost of prescription drugs to waste, fraud, and abuse in government contracting. Most recently, Waxman's committee made headlines when it held a series of high-profile hearings on the illegal use of steroids in major league baseball.
Lawmakers take aim at CEO compensation - Rep. Henry Waxman, D-Calif. (1) - CNNMoney.com
Allen--Yes, the very rich folks need to reach into your pocket. Just turn the other way for a moment.
FFDIC
Morality and sense of personal responsibility is only for the commoners.
In our Houses of Lords (THE country clubs) is always "Better luck next time old chap"
Perhaps this has something to do with it:
Banking System Exposure To Credit Derivatives
Bank Total Notional Credit Derivatives Exposure ($billions)
JPM $7,778.3
BofA $1,575.3
Citi $3,037.1
Wachovia $401.3
HSBC $1,139.5
TOTAL $13,931.5
www.contraryinvestor.com/mo.htm
Regulators cite construction loan fears
Page expired - MSN Money
FDIC Chair Bair's speech to the Independent Community Bankers Assoc., Orlando, FL.
FDIC: Error 404 - Page Not Found
The truth is playing out as many of us predicted. Sebastian and O-Joe have been proven horribly wrong.
Average Joe
Who has been wrong all along so far since as of the last quarter there is no recession. There have been predictions here for any new quarter for years now on this blog.
Today's news could not have been worse, yet the market actually rose. I would pay attention to this as it means a turnaround - all the negativity is priced in and any positive surprise is a catalyst for an upturn.
That said this week is almost as important as the Jan 22nd week. It's the great retest. If the bears cannot follow thru their case is lost IMO. Tomorrow and Friday have the biggest potential for a turnaround (also in PMs). Very interesting times.
P.S. Is their a time stop when bears give up on the recession, or will it just be prolonged into the next quarter eternally?
O-Joe
The Christian Science Monitor
Banks' Losses could Put $900 Billion Squeeze on Consumers (pray...)
Banks' losses could put $900 billion squeeze on consumers | csmonitor.com
david_in_ct - Sorry bout your loss's man. Twas a reasonable bet. Feel like someone should be apologizin to ya on behalf of those postin in poor taste by "pilin on".
.....credit belongs to the man in the arena....vs..those poor and timid souls who know neither victory or defeat....etc
I think I finally figures this out after slamming my head on the table a few times:
Re: Board of Governors of the Federal Reserve System
The Board is "normally" comprised of 7 governators, however, after Chairman Greenspan left, Roger Ferguson headed for the exit and then Ben grabbed The Big Chair.
(*Because appointments of members are staggered there are currently only five members on the board.)
The current members of the Board of Governors are:
Ben Bernanke, Chairman
Donald Kohn, Vice-Chairman
Frederic Mishkin
Randall Kroszner
Kevin Warsh 35 ????
** He also took coursework in market economics
He went on to study law at Harvard University and received a J.D. (cum laude) in 1995
** From 1995 to 2002, Warsh worked for Morgan Stanley
From 2002 to 2006, he was Special Assistant to the President for Economic Policy and Executive Secretary of the National Economic Council.
Warsh joined the Federal Reserve Board on February 24, 2006
All current members of the Board of Governors have taken office during the presidency of George W. Bush.
OT but may be of interest...Peloton ABS fund went from $2 billion to zero in a matter of days. One of the reasons was increase in margin requirements.
FT.com / UK - Peloton apologises over fiasco
Glad to hear Congress is going to focus on executive pay for a while.
Maybe it will take their minds off trying to prop up housing unaffordability.
Carlyle Capital Gets Default Notice on Margin Calls (Update2)
By Joseph Galante
March 6 (Bloomberg) -- Carlyle Capital Corp., the publicly traded credit fund backed by private-equity firm Carlyle Group, said it received a notice of default after failing to meet a margin call yesterday.
The Guernsey, U.K.-based fund didn't meet four of seven margin calls totaling more than $37 million received yesterday, it said today in a statement. It expects to receive at least one more notice of default related to yesterday's margin calls, according to the statement.
There's blood in the water....
Carlyle Fund Gets Default Notice After Margin Calls (Update9) - Bloomberg.com
Sorry O-Joe, this market has no Mo-Jo.
Has anyone read of any viable suggestions to intelligently deal with current events? 'Don't scare the children' doesn't appear to be working. Everyday, I have less and less confidence in the decision making of the folks in charge.
Re-reading Roubini's Testimony:
Can the Fed and Policy Makers Avoid a Systemic Financial Meltdown? Most Likely Not. Eight reasons why I am skeptical that such a systemic risk scenario can be avoided.
