Monday, September 6, 2010


I'll be working for a "white shoe" Wall St firm starting Tuesday, so I probably won't be making any more posts to this blog.

I recommend people subscribe to this blog so you'll get notified in case it comes back to life.

Also feel free to keep the party going in the comments section of this post.

Voltron out.

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Sunday, August 15, 2010

NYT: Fair Game - In the Mortgage Drama, One Role Is Enough


Often, the same bank that services a primary mortgage owned by another institution also owns a second mortgage or home equity line of credit on the same property. When that borrower has trouble meeting both payments, the servicer has an interest in making sure that amounts owed on the second lien, which it owns, continue to be paid even if the first loan, which it has no interest in, slides into delinquency. About two-thirds of primary mortgages are serviced by banks who do not own them but hold the accompanying seconds.

Thursday, August 12, 2010

Borrowers Refuse to Pay Billions in Home Equity Loans -

Voltron says: This is why Wells Fargo is bankrupt many times over


The delinquency rate on home equity loans is higher than all other types of consumer loans, includingauto loans, boat loans, personal loans and even bank cards like Visaand MasterCard, according to the American Bankers Association.

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and because the value of the homes, the collateral backing the loans, has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

Even when a lender forces a borrower to settle through legal action, it can rarely extract more than 10 cents on the dollar. "People got 90 cents for free, It rewards immorality, to some extent."

"Anything over $15,000 to $20,000 is not collectible. Americans seem to believe that anything they can get away with is O.K."

...85 percent said they would default and worry about the debt only if and when they were forced to.

"I'm kind of banking on there being too many of us for the lenders to pursue. There is strength in numbers."

Saturday, August 7, 2010

Sad sign of the times

Modern cargo ships slow to the speed of the sailing clippers
Container ships are taking longer to cross the oceans than the Cutty Sark did as owners adopt 'super-slow steaming' to cut back on fuel consumption

Tuesday, July 27, 2010

Doubling Down on Housing -


Some intrepid homeowners are intentionally taking a loss on their current house—and writing a big check to retire their old mortgage—in order to buy twice the home for not much more money. Others, eschewing conventional personal-finance advice, are even opting for "cash-in" refinancings, paying thousands of dollars out of pocket to settle old loans—and then taking out new mortgages with lower payments, shorter durations or both.

Voltron says: what could go wrong?

Monday, July 26, 2010

WSJ: Ten Stock-Market Myths That Just Won't Die

Voltron says: I like the snarky tone of this article.


1 "This is a good time to invest in the stock market."
Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir -- step this way!"

2 "Stocks on average make you about 10% a year."
Stop right there. This is based on some past history -- stretching back to the 1800s -- and it's full of holes.

About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.

3 "Our economists are forecasting..."
Hold it. Ask your broker if the firm's economist predicted the most recent recession -- and if so, when.

Wednesday, June 30, 2010

Damon Vrabel

Voltron days: Damon Vrabel just made it on my "Smartypants" list AND my educational links list on the right side of the blog. His "Renaissance 2.0" videos do a great job of explaining the debt cycle from a different point of view.

Damon Vrabel graduated from the United States Military Academy, served as an officer in the US Army, then graduated from Harvard Business School, took a short detour on Wall Street, and had a career in Silicon Valley in several leadership positions in technology corporations.

Recent Canada Free Press Articles
Renaissance 2.0 Videos

Tuesday, June 29, 2010

An Invisible Gorilla is killing America's soul Paul B. Farrell - MarketWatch

Dow below 10,000

voltron says: as financial reform is debated in the senate, Wall St is "yanking on the leash" right on cue. Rep Kanjorski is saying the Dow will fall 20% if it does not pass.

23 Doomsayers Who Say We're Heading Toward Depression In 2011

Voltron says: But Obama and Bernanke say the economy is "stengthening"

Voltron says: by the time anyone in government utters a discouraging word about the economy, it will be too late. In fact, it will probably mark the nadir

Banks Financing Mexico Drug Gangs Admitted in Wells Fargo Deal - Bloomberg


Wachovia, it turns out, had made a habit of helping move money for Mexican drug smugglers. Wells Fargo & Co., which bought Wachovia in 2008, has admitted in court that its unit failed to monitor and report suspected money laundering by narcotics traffickers -- including the cash used to buy four planes that shipped a total of 22 tons of cocaine.

Voltron says: many more explosive allegations in the full article:

Voltron says: you may recall this article I posted in December:

Monday, June 28, 2010

Fed Economist: Bloggers are Stupid

A Richmond Va. Federal Reserve Economist, Kartik Athreya wrote a paper recently that trashes economic bloggers. Mr. Artheya has a PhD from the University of Iowa. I'm not so sure a few years in corn land gives him the right to take cheap shots at the new media. I am absolutely convinced that this type of thinking should not be expressed by Fed officials. It proves to me that the Fed is an elitist organization that is out of touch with America in 2010. The full report from Athreya is here. Some of the more offending comments:

Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy.

So we have to go to school for two years to be able to write about the issues of the day. That would exclude me and a lot of others. The fact that I worked on Walls street for 30 years does not qualify me to say a word.

The response of the untrained to the crisis has been even more startling. I listen to Elizabeth Warren on the radio fearlessly speculating about the nature of credit market dysfunction, and so on.

Taking on Elizabeth Warren is a big mistake Mr. Arthreya. You will regret this choice of words.

The real issue is that there is extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new. Moreover, there is a substantial likelihood that it will instead offer something incoherent or misleading.

Everything that comes from the Federal Reserve is incoherent and misleading.

The sophomoric musings of auto-didact or non-didact bloggers or writers is instructive. For those who want to really know what the best that economics has to offer is, you must look here.

The only people you should listen to is Federal Reserve economists? I take a different view. The last people you should trust in this matter is FRB economists.

The general public are simply being had by the bulk of the economic blogging crowd.

The general public is being had. But not by the bloggers. They are being had by the folks who make the choices for us at the FRB.

The views expressed are my own, and do not necessarily represