US mortgage carnage

[reece55]

Cramer makes it sound simple and effective however I think it raises a number of issues. Firstly I think it's comparing apples to oranges by comparing the S&L /RTC bailout to today's mess. RTC was a depositors bailout but that's probably not the most important point.

It raises this whole idea of moral hazard, that these institutions are too big to fail. I find it amusing that these so-called free market capitalists want government intervention at the drop of a hat every-time something goes wrong.

But I have to confess my opinion is largely influenced by what I want to see happen. I actually want them to fail, and I want to see reverberations throughout the economy as a result. I want to see widespread panic and plunging stockmarkets. I also want to see institutions that employed floored business models punished for their greed and incompetence.

Dhukka
Agree with all your points, especially the concept that the big financial institutions are too big to go down. It doesn't seem fair that the consumer should pay for the greed of a few, the problem is that the alternative seems to have much more dire consequences and therefore on a cost/benefit analysis it would appear to be the way to go. I think the very notion of Citigroup going bankrupt would send the most incredible tremor across the world economy, it's almost impossible to have a concept of the far reaching ramifications!

What I do think is a crime however is how all of the bond insurers managed to lodge financial statements for the quarter on a going concern basis when they took an EPS loss for the quarter that in certain instances exceeded their current value per share....... I wouldn't want to be signing that audit report.....

Cheers

 

[dhukka]

Just to note that Berkshire Hathaway, Mr Buffet's little plaything, has entered the bond insurers market. Suppose he has done it just to lose some of that cash

http://www.usatoday.com/money/industries/insurance/2007-12-28-berkshire-insurance_N.htm

Yes this news is well known. I don't quite understand your comment though. You've got to hand it to Mr Buffet, he knows an opportunity when he sees one. He shows up just in time to pick the monoline insurers pockets before they are destined for the scrapheap. Weak hands to strong hands and all that.

 

[IFocus]

Yes this news is well known. I don't quite understand your comment though. You've got to hand it to Mr Buffet, he knows an opportunity when he sees one. He shows up just in time to pick the monoline insurers pockets before they are destined for the scrapheap. Weak hands to strong hands and all that.

This is from John Mauldin

When Warren Buffett bought Gen Re, the large re-insurer, five years ago, he presciently made the decision to reduce their exposure to credit default swaps. It took them four years to reduce the number of contracts from 23,218 to just 197 at the end of 2006.

"We lost over $400 million on contracts that were supposedly 'safe and properly priced' and we did it in a leisurely way in a benign market," says Mr. Buffett. "If we had to unwind it today in one month, who knows what would have happened?" (The Wall Street Journal)

Watch Warren Buffett swoop in and take that boring old municipal bond insurance business. Watch a few large hedge funds buy the remains of the monoline carriers to get their staff and experience (especially the municipal sales teams), and launch new companies with pristine credit.

 

[dhukka]

This is from John Mauldin

Great article from Maudlin, I think you missed out the best part though;

If you have Ambac or MBIA insurance, as a bank you have not yet written down any debt they insured. They are still rated AAA. But that re-rating is coming. And what about the monster CDS business in the hedge fund world? Who wins and loses? There will be huge winners, and there will be total wipe-outs. There are going to be more losses in the biggest banks, and even bigger investments by Sovereign Wealth Funds. Count on it. This is a story we will return to time and time again.

 

[refined silver]

Looks like mortgage insurers are already getting marked down. This puts every credit default swap at risk, $45trillion as the next leg of the derivative mountain melts.

This is from the guy who was called "Mr Gold" in the 70s by the WSJ, got out on the day gold peaked at $887.5 in Jan 1980, said gold will be in a bear market for 15yrs in an article entitled "Gold Bull takes off his Horns" in the WSJ, and called $1650 gold in 2001 with intermediate targets of $450, $527, $680, $887. Now he says he may be way too low.


From http://www.jsmineset.com

Posted On: Friday, January 18, 2008, 6:29:00 PM EST

The End of a Powerful Week in Finance

Author: Jim Sinclair







Thursday the Chairman of the Federal Reserve expressed his support for a significant fiscal and monetary stimulus as a preemptive strike against a U.S. recession. The market answered by dropping over 300 points. Today the President of the U.S. broadly outlined a non-specific plan for economic stimulation. After the Administration's plan for $150 billion of economic stimulation was made public, the DOW closed almost 60 points lower. The result of the Bernanke/Adminstration fiscal and monetary stimulus is a total Dow decline of 479 points, according to my calculations.

Nothing said by either luminary addresses the problem, including those that developed this afternoon by the downgrade of the debt of Ambac, one of the four major bond insurers, MBIA, MGIC and similar companies dealing in OTC Default Derivatives. Should S&P and Moody take similar action, which is expected, two trillion in debt should also be downgraded. The downgrade of the debt of the guarantor must impact the debt they have guaranteed. So the two trillion is debt that may well and should be downgraded now is another domino of titanic size.

This afternoon's problems are new and their size says both Kings Are Wearing No Clothes" with respect to their presentations of Thursday and today.