First, an aggressive monetary easing with the reduction of the Fed Funds rate to reduce the risk of a deeper and more protracted recession.
Second, a strong provision of liquidity to financial markets to reduce the liquidity crunch in interbank and money markets.
Third, an robust attempt to coordinate a private rescue of the monolines to prevent their rating downgrade and thus avoid another round of writedowns in the financial system.
Fourth, avoiding a more severe credit crunch by an aggressive support of the recapitalization of the financial system through capital injections by sovereign wealth funds (SWF).
Fifth, attempts to reduce the number of foreclosures among distressed homeowners and provide measure of support of the housing markets.
Sixth, the Fed and other financial regulators have concentrated on trying to avoid the liquidity and insolvency problems of banks and other depository institutions.
Seventh, the Fed and financial regulators and supervisors are walking a very fine line between transparency/recognition of losses and forbearance.
Eighth [...] this is the first crisis of financial globalization and
securitization. Reforming this system is urgent to restore confidence in the financial system and reduce the risks of boom and busts in asset prices and credit that are becoming increasingly self- destructive.
Even if they do write 97% LTV loans, it'll only marginally increase the overall sum that is eventually defaulted on(outright or through significant inflation).
Does it matter if the government eventually steps in and supports the GSE's? Not really, when that time comes the losses will be there no matter what, either through outright default, government bailout then outright default, or government bailout then inflated to a very small fraction of the original real value.
Credit contraction, scarcity, sentiment, and fear are going to wipe out even the most "bullet proof" of mortgage, MBS, CDO, interest rate derivative, and equity based balance sheets.
Those that will survive will have productive assets owned outright. Ability to reduce expenditures as income declines is crucial to this environment.
THE BUSH RECORD!
Accomplishments: Changed pollution laws for power and oil companies and made Texas the most polluted state in the Union. Replaced Los Angeles with Houston as the most smog ridden city in America. Cut taxes and bankrupted the Texas government to the tune of billions in borrowed money. Set record for most executions by any Governor in American history.
Became president after losing the popular vote by over 500,000 votes, with the help of my fathers appointments to the Supreme Court.
Accomplishments as president:
Attacked and took over two countries.
Spent the surplus and bankrupted the treasury. Shattered record for biggest annual deficit in history.
Set economic record for most private bankruptcies filed in any 12 month period. Set all-time record for biggest drop in the history of the stock market. First president in decades to execute a federal prisoner. First president in US history to enter office with a criminal record. First year in office set the all-time record for most days on vacation by any president in US history. After taking the entire month of August off for vacation, presided over the worst security failure in US history.
Set the record for most campaign fund-raising trips than any other president in US history. In my first two years in office over 2 million Americans lost their job.Cut unemployment benefits for more out of work Americans than any president in US history. Set the all-time record for most foreclosures in a 12 month period. Appointed more convicted criminals to administration positions than any president in US history.
Set the record for the least amount of press conferences than any president since the advent of television. Signed more laws and executive orders circumventing the Constitution than any president in US history. Presided over the biggest energy crises in US history and refused to intervene when corruption was revealed. Presided over the highest gasoline prices in US history and refused to use the national reserves as past presidents have.
Cut healthcare benefits for war veterans. Set the all-time record for most people worldwide to simultaneously take to the streets to protest me (15 million people), shattering the record for protest against any person in the history of mankind. ://www.hyperreal.org/~dana/marches/)
Dissolved more international treaties than any president in US history.
My presidency is the most secretive and un-accountable of any in US history. Members of my cabinet are the richest of any administration in US history. (the 'poorest' multi-millionaire, Condoleezza Rice has an Chevron oil tanker named after her).
Had more states to simultaneously go bankrupt than any president in the history of the United States.
Presided over the biggest corporate stock market fraud of any market in any country in the history of the world.Created the largest government department bureaucracy in the history of the United States. Set the all-time record for biggest annual budget spending increases, more than any president in US history. First president in US history to have the United Nations remove the US from the human rights commission. First president in US history to have the United Nations remove the US from the elections monitoring board.
Removed more checks and balances, and have the least amount of congressional oversight than any presidential administration in US history. Rendered the entire United Nations irrelevant. Withdrew from the World Court of Law. Refused to allow inspectors access to US prisoners of war and by default no longer abide by the Geneva Conventions. First president in US history to refuse United Nations election inspectors (during the 2002 US elections).
