"share repurchase in creating shareholder value"

Clearly not as unquestionable as dividends.

No Jas recently?

<< The problem is if Treasuries crash, so will cash, so will stocks. >>

yes! I don't get the "if you are in cash you are screwed because inflation will kill you". What is the alternative? If interest rates start to go up significantly I will ladder into CDs.

<< If treasuries crash because interest rates go up (as they
must), why does that necessarily involve cash, unless the
whole system fails? >>

I guess that's my same point of confusion, but whenever the subject comes up I hear people say "treasuries" and "cash" and "cash equivalents" all in the same sentence.

I have a healthy dose of cash myself. I am also long Berkshire + short SPY as a pair trade. Short KRE.

Also long some formerly-out-of-the-money 2011 GLD LEAPs. I see no reason to own gold in an unlevered position. (Unless maybe physical for barter if that is your bet...) Gold is the "dollar crisis" hedge, and should that transpire, gold will rise but everything you actually need to buy will rise more. So I figure this has to be a leveraged bet; hence the options. I also think that even if gold goes to $2500 it has a decent chance of doing so by way of $500, so this is a position I intend to double over the next 12-24 months.

that's "event"

The problem is the rulez. If you are apparently a round peg and
you apparently fit into the round hole, nobody has the brains to
look beyond that. So if you make a bunch and can afford to buy a
much cheaper house too, and you've been making your payments, nobody asks, well, what's gonna happen to the underwater house. The new
lender doesn't care about the old lender, andI betcha even if the new and old lender is the same, the debt generating the new loan doesn't care about the servicing of the old one.

This problem is solved in South Fla, 'cause nobody's making any loans at all, except fha, and getting something past fha is excruciating, even if you are as pure as the driven snow, credit-wise.

Nope. Murdering is icky.

Indeed, someone a few threads back made a comment on not letting
students do the SATs at home, 'cause they would automatically cheat.
I think this expectation of cheating causes cheating.

When the hub went to Hopkins undergrad/grad, there was an honor code. You were supposed to turn cheaters in and students did do so, tho there weren't many. He used to take his tests over to the cafeteria and do them there, having coffee or a soda while he worked, and then bring the test back to the instructor. No fooling.

If I had been given the SATs to take home I never would have cheated
'cause I always got in the top 1-3% (I test better than I deserve) anyway, and if I had cheated, it wouldn't count in my own mind.

People mostly didn't cheat at Catholic U either--the one place I heard of cheating was the religion classes, 'cause the students didn't think they should have to take so many, and this was an
expression of resentment as much as anything.

Morroco you forgot "Enforcing the Rules" )

"who will pay for the losses (debt)?" I like to call it economics and a natural response to a broken system.

Banks don't want to renegotiate loans based on the real value of the asset as they have these assets on their books at bubble prices and if they have to revalue them, they are BK.

What interests me is the US GOV's passion with propping the worst of these bad actors.

Home purchases should involve an honest-to-God down payment of at least 10% and monthly payments that can be comfortably handled by the borrower’s income. That income
should be carefully verified.

Close but no cigar. 20% should do it.

WB:
> Home purchases should involve an honest-to-God down payment of at least 10%

Amen.

iceman:
> Close but no cigar. 20% should do it.

WB wrote "at least 10%. More is better, of course, but 10 could be useful absolute lower limit - below that the government should actively discourage house buying, e.g. by demanding taxes for ALL interest payments and/or denying homestead status when property taxes; after all, it's renting, just renting money instead of a home. (VA loans excluded, because the service time counts in those cases as proof of commitment.)
PS
In Germany, you needed and still need 40% downpayment to get the best interest rates (just above bunds). The second mortgage in Germany is the one covering the 60-80% of the house price.

You'd think he'd learn the first time....

Indeed, recent events demonstrate that certain big-name CEOs (or former CEOs) at major financial
institutions were simply incapable of managing a business with a huge, complex book of derivatives. Include
Charlie and me in this hapless group: When Berkshire purchased General Re in 1998, we knew we could not get
our minds around its book of 23,218 derivatives contracts, made with 884 counterparties (many of which we had
never heard of). So we decided to close up shop. Though we were under no pressure and were operating in
benign markets as we exited, it took us five years and more than $400 million in losses to largely complete the
task.