The general equities market must be calmed. Should the Dow crater, another major domino falls. Let's see how the PPT (Price Protection Team) brings the Dow in Tuesday morning in pre U.S. trading and then how Tuesday closes. The DOW better be higher each day than the indices are before U.S. trading or as the last two days demonstrated, the PPT has lost its tight control of the equities markets. Watch the pre-open indices and closing Dow very closely.

If the equity markets cannot be calmed then:

- Recognize this is the Formula happening like everything else much sooner and much bigger in its implications than anticipated.
- Gold will rise to $1650 as an almost immediate effect of what will be done to attempt to fend off a total panic starting to take place in general equities, therein threatening to be followed by all credit markets of all kinds.
- The funds and hotshot short term traders in gold shares will be killed by the upward explosion of the gold price about to occur.
- The PPT and the Fed will step out of gold’s way because gold is one of the tools used in 1930 by Roosevelt and in 2000 by Bush. It will be used again now on the upside.
- Gold is the only insurance there is against what all this means because a panic in equities will blow the financial system, already coming apart, to smithereens.
- All country funds would shut down on any further investments in "at the wall" financial institutions.
- The rollover in credit and default derivatives would exceed the entire foreign debt of the USA.
- The rest of the $450 trillion dollar mountain of derivatives would start a disintegration like nothing you have every seen in your lifetime.
- Consumer demand would slam shut.
The auto industry might as well go into liquidation this coming Monday, avoiding the June 2008 rush.
- The US dollar would burn a hole in the floor going directly to .5200 or lower.
As the dollar disintegrates gold would rocket to and through $1650 in days.
The markets for general equities would all have to institute total trading halts every 100 points on the downside for 30 minutes each.
- All commercial call loans would be called.
All debtors one day late on any payment, lacking grace period, would be liquidated. All debtors over one day of the grace period would be liquidated.
It is clearly visible to anyone with eyes or a mind to think that the PPT has lost all semblance of control in the equity markets and will soon in all remaining markets.
- The commercial paper credit market which is almost dead will die totally.
Should no emergency action take place soon, you will see an old fashioned panic of the 1929 variety.
- Just as emotional fools sell gold and gold shares, be assured that more emotional general equity fools will unload and bring the averages down more than ever in history in one day.
- Recognize this is the Formula happening like everything else much sooner and much bigger in its implications than anticipated.
- Emergency action will be all splash and theatrics but truthfully the cat is out of the bag. It buys some time but corrects nothing. It makes the Formula 100% correct.
- There now must be EMERGENCY ACTION because the Chairman of the Fed has BOMBED OUT PUBLICLY and a PANIC is about to occur. Expect EMERGENCY ACTION in days, not weeks.

If you have not protected yourself, you may only have days to do so. Protection amounts to a simple act: As much as possible eliminate financial agents between you and your assets. Own gold or equivalents equal to one half of your liquid net worth. Then you insure your entire net worth. Do not have margin debt. If you have debt you must own gold fully paid equal to that debt to insure it.

 

[ithatheekret]

What get's me is that everyone hangs on a word from the Oracle , but when his actions speak louder they are dumbfounded . What does that man to fantastically , he buys value stcoks at a discount to market and makes a good buck doing it , every box of coke cans my kids drink he gets the profit on two of the cans . That's brilliance for you .

But when he could have easily bought into a bond insurer , he chose to start one from scratch . This sounded warning bells for me , I know how smart this man is and to say he's just smart is an insult to the gentleman .

He saw an opportunity to enter a market that he knew would fall to the crows of sub-prime etc., because they were stupid enough to sign off on them without proper inspection . How else could there be a mess based on the theme of sub-prime without those that okay the product have not done due dil . on it . Apart from being highly illegal , it's down right stupid , because it has to unravel someday , that means they come undone eventually .

Mr. Buffett saw this coming and acted , in doing so , he will probably get the majority of bond insurance for the rest of this decade .


It's all been a bit much this week , first Cramer comes out and agrees on the corn juice petrol , the today I click on a link and see the man screaming the same as I was in the first week of Dec.

Members here have sent me on the scent with their posts , and to be honest , I must applaud many here for there efforts , but it has been a bit like , " don't shoot the messenger over my ASX calls " .

I'm not a gloomster , this is not a mere doom post , it is to try to help those who questioned the few that stood their ground , I have seen countless post aimed fairly at messengers .

Just because I proved I can look ahead in the market doesn't mean you can't either , you just have to be in sync at all levels , not just a few stocks , but economic micro and macro variables which swing all the time .

If you have an opinion , look at what made you form that view , take in openly the views that go against it and let them prove or try to prove it wrong . If they do , just admit you got the math wrong this time and correct it then examine what went wrong .

If you have a debatable point on the matters you differ with , don't for heavens sake repeat what has been said on the TV , let them report what we say , we are the consumer , we are the subscribers and in the end it is us that pay ......... so they had better listen and stop with the BS .

The BS has just seen markets have to now cope with the selling onslaught in under rated bonds that guidelines and charters do not allow many to holders to legally hold .