All-time US (and world) record holder for most corporate campaign donations. My biggest life-time campaign contributor presided over one of the largest corporate bankruptcy frauds in world history (Kenneth Lay, former CEO of Enron Corporation).
Spent more money on polls and focus groups than any president in US history.
Based on the current pattern of stock market losses and falling home values, household net worth is estimated to have declined by about $1 trillion in the fourth quarter and about $1.5 trillion to $2 trillion this quarter, depending on where stock prices settle. That would be the largest drop since the tech bubble burst in 2000. These sharp declines, at a time when job and income prospects are fading, are sure to add to the angst already evident in gauges of consumer confidence, which are at levels seen only in past recessions.
We have a national US decline in house prices (something we were recently reassured "would never happen"), broken credit markets, rescues of major lenders, nationalization of a UK bank, 15%+ decline in US equities. And yes, we are in a recession according to a growing number of respected voices.
But nevermind says O-Joe, we naysayers of this Great Bull market are all wrong!
O-Joe, please stick around for comic relief! You're killing me! (Hey, do you work for the government?)
Last week's U.S. Supreme Court decision to allow individual participants to sue 401(k) plan administrators will put further pressure on financial advisers to ensure that they are adhering to their fiduciary status, industry observers say.
Pressure to be fiduciaries intensifies - Investment News
"Ignorance is not bliss when it comes to their belief on whether they're a fiduciary or not. The, 'Gee, I'm just a dumb broker,' defense doesn't work," he said.
"Our take is this is just another example of the stakes going up for advisers and a reminder of how serious this business is," said Fielding Miller, chief executive of Raleigh, N.C.-based Captrust Financial Advisors Inc., which manages about $20 billion in assets. "If a participant can go after a plan administrator for not following instructions, they certainly can go after an adviser."
Meanwhile, the decision was clearly a victory for investors, which was surprising as many of this court's recent decisions have gone against individual investors, Mr. Stoltmann said.
FFDIC,
Any opinion on The Fed having 5 versus 7 members and all 5 appointed by Bush? Has that ever happened in US history before?
Waxman/Congress intend to hold hearings?.....oh no....not the comfy chair!
What are their main weapons?
Wikipedia
"Credit default swaps resemble an insurance policy, as they can be used by debt owners to hedge, or insure against credit events such as a default on a debt obligation.
However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can be used to speculate on changes in credit spread.
Credit default swaps are the most widely traded credit derivative product"
repeat ...there is no requirement to actually hold any asset or suffer a loss...
it is a casino...and the bets out weigh real productivity don't they.
KnotRP,
Reportedly, Waxman will slap a cease & desist on Mozillo preventing him from tanning until 2015. After he turns pasty & pudgy he will run for Congress.
BusinessWeek: 14 Calif. counties get maximum FHA limit (Wed, Mar 5)
Business Week Online > File Not Found
...
The idea is to stoke investor demand for securities made up of more expensive mortgages -- so-called jumbo loans -- backed by Fannie and Freddie, the two biggest mortgage financers in the country. That would drive interest rates lower and spur home buying and refinancing.
...
California Gov. Arnold Schwarzenegger said the new limits will "help California's housing market rebound."
"No other state has been more impacted by the ongoing mortgage crisis than California, and the announcement today ... will help more working Californians achieve the American dream of homeownership through less expensive and more secure loans," he said in a statement.
...
Anonymous:
It's cause the smart people simply don't want to be involved in the Fed. They've all bailed because anyone that understands debt and fiat money knew what was coming and got the hell out of the way.
It's quite pathetic to me that so many smart people on this blog don't understand how intentional this crash has been.
Anytime you decrease both interest rates and lending standards you will get increased demand and rising prices. Combined with the uneducated public that is force fed propaganda in lethal proportions you end up with quite a bubble and subsequent bust.
Quite simply it was planned economic destruction of a nation state through debt cancer. Call me a nut, but this conclusion is based on the actual actions of the wealthy elite and those in power.
FFDIC
points well made
we have criminals at the helm
for what benefit , shk?
ps. don't think your a nut, but wondering what your theory is on why.
Prepare for Thursday!!!
New York Fed president and FOMC vice chairman Timothy Geithner (voter), Boston Fed president Eric Rosengren and St. Louis Fed president William Poole will speak at separate events.
U.S. Pending home sales data will also be released and economists expect further declines with January recording a drop of 0.8% following Decembers 1.5% decline.
All times in EST.