So do you think Citi will come back from more????

I've almost never had a 30 year mtg. The payment difference between 25 years and 30 is almost nil. The payment difference between 20 and 30 is nearly always doable. If you run your eyes down an amortization table, you will see the payments start to soar at about 17 years. With a 30 year mtg, you spend about 25 years paying half, and the last 5 paying the other half. If your rate is very low, maybe 24 years. If very high, maybe 26 years to pay half.

And 35-40 years gets you such a teeny reduction, and slow amortization, that you may as well be doing interest only.

A 30 year mortgage is only a folly if you perceive a housing as a disposable entity that depreciates, like a car. Many folks (including myself) plan to be where they are long term, and gave a 20% or plus down payment when they took out their mortgage.

Not nearly on the same timeline as an automobile. I mean, c'mon.

it was slavish devotion to the idea of home ownership that is at the root cause of this problem. Firstly, besides economics home ownership requires a level of discipline that renters don't need and not everybody has that level of discipline. I think it is entirely clear that we pushed home ownership to people who just weren't qualified to be homeowners. Secondly, with the demise of life time employment the idea of tying people into an asset that will take more than 15 years to repay is just a dumb idea. If Obama was really interested in making fundamental change to the way we do business (rather than just waste tax payer money) he would think about eliminating the mortgage deduction and reducing tax rates by an equivalent amount. Worth noting that Canada which doesn't allow a mortgage deduction has a banking system that is reasonably healthy.

I think eliminating the charitable deduction is a very good idea. As somebody who has done extensive charitable work there is collectively no part of the US economy which is as inefficient as the non profit sector. I think donors would demand a great deal more accountability from the non profits if their donation wasn't being subsidized by Uncle Sam.

The non-profit sector in the US does a lot of stuff that is part of the government sector in other countries. I doubt that they are much more efficient, except for paying their directors less (which is good).

"the same mistakes were repeated with conventional homes in the 2004-07 period"

This guy is still in la la land. Should those dates be more like 2000-present?

Ummm,
CR kept saying that Citi would be owned 82% about by taxpayers/govt.
Now they're saying 36-38%. Which is right.

The deal was based on a $3.25 share price... those shares were trading at $1.41 yesterday. It would have definitely been cheaper to the taxpayer to just pay the market rate instead of some made-up number that didn't even reflect the market price when the deal was negotiated.

Spunkmeyer, I don't think "cheaper to the taxpayer" was ever a goal here. The fedeasury public statements make it clear they are trying to pour as much money as possible into the economy. Apparently they see this Citi cram down transaction as an opportunity to dump some serious funds.

apology- should have read no more pump and dump

Buffett is long and wrong.
If it wasn't for the fact that his money is locked up (through listed shares) he'd have been out of business a long time ago.

It was that savings may not be as important as secure cost of living increase income.

Or maybe it's hiding out somewhere.

Have you checked with the flat option.

When I reread, I seem to have missed stuff. Maybe it
doesn't post right away?

No, it's there. Perhaps I hit delete instead of reply. The position of delete on the right may be counter intuitive.

I am trying to use Google reader, but do not see the comments. Is there a way to see them?

I like the threaded option, but going back to all of the pages is a pain. If there was a way to make it one page and then make the threaded comments a different color, that would help. Or maybe if you could mark a comment as "Read", then you would be able to read the ones that you have not read?

"the future is still ... who will pay for the losses (debt)?"

....anyone still alive - generation thru generation. While this financial/political structure exists, you now have an expensive "trophy wife" - whether you wanted one or not.

I think the "people who are parked in cash are smug and stupid" mentality often overlooks a simple point. A lot of people are parked 100% cash because we're sitting on the sidelines waiting to buy a home. I have no financial assets that are not FDIC insured. Am I making a paltry 1.85% return right now? Sure. But am I losing any of my capital? Not at penny.

Obviously, if you have no plans for this money over the coming months (or few years, depending on how things go), then you do want to have some diversity, not just cash or equivalents. But if you are looking to make a big purchase, the potential scenario of a dollar crash is far more remote than the actual crash of the markets over the last year.