What's coming may not be a Black Swan Event , but I can assure you this will scare floor traders more than subprime 1987 and a few others altogether .

And if a schmuck like me can see it 6 months ahead , on top of the rest , they ain't worth the money they are being paid , safer to get a dart board out .

 

[explod]

Ithatheekret, your last and your other posts I look up to as excellent guidance. The effort you make is very much appreciated.

Warren Buffet, what can one say. His greatest contribution to fellow investors (and I have said it many times on the forums) is;-

"never invest in anything that you do not understand"

The benefit of carying this out to the letter is that you become responsible for your own research and understanding. Another adage is "knowledge is wealth" I like Bill Gates because he gives money for education. And one could go on.

Listen to others, soak it up, but to survive we must Learn Learn Learn. Listen to the oracles by all means but measure what they say against their results. Buffet has the points on the board, Benanke for example does not. Went to college with dubya I think.

 

[ithatheekret]

Listen to others, soak it up, but to survive we must Learn Learn Learn. Listen to the oracles by all means but measure what they say against their results. Buffet has the points on the board, Benanke for example does not. Went to college with dubya I think.


I agree , learn , learn and learn some more . The saying you can learn something new everyday is not just a saying it's a fact .


I've been pondering setting up a BSometer on market noise , say with a range between 0 - 100 .

Aimed squarely at the business , pay per view and cash for comment channels .

It time to squeeze them instead !

It's time to inundate Kev with letters , no use writing to ASIC , they're just a stuffed dummy .

 

[wayneL]

Folks, keep an eye out for this name in the news - Paragon Mortgages.

It may become Paragone.

 

[ithatheekret]

Paragon aren't they a UK group , the mother company being Financial Services Ltd ?

 

[numbercruncher]

Apparently Paragon will collapse if it fails to find £280m to repay its banks by the end of February.

Just another day in the office 08' style

 

[Judd]

Paragon aren't they a UK group , the mother company being Financial Services Ltd ?

http://property.timesonline.co.uk/tol/life_and_style/property/investment/article2921832.ece

This from way back in November last year.

 

[ithatheekret]

No wonder Tony left in a hurry , Gordon Goodonya will cop some flak over this surely ............

Or has he suddenly gone visiting elsewhere .......

Timely how the big wigs are anywhere but home when then proverbial hits the fan ,

Crikey what else is in danger there ?

Mortgages.co.uk

HealthInsurance.co.uk

HomeInsurance.co.uk

CarFinance.co.uk

CreditCards.co.uk

LifeInsurance.co.uk

Savings.co.uk

OnlineLoans.co.uk

Investments.co.uk

 

[GreatPig]

Hopefully not HBOS, who own BankWest.

GP

 

[Kauri]

Folks, keep an eye out for this name in the news - Paragon Mortgages.

It may become Paragone.

add...
..
french bank Societie Generale rumoured to have big write-downs coming..
Hypo Real Estate bank rumoured to be in funding strife
Aegon's Scottish Equitable has some funds(in the billions) that are no longer quitable...
and... well, thats enough for now I guess...
Cheers
........Kauri

 

[cordelia]

Hopefully not HBOS, who own BankWest.

GP

What happens to the people holding the mortgages if a bank like bankwest falls over.

 

[Mofra]

What happens to the people holding the mortgages if a bank like bankwest falls over.

They will generally sell the loan book to a new lender/bank/private equity group at a discount. Your mortgage will continue under the same guise, albeit with a different lender. Then if (when!) they start to struggle, they'll sell their loan book to someone else, and so on. Like a marco-economic style pass the parcel.

Just try not to think about mortgagees with the non-conformers who have to onforward their loan book - ie Bluestone fixed rate holders all had 0.3% slapped onto their fixed rates.

 

[cordelia]

They will generally sell the loan book to a new lender/bank/private equity group at a discount. Your mortgage will continue under the same guise, albeit with a different lender. Then if (when!) they start to struggle, they'll sell their loan book to someone else, and so on. Like a marco-economic style pass the parcel.

Just try not to think about mortgagees with the non-conformers who have to onforward their loan book - ie Bluestone fixed rate holders all had 0.3% slapped onto their fixed rates.

Well I sold all my shares at not too much of a loss and dumped all the cash into my mortgage. And I am so glad I did...I figured at the very least I am getting 8% tax free and I can draw down on it when I feel confident to buy back in but with all this sub- prime stuff going on I would hate not to be able to access my equity if the bank ran into problems. I thought the bank was safe but now I am beginning to wonder...

My cash has been in many places in the last 6 months. I was hoping to park it somewhere safe for a while. Oh well if worse comes to worse I don't have a mortgage for the next few years.....

 

[bvbfan]

No wonder Tony left in a hurry , Gordon Goodonya will cop some flak over this surely ............

Same idiot that sold 2/3 of the gold for $275 an ounce, yup the UK is in superb hands

 

[Kauri]

UK Chancellor Darling has proposed that the GBP 25bn BoE loan made to Northern Rock be converted into bonds and sold to investors ... now there's a place to put the money you pull out of the market...
Cheers
..........Kauri