Thursday:
8:00 US Fed's Rosengren speaks at economic breakfast in Massachusetts
8:30 CA Building Permits (MoM) JAN Exp: +1.0% Prior: +0.4%
8:30 US Initial Jobless Claims 1-Mar Exp: +360K Prior: +373K
8:30 US Continuing Claims 23-Feb Exp: 2805K Prior: 2807K
9:00 US Fed's Consumer Advisory Council Meets on Mortgage Lending
10:00 US Pending Home Sales (MoM) JAN Exp: -1.0% Prior: -1.5%
10:00 US Mortgage Delinquencies 4Q
10:00 CA Ivey Purchasing Managers Index FEB Exp: 56.0 Prior: 56.2
10:30 US EIA Natural Gas Storage Change 29-Feb Exp: -142 Prior: -151
13:00 US Fed's Geithner speaks about financial Challenges in New York
13:30 US ICSC Chain Store Sales (YoY) FEB Exp: +0.6% Prior: +0.5%
17:00 US TSYs Paulson speaks on Financial Literacy in Oakland California
19:30 US Fed's Rosengren speaks on Risk Management at Chicago Fed Bank
20:00 US Fed's Poole speaks at University of Illinois in Springfield
Debbie Downer:
So they can further their sick agenda of power and control. The power of the united states was a great tool that has served their purpose but it's time has come.
They have installed their fiat regimes in almost every country on earth over the last century. Now they are attempting to remove the "reserve currency" status of the US, and systematically stripping away national sovereignty the world over. Likely to set up a regional or world currency, and possibly to (officially) declare marshal law in the US.
They want to manage peak energy, peak food, and eventually peak population, while keeping the public so ignorant as to not challenge their power.
Weird History:
Mr. Gramlich's resignation will leave two open positions on the seven-member Federal Reserve Board. The other vacancy will be created by the departure of Ben S. Bernanke, who has been nominated to become chairman of the Council of Economic Advisers.
In recent years, Federal Reserve governors have displayed few partisan divisions over monetary policy. Though board members frequently disagree about the timing or the nuances of policy issues, they have tended to agree about placing top priority on restraining inflation.
Mr. Gramlich's departure will be part of a broader change at the Fed, which will culminate with the retirement of Alan Greenspan, the Fed chairman, early next year.
President Bush, now faced with replacing Mr. Gramlich, has not yet nominated someone to succeed Mr. Bernanke. Nor has he hinted at the biggest decision of all - a successor to Mr. Greenspan.
President Bush is working to prevent a recession, but the group of advisers meant to help him achieve this vital goal is woefully understaffed. In fact, the three-member Council of Economic Advisers is limping by with just a single adviser.
The reason: a lingering impasse between Senate Democrats and the Bush administration regarding the choice of nominees.
Some economists worry the impasse could affect the administration's ability to respond to the economic downturn. "By not confirming the appointments, the Senate is acting to deprive the White House of some of the best economic advice available," a former chairman of the CEA, Gregory Mankiw of Harvard University, said.
For more than six months, the president has been unable to fill the vacancies because top Democrats are refusing to approve his nominees until the White House agrees to the Democrats' choices for vacancies at the Securities and Exchange Commission.
With the deadlock now dragging into March, the administration's chances of being able to fully staff the current CEA are dwindling. Already, one of Mr. Bush's nominees, Dennis Carlton of the University of Chicago, has taken his name out of the running. He had been waiting since August to be considered by the Senate.
The remaining nominee, Donald Marron, also of the University of Chicago, is awaiting "an up or down vote," as the administration searches for a nominee to replace Mr. Carlton, a White House spokeswoman, Emily Lawrimore, said.
That leaves the CEA with just one top-ranking member, its chairman, Edward Lazear. With the White House rushing to respond to an economic downturn, the chairman is "spread way too thin," a former CEA member, Andrew Samwick of Dartmouth College, said.
Anonymous
Are you kidding me? After 8 years of near single party rule in all branches of government, the 'party of responsibility' is now saying 'It's the Dems fault'.
Give me a break. I would say I hope McCain wins the election because it's a poisoned chalice and the Repugs will have to clean up their own mess for once, but if they had 100 Senators, 435 Congresspeople, 1 president and 9 SC Justices you'd still find a way to say 'but we're powerless before the Dems - it's their fault.'
Just bugger off, and for once in your life you and your ilk take responsibility for your actions over the last 30 years and where they have brought the USA and the world.
IBD is not a serious publication.
As I used to argue with banker, if we got rid of fractional reserve banking
That means getting rid of banking, period.
What do banks do? They take deposits and loan most of that money back out, while keeping a fraction in reserve. Fractional reserve banking.