Other than my 401k, I haven't had a penny in the markets since the tech boom burst. I worked in public accounting at the time, and saw how it was all a shell game from the inside. I vowed not to return to the markets until there was transparency. I thought Enron/Worldcom would be the wake-up call, but the lessons were ignored.

Since I started reading this blog in late 2006, when I was beginning my housing search (well, the preliminary fact-gathering phase of it), I'm ahead relative to pretty much everything except gold.

But what's more important is the absolute sense - If you'd invested $100k in SPDRs back then, you'd simply have significantly less capital today. I still have all of the capital I started with, plus a little bit of interst. Sure, the purchase power has eroded a bit - milk and bread are more expensive today - but my balance is never at risk of going down. That's the point.

Now, sure, I could have made a killing shorting New Century and Countrywide and all the other lenders (and believe me, I thought about it), but there was still substantial risk. Even though I was 100% certain those lenders would crash, I couldn't be sure when that would happen - maybe the boom would run another 5 years and I'd be wiped out in the meantime.

I agree completely. I just think that without transparency, there's no reason to have confidence that you're investing in anything other than a game of 3-card monte.

avoids triggering liability of
the CDS's
Thanks for the insight, gave me a bit of an aha moment...
It's not merely the socialist stigma of preprivatization...

If people buy with the idea of getting a return through dividend yield instead of price increase, there's no need to trade to make money, except to the degree that you'll have to keep an eye on whether a company can pay its dividend.

Publius13, I think you're missing YTL's point, that people who would ordinarily be satisfied as passive investors have resorted to trading as a defensive strategy. You correctly imply that trading is difficult and people need to be tough to engage in it, but it's not fair to accuse YTL of wanting something for nothing when the goal is fair return on hard-earned savings. Instead of a snark, how about a pithy observation about being realistic when trading? My favorite came from this very blog:

Anonymous writes:
How do I learn to short?
The same way my dumbass did. Go with your gut, buy short and ultra short ETF's. Execute the trades. Watch the ticker and be consumed by mood swings, anxiety attacks, glee and utter despair.
-- Anonymous | 10.14.08 - 11:13 am | # (Calculated Risk)

test

I like the flat option, but the problem is that people hit "reply" and then you have no idea what they're replying to because they don't quote what they're replying to... that make sense?
-YTL

What about this idea: If you hit "reply" to somebody's post it will automatically create a link in your reply to the post you are replying to.. and it would open up in a balloon for you to read. That way if you are in "flat" mode you can make sense of the replies if they aren't quoted by the poster?

Indeed, recent events demonstrate that certain big-name CEOs (or former CEOs) at major financial
institutions were simply incapable of managing a business with a huge, complex book of derivatives. Include
Charlie and me in this hapless group: When Berkshire purchased General Re in 1998, we knew we could not get
our minds around its book of 23,218 derivatives contracts, made with 884 counterparties (many of which we had
never heard of). So we decided to close up shop. Though we were under no pressure and were operating in
benign markets as we exited, it took us five years and more than $400 million in losses to largely complete the
task.

I thought this part was interesting. Looking at the OCC derivatives report for Q3 2008 [pdf], this bank bailout will get very expensive if we use Buffett as a guide.

When I go to a new page using FireFox, the view window does not go to the top so I have to scroll there. Surely that is a bug and it should be a minor fix.

SilentThunder,

Part of the equation is that the preferred will be converted at the 20 day average price of the days up to February 9. I think it is somewhere around $3.50. We the taxpayers will instantly take a loss upon conversion. The "$25B" we have left won't be worth $25 billion.

“I think y'all are missing the goal here, which is not to get a good (or even decent) deal for the taxpayer. It's all about Keynesian stimulus, i.e. pouring money into the economy "where it will do the most good." In DC they know a whole lot more important places to dump money than we do here in the states."

Perhaps. but I can imagine ways to pour money into the system that would have a bigger bang for the buck than pouring it into the black hole that is the insolvent banks.

On the plus side last year, we made purchases totaling $14.5 billion in fixed-income securities issued by Wrigley, Goldman Sachs and General Electric. We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory. But in each of these three purchases, we also acquired a substantial equity participation as a bonus.

I know; "for the long term" but in the long term we are all dead as well. It takes a certain special hubris to brag about 10% yields when you've permanently impaired the investment capital.

[dotcom 2001, housing 2007] But the U.S. Treasury bond bubble of late 2008 may be regarded as almost equally extraordinary.

Seeing it coming and warning about it will have about the same effect as his seeing and warning about derivatives. The results are likely to be the same as well, the well prepared and positioned of us are still going to get sick from the fallout.

[No matter how you look at it a big chunk of taxpayer money disappeared in this Citigroup deal.]

......and a whole lotta more green is going to be disappearing as well. Get used to it. "Transparency" (the new "closure" term), will take on a new meaning in itself - thanks to Bush/Obama, the greedy & gang

Publius13,

I think the vending machine is a great idea. How about the "Ponzomatic... Don't be the last one!"? Put them in grocery stores, convenience stores, schools, basically wherever there are vending machines now. Have people put $20, and give them a card where they can pull out $1 for the next 25-30 weeks, and you have instant cash flow. No one knows when it will stop, so don't be the last one in!

I found his comments about the municipal bond business surprisingly simplistic. It is true that muni insurance is a relatively new concept in finance. But it is hard to see the true monoline model as a risky business. For decades they have been insuring bonds that really do not need to be insured because muni bonds have been rated differently than other types of bonds with similar risk profiles, and there was an interest rate game going on there. Perhaps it is a risky business if you happened to start a monoline business before the markets imploded, but if the existing insurers did not get into the mortgage derivative business, they would have quite the resources to deal with it right now.

Plus, he isn't really making a distinction between government issuers and tax-exempt private activity bonds. That is where defaults will come in.

He shouldn't get too holier-than-thou about his mortgage borrowers, though. Unlike him, I imagine they need to work for a living and might have the same difficulty meeting their mortgage obligations like everyone else going forward.

I was pretty underwhelmed by the whole letter, this go-round.

I also thought the criticism of Black-Scholes was surprisingly simplistic, particularly the 100-year maturity example. As Benoit Mandelbrot and others have frequently pointed out, the actual return distribution of stocks and indexes bears little resemblance to the normal distribution. As importantly, from a long term perspective how do you calculate the odds that there's a discontinuity in the marketplace itself (see Germany and Japan in the mid-1940s, for example).

The older I get and more I read of Buffett, the less he impresses me. I am unfailingly impressed by his net wealth, however.

What happened when she explained such stuff would be
severely punished, as it was not acceptable here?

Was it?

[I propose that one of you clever "investors" just invent an Investing Machine, sort of like...... just go to the Investing Machine, put in x number of dollars, and it gives them back.....]

I believe the voters did this in the last election. The Investing Machine is now the Democratic Party. Long live change you can believe in! I might try and change the slogan though - it will be the butt of thousands of jokes over many lifetimes.

buffett seems to be saying in the real estate part ... we invested in ppl who can pay there mortgage... therefore my investments are good... even if the economy still is poop. dont worry our losses arent as bad as the overall economy.

That bit of wishful thinking came after acknowledging that in 1998 the previous lending model to manufactured homes clients blew up in his face.

Here, let me make this clear for Mr. Buffett: All your immense experience and insight will do you no good this time. Only your deep pockets and discipline are still operative strategies. Everything, as in everything, involving credit exposure is impaired. And it should be noted that nearly everything in your book has exposure to credit.

Losses so far this year have been so bad that if the remainer of the year were to reverse course and assume increases on par with BRK's best years ever the net would be zero. You are one major reinsurance claim away from imperiling your oft repeated "amply capitalized" status.

New Purchase: ULTRASHORT FINANCIALS PROSHARES (SKF)
George Soros initiated holdings in ULTRASHORT FINANCIALS PROSHARES. His purchase prices were between $110.4 and $244.12, with an estimated average price of $144.2. The impact to his portfolio due to this purchase was 0.24%. His holdings were 70,500 shares as of 12/31/2008.

ULTRASHORT FINANCIALS PROSHARES has a market cap of $79.96 million; its shares were traded at around $169.1 . The dividend yield of ULTRASHORT FINANCIALS PROSHARES stocks is 0.6%.