That's the point of having banks. Intermediaries between people who have money to lend and people who want to borrow money. Like supermarkets are intermediaries between people who produce food and people who consume it.
If you got rid of banks, this process would just go on through less regulated vehicles from loan sharks to options markets.
I can''t believe I read all the way through and no one posted concerning TMA:
We are all subprime now.
Granted, I had no idea what it truly meant so long ago when it was floated (by Tanta last August?) but this has been an education. Listening to what mp, MoM, and David in CT are saying,...
Almost makes me glad I've got no money to be invested in the market,...except that the pain is coming to all of us anyway, because,...(Do I have to say it?)
We are all subprime now.
CalculatedRisk writes:
Misean, these guys have an excellent reputation...
Well, CR, no offense intended but lots of guys in C and MER and MS and BSC, etc., etc. had "excellent reputations" until they suddenly didn't.
Robbie:
david_in_ct - Sorry bout your loss's man. Twas a reasonable bet. Feel like someone should be apologizin to ya on behalf of those postin in poor taste by "pilin on".
.....credit belongs to the man in the arena....vs..those poor and timid souls who know neither victory or defeat....etc"
Thanks for the sentiments. One of my favorite sililoqueys.
The vast majority of the people here are on the other side of my bets either literally or rhetorically. So it would be surprising not to take some flack. I take a lot less than O-Joe and Sebastion who get beat on pretty mercilessly for simply posting their views.
I could spend my reading time on stock bulletin boards in the places where I have long bets but then I would get views where though the thinking might be different than mine the bets would be the same.
I have been on the buy side all year expect for a 24 hour short of the nasdaq after the first huge spike off the bottom and that was just to get my general stock delta to zero. Until recently I have ownly been buying natural resource type names and I have been fortunate with my picking. I only retain one good sized position in that arena and it is down to 40% of its peak exposure and accounts for about 15% of my portfolio.
This little foray cost me about 5% of my portfolio. The thing that irked me the most was my add on in the afternoon. I thought that there would be a sell the news thing on the Ambac announcement but also thought it would not go very far based on the eetup, which is why I jumped in against the decline. Got the market part right...
I tend to be pretty 'undiversified' and take more risk than would pass any fiduciary guidelines as to how to manage a portfolio, but it in the end it has worked pretty well for me over the years.
Like most other human beings I am emotionally risk averse so the pain vs pleasure of equal dollar loss and gain is very skewed to the pain side. Even though there is nothing I can do to change this, I can consciously recognize it and I use it for informational purposes. I have generally learned to monitor my own emotional state and take the other side of it in extremes, it is often very unpleasant but it very much helps the bottom line which is the goal of this particular game.
Thanks
d
"If you got rid of banks, this process would just go on through less regulated vehicles from loan sharks to options markets."
We could have perfectly fine banks where the banks invested your capital, but while they did so it was not available to you or you got some sort of bank paper in return Banks would be free to float their own paper just like anyone else. The idea is to separate investment which involves putting capital at risk from banking which should just store your money and facilitate transactions.
We would still have bubbles and runs, but there would be no governmentally sponsered position of power and the scope would be much smaller and in the end much fairer. This is how it worked prior to the Fed. There is no reason why JPM or C or BAM as private enterprises should be have a virtual infinite governmentally sponsered advantage over other investors by dint of their lines to the Fed.
"March 6 (Bloomberg) -- UBS AG probably sold 25 billion Swiss francs ($24 billion) of holdings backed by Alt-A mortgages in a ``fire sale,'' JPMorgan Chase & Co. said, raising its estimate of credit writedowns to 18.5 billion francs."
Well this certainly explains a lot.
IBD is not a serious publication.
What makes you say that?
Respectfully, I disagree. I'm a huge bear but I need to have something to counteract my tendencies and offer as a reality check. IBD does not exhibit the cheerleader mentality of a CNBC and seems much more focused on stocks than the WSJ. They will tell their readership to get out of the market and stay in cash at times, and warn them from buying former leaders, something you will never read in the rest of the financial press.
With more than 3,000 companies now reporting 4th quarter earnings, total net income of U.S. companies fell 54% on a YOY basis.
The Wall Street Journal Online - WSJ.com Log In
Declines were not just in finance but also in Materials (-37%), Consumer Services (-9%), Consumer Goods (-21%), and healthcare (-39%).
Through Q4, trailing 12 month (TTM) earnings for indexes were 51.55 for Dow 30, 27.25 for Nasdaq, 41.15 for Russell 2000, and 19.63 for S&P.
P/Es & Yields on Major Indexes - Markets Data Center - WSJ.com
If you assume flat (not lower) sequential earnings in Q1-2 08, TTM P/Es by the end of the 2nd quarter will be about 75 on the Dow, 40 on the Nasdaq, 60 on the Russell and 25 on the S&P. This is mainly because Q2 07 was an all-time blow-out earnings record.
The downturn in earnings is not temporary or cylical. There are four permanent headwinds that U.S. earnings face:
Higher corporate tax burdens
Higher financing costs (think Citi)
Higher energy costs
Higher health care and pension liability costs
In this environment, here is where P/E ratios should be heading:
Dow: 10-15
Nasdaq: 15-20
Russell: 8-12
S&P: 10-15
Well, CR, no offense intended but lots of guys in C and MER and MS and BSC, etc., etc. had "excellent reputations" until they suddenly didn't.
Chris
The point some of you seem unable to grasp here is that what's happening now is the good are being punished with the bad. You don't really know anything about the loans Thornburg made, but you're assuming they were ultra-risky Alt-A or something.
They weren't they really were prime jumbo loans with very low default rates. Their market dried up because of factors that had nothing to do with them.
Do you all think the muni auction-rate market dried up because of defaults among muni debt issuers? It had nothing to do with that.
Some of you have been predicting a complete break down in markets and now that it's happening, you don't recognize it.
Anything that limits Bush's ability to act is a good thing. We just need to get him the f**k out of the way, ASAP, while minimizing the damage.
Thornburg's Strong Credit Quality Attracts Rainwater, CEO Says
2008-01-28 18:54 (New York)
By David Mildenberg
Jan. 28 (Bloomberg) -- Thornburg Mortgage Inc., the lender that sold $21.9 billion of assets in August due to a cash shortage, drew an investment from Richard Rainwater because it has relatively few bad loans, Chief Executive Officer Larry Goldstone said.
Investors can look at us and they cannot really see a black hole of never-ending credit losses coming,'' Goldstone said in a Bloomberg Television interview.It is a great investment market opportunity, probably the best I've seen.''
Rainwater, the Texas real estate and energy investor, bought a 5.5 percent stake in Santa Fe, New Mexico-based Thornburg last week, Goldstone said. We have attracted a number of very sophisticated, very mortgage-savvy investors over the last six months,'' he said.
Thornburg specializes injumbo'' home loans of more than $417,000 to people with good credit. It raised $212 million through two stock sales in early January.
The company gained 30 cents, or 2.9 percent, to $10.62 in New York Stock Exchange composite trading today. It has gained
15 percent this year.
--With reporting by Pimm Fox in New York. Editors: Gregory Mott, Jeff Plungis.
Debbie Downer writes:
for what benefit , shk?
ps. don't think your a nut, but wondering what your theory is on why.
Its poosible just for the sheer fun of doing it???
As far as i can see a lot off Sociophats are at the top spots in your country, so to ask for a motiv is may to much to ask.. IMHO they just do it and dont care...
When does it begin tolook like 1975?
For all you youngsters, we had NYC defaulting and lots more............
Thornburgh has prudent lending guidelines and made good loans with the info they had at the time(as demonstrated by the low default rate). Unfortunately the collateral backing these loans is deteriorating. The falling price of the homes backing the loans is causing the margin calls.
As a trader, I'm with O-joe on this...
If you look at the S&P's closes, we had the retest of 1310 a couple of days ago, with every divergence in the book.
Dr. Elder would call the S&P a clear trading buy here. It could run to the 1380s without violating the downtrend line. Surely 5% is worth playing for in this market.
I have a bias to the long side here.
I think O-joe is a complete fool...but then again...he probably thinks GWB is one stand up american and one hell of a president.
Wow, this debate still goes on; the view that Thornburg as being "good" and that the good are being punished along with the bad is ridiculous. A margin call is a margin call is a margin call.
Elementary money management ( which means less return in safe times of course ) keeps you out of trouble.
If you don't practice money management and your collateral ( that you contractually agreed to) deteriorates and you get a margin call and you don't have alternative lines of credit lined up ( which costs in good times of course ), or spare cash lying around ( which costs you in good times of course ) then you are in default !
When you pledged your collateral you should be aware of how much its value can shrink - how much the people you pledged it too can manipulate it; its just what you are PAID to do.
That's not "good", its not "bad" it just "IS" - business. - Deal with it - go bankrupt or whatever; its NOT the end of the world.
Its just business.