As to houses rotting. You would be amazed at how a small leak rots
a whole house in hardly anytime at all during the rainy season in Fla.

Even a bando putting pots on the floor to catch the water would deminish the rotting somewhat.

I do think the lasting effects of mold are exaggerated. This house
had a moldy smell when we bought it and it did have mold under the (ugly) wallpaper, especially in the kitchen. We pulled the wallpaper off and repainted, and have had no problem since.

No prob for 12 years, no moldy smell.

Lawyerliz says; As to houses rotting. You would be amazed at how a small leak rots
a whole house in hardly anytime at all during the rainy season in Fla.

It isn't unique to mold. Empty houses deteriorate at an incredible rate. I'm not sure why. Desert houses you would think would last but no. One summer abandoned and even without vandalism they are falling apart.

This IMO is the new danger. Impaired housing that will actually carry a negative value. That'll be sure to screw up comps and lending.

"What happens if we are hit with even a cat 1 hurricane?"

Insurance companies go BK.

Citizens is the state owned insurance company, and no it's not
particularly well run, but mostly it's the only thing available.
They tried to switch us to a newbie insurance co with no track
record; we declined.

"Why do desert houses rot so fast?"

Dessication?

A few months ago, right as he was making usury loans to GS and others, there was a prediction that Warren Buffett would go bankrupt as part of this economic disaster we are living through....

It continues to amaze me how many predictions that seemed insane when made are now feasible....

Maximus
4best4worst’s Blog

For quite a while, our government representatives have behaved as if they were realitors. We're gonna make you rich...everybody can be rich is only they borrow. American is always growing, everybody always gets richer, all you have to do is assume growth in the future of 3.4%, and than 4% after that forever.

Bug--When you right click the page number to open in a new window or tab, it always gives you page 1.

“Yearning To Learn sed: Sure, I've traded like others, and made a pretty penny, but it's TIME consuming and it's also stressful.

Publius said:
Poor thing. Getting something for nothing just ain't what it used to be, huh?

Publius also said:
Oh, that's right, some of you don't: you sit here whinging and whining about what evil banksters (who play exactly the same game that you do, on a grander scale) have "done to our economy."

[SPIT!]

To Publius13:

memo: get over yourself.
I and others like me said NOTHING about getting something for nothing. What we're talking about is that we're getting our wealth TAKEN for nothing. We give but receive NOTHING. This is due in part to the persistent Federal Policy of keeping interest rates below the rate of inflation. If we do NOTHING we should get NOTHING. we should also lose NOTHING. Instead, if we do NOTHING we LOSE.

this is the dilemna. the fruits of our past and future labor are being siphoned off to be given to those who deserve it least (bankers).

Honestly though, get over yourself.

Exactly. Since we're in the middle of a switch now might be a good time to require some sort of registration.

test

Following this thread in 'flat' format seems to work, but why in the world would JS-Kit return to its default setting of 'threaded' with every refresh?

the perp walks begin in seattle

from the last city newspaper left standing

"By Sanjay Bhatt

Seattle Times staff reporter

Related

* Reader comments from previous story
* Graphic | How a loan becomes a scam
* Archive | Mortage-fraud case shows how real-estate insiders scammed the system for profit

A federal judge sentenced a former Bellevue loan officer today to seven years in prison for perpetrating what prosecutors say is one of the largest home-mortgage fraud cases brought so far in Western Washington.

Christopher Brooks, 39, pleaded guilty last fall to conspiring to commit wire fraud in connection with fraudulent loan applications on 18 Puget Sound-area homes that went into foreclosure and were sold by banks at a loss of more than $2 million.

Last summer a grand jury indicted Brooks and his co-conspirators for obtaining about $27 million in fraudulent loans on more than 50 homes in the region. Brooks admitted to paying borrowers to take part in the fraud.

U.S. District Judge Ricardo Martinez imposed the sentence after noting Brooks' lengthy criminal history — 13 misdemeanor convictions, including one for filing a fraudulent insurance claim — his exploitation of family members, and his violation of the terms of his bond after his arrest last July. Despite the court's warning to stay away from real-estate deals, prosecutors said Brooks tried to sell a house on Craigslist and attempted to fraudulently negotiate with a bank on the timing of mortgage payments in another deal."

Local News | Mortgage-fraud defendant sentenced to seven years in prison | Seattle Times Newspaper

Thanks for tackling it. I run a forum myself, and it's amazing how much time the nitty-gritty things take away from the original purpose of the site.

Your efforts are greatly appreciated!!

To the extent you're interested in the progress and outcome, I'm going through a WordPress design right now with the Website design subsidiary of Register.com. Stay tuned.

The test appears to be working at least in the sense that the format includes CR Companion features.

CR, one additional situation I've noticed is that, after a refresh, I'm no longer signed in to JS-Kit.

Does a comment include a nickname when not signed it?

I would guess that the site owner has the option of eliminating "guest" comments. If so, registration would be required.

if you sign in to jk kit

your name WITH your (your) chosen avatar, i think (guess) can not be impersonated!!!

I don't know, you could probably still make a fairly good stab at impersonation. The only way to stop it is to eliminate guests from posting.

CR, this looks great!
'Take a Load off Fannie' is great too! Thanks for all you do, you're much too good to us!

The key to understanding the C conversion is recognizing that (i) the government's preferred shares were not fully Tier 1 capital because of quasi-loan status; (ii) the plan converts it to common shareholder equity which is fully recognized as Tier 1 capital; (iii) common shareholder equity is the first loss position in the bank's capital structure; and (iv) the $306B Citigroup bailout required that C take the first $29B in losses.

from what i understand js-kit is deprecating haloscan cuz it's not a cool "widget" and all that.

This makes we want to scream! Thank you fed. What's the fed's exit strategy again?

Re exit strategies, remember that the Fed is loading up on 30yr FH/FN MBS & fixed rate debentures (as well as other fixed rate debt) - This will create a real conflict of interest for them when it comes time to raise interest rates, whether it be for defending the dollar or inflation, because they will generate hundreds of billions of dollars of mark-to-market losses on their holdings. And if they have to raise rates above their average coupon (probably around 4.5 - 5%) they will also be generating negative income. Bernanke's "helicopter strategy" is nothing more than recreating the "borrow short, lend long" debacle of the 1980's with the S&L's & FNMA, but the conflict of interest/government ownership component is the new piece to the puzzle

Ahhh, the CR Companion interface is working for me now, scrolling is no longer intensive labor. Thank you CR and thank you Ken Cooper.

One more question...I am loving the pseudo-haloscan interface, but no authors show up in the sidebar box. Are they supposed to, or does the halo-skin stop there?

You have to go to the bottom to make a comment, even if you have it reversed. A minor caval (cavale? cavell?)

cavil

Knowing where to properly place blame means you have learned your lesson and history may not repeat. Buffet doesn't get there with this letter. If the end game of the bubble, as he eloquently acknowledges, was just to get people in houses but not to keep them there, that game was played for the sole short-term benefit of the fee collectors throughout the mortgage and securities industries--including some interests held by Buffet.

This was a con game and the marks got screwed for their gullibility--for believing that home prices would keep going up, and they had no choice but to buy or be "priced out forever."

Let them live with the financial devastation and condemn themselves (I'm sure many of them will --victims often do) but I have had enough of hearing the prattle of those vastly more fortunate-- those who were paid to have known better-- passing judgment just to avoid owning up to their enormous culpability, and so avoid a chance to make amends and learn from havoc they wreaked.

Lesson not learned, Warren. Try again.

A great many greedy bankers and investors thought they could fabricate wealth and get away with it - they simply thought they could pass the risk off on someone else (knowing full well this kind of con creates huge risks). Now they are trying to sell us even more toxic garbage -- this blubber about how it's everybody's fault (when they created, ran and reaped all of the pieces of silver from this sham--taking on catastrophic risk in the name of short-term greed), or that they still need their bonuses or the "best and brightest" among them will leave the business (God forbid we should ever be inflicted with such brightness again), or that simply opening their books and telling us the truth about the extent of their stupidity will cause the apocalypse (it will probably cause much short term pain, but it is the only way to restore integrity and confidence in the market).

And here we are, thinking that we can afford to take their nonsense seriously.