-K
well, i guess my hunch from last nite about NLY was correct. down 14.94% right now pre mkt.
as i said last nite. today could be an ugly day.
yogurt wrote: "What do banks do? They take deposits and loan most of that money back out, while keeping a fraction in reserve. Fractional reserve banking."
If only it were so simple, yogurt, we wouldn't be in such a complicated, convoluted mess.
Here's a great video that (perhaps) merits reposting from time to time: Money as Debt
To summarize: Bank A takes in x as a deposit. Using fractional reserves of 10%, A lends 9x to bank B, which logs it as a deposit. B uses its fractional reserve limitations to lend 90x to bank C. Bank C follows suit, lending out 900x, and so on. Now, if bank C lends (only) 100x to bank A, bank A is now free to lend out 900x on what began as x.
So while you're technically correct, "they lend out most of it", they mostly create money out of thin air.
It gets even more staggeringly arcane when the new and wildly innovative "products" are considered because these are leveraged far less conservatively than bank deposits. This is the shadow banking system.
how ugly idoc?
1250 ugly?
"\tUBS 'highly likely' to have sold Alt-A loans, analyst says (UBS, AZ) by Steve Goldstein
\tLONDON (MarketWatch) -- UBS (UBS) is "highly likely" to have sold its 25 billion Swiss franc ($24.1 billion) prime Alt-A portfolio in a fire sale, according to J.P. Morgan analyst Kian Abouhossein, noting press speculation on the subject. He increased his estimate for 2008 credit criss write-downs to 18.5 billion francs from 15 billion francs. "We see the speculated level of 70 cents on the dollar as realistic in a fire sale," he said, adding the current market price is probably 84 cents on the dollar. The broker kept an overweight rating on the Swiss bank."
Now how do you suppose that Mr. Abouhossein knows what they sold and can even speculate as to the price level? Nice Chinese Wall at Chase.
You would think that Mr. A. would be clever enough not to put this kind of stuff in writing.
Zack, in case you missed it, we already had the run to 1380, just last week..
we printed 1387, closed 1381.
Idiot
who knows but i'm betting we're going down.
of course being the tinfoiler that i am, just by saying this out loud on the forum will kick the PPT into gear.
Wonder how much PPT monitoring goes on? I have my tin foil hat on today.
I predict a miraculous stick-save just a few points below Dow 11.6, S&P 1270 - in other words, just far enough below to suck in the technical shorts - driven by inexplicable late-day futures buying.
On the same day as a massive repo. And the program trading stats are inexplicably delayed by a week due to technical problems.
Bond turmoil hits higher ed... including some relatively big schools...
With the Collapse of Variable-Rate Markets, Colleges Face Staggering Debt Costs - Administration - The Chronicle of Higher Education
Party's over, dudes!
just shorted NLY
Um, Bill, way wrong on the fractional reserve business. With a 10% reserve, Bank A gets a deposit of x and can loan out 0.9x to somebody who deposits in Bank B. Total money supply maxes out at 1/(reserve %) or 10X in this case.
NLY short:
wish me luck.
The dollar Index is tumbling...we just might break the 72 area today...sorry to say My fellow Americans....your Green Paper is now going into worthless territory....Pitch forks and Torches...anyone?...anyone>?
idoc:
at least you have some company in the bear camp. American Association of Individual Investors survey came out and and fully 22% were bullish. You've done and scared all my bull friends away except for those probably too comatose to hit the sell button.
happy trading
d
If Repos are now viewed as punk, then T-bills should rally and yields dive to ZIRP.
People should worry about those repos -- that's what makes up all those Ultrashort funds that are so popular around here IIRC.
"You've done and scared all my bull friends away except for those probably too comatose to hit the sell button."
thats exactly what i'm counting on.
OK, Uncle George.
Today is the day to open up them spigots.
david in ct
re: NLY. as u said about TMA, it may not even matter about the quality of their assets. the baby will get thrown out with the bathwater.
10:00 numbers?
NLY will go down the toilet faster than u might think.
Fed easing has limits. Doesn't lower corporate borrowing costs.
Credit Swaps Thwart Fed's Ease as Debt Costs Surge (Update4) - Bloomberg.com
Whoodathunkit?
idoc:
I don't know anything about NLY but it sure seems to be going down rather fast which must be a good thing if you are short.
enjoy the party
d
"The dollar Index is tumbling...we just might break the 72 area today"
USD value is not part of the Fed's charter. Paulson had better start focusing on this. The Fed's best bet is to leave rates alone and increase the TAFs.
The government may not be in a position to do much. It seems their latest trick is to "hide" some of the problem in the FHA.
david
already made a boatload. lets hope it hold.
at least you have some company in the bear camp. American Association of Individual Investors survey came out and and fully 22% were bullish. You've done and scared all my bull friends away except for those probably too comatose to hit the sell button.
The market isn't down nearly enough to have sentiment this extreme. It makes me wonder if sentiment indicators are broken. With only 22% of investors bullish, who's buying?
I wonder if a lot of the market support is hail-Mary plays by pension funds who need that mythical 8%. The recent shift from bonds to equities and commodities by PBGC and CALPERs are examples.
In this case, maybe the "smart money" has become the "dumb money". But, can a pension fund manager justify 8% real returns to his auditors when he's sitting mostly on sub-six percent bonds with rising spreads?
Maybe they'll let you squeak by if you can point to your new allocation in equities and commodities with their unknown future returns. But commodities? For a pension fund? Give me a break!
Maybe there is a desperate shift in reserves from Treasuries to SWF who are picking up equities and supporting the market. But, how does a SWF move 200B dollars into equities without somebody getting wind of it. The SEC ain't going to be looking to hard at anybody who front-runs a SWF who's planning a big move into the market.
The shift to 130/30 funds is skewing the market? Large numbers of boomers buying on auto-pilot with their 401K accounts? (again needing that 8% return)
Central banks in Europe holds [sic] rates steady as policy gap with U.S. widens.
Central banks in Europe hold rates steady as policy gap with U.S. widens - The New York Times
OPEC blames 'mismanaged' U.S. economy for soaring oil prices.
OPEC blames 'mismanaged' U.S. economy for soaring oil prices - The New York Times
USD value is not part of the Fed's charter. Paulson had better start focusing on this. The Fed's best bet is to leave rates alone and increase the TAFs.
The TAF has mostly done its job of driving down deposit rates. There is a limit to how much more impact an expansion of the TAF can have since banks are capital constrained.
The Fed's going to have to lower interest rate again in the fact of increasing inflation. That should steepen the yield curve and increase banks NIM (net interest margin) and help them weather the storm.
But, the collapse of the shadow banking system will still leave the economy with a lot less "money" than it had before. It's going to be a decade or more before investors believe that things like ABCP, ARS, VRDOs and the like are "money".
For the market to reach equilibrium, a lot of people who need real in-the-bank money are going to take losses. And those people with real in-the-bank money are going to need higher returns to justify trading their money for assets.
The Fed cutting in the face of high commodity prices and rising inflation will only prolong the pain. A 7% yield looks mighty fine to someone with cash if he believes that inflation will run sub-2%. Not so great if it's at 4% and rising.
"Gloom and doomers, purposely ignoring the "other 98%, no 97%, make that 93% paying their mortgage on time"..."
And they were right to do so. Imagine a doctor telling you: "You have a cancerous nodule in your lung that is 1/4 inch in diameter. Cheer up man! This occupies only 0.002% of you total body mass. Things are great!
"Reportedly, Waxman will slap a cease & desist on Mozillo preventing him from tanning until 2015"
I think it would be better to lock him in the tanning booth until we can feed him to the mountain lions. Mozillo jerky. Pemmicillo. Taste like shit.
kicker:
"The TAF has mostly done its job of driving down deposit rates. There is a limit to how much more impact an expansion of the TAF can have since banks are capital constrained."
The fed could put a stop to this credit implosion in about 5 minutes. All they would have to do is put out a term sheet on what they were willing to repo in the mortgage market and at what haircut. That would put a certain floor under credit that might not be able to find a home. If they don't do something of the sort it is possible that the entire banking system comes to a complete halt.
I don't know why any bank would be seeking to write mortgages of any kind at this point since you can buy as many as you like in the market at far better rates than you could write and you have no closing costs or anything else. Same goes with an awful lot of commercial paper etc. And if you can't get anyone to repo the stuff then the leverage in the system will basically go to zero. Maybe Ben is going to rewrite his thesis.
"As a trader, I'm with O-joe on this...
I have a bias to the long side here.
zackattack "
Carlysle employee?
"as i said last nite. today could be an ugly day.
idoc "
and you didn't even know about UBS or Carlysle. Nice call.
"zackattack writes:
I predict a miraculous stick-save just a few points below Dow 11.6, S&P 1270 - in other words, just far enough below to suck in the technical shorts - driven by inexplicable late-day futures buying. "
so which is it, zack, a buy or a sell? Can't have it both ways, or are you a Carlysle employee? Doh!
Great article. Also check out Mortgage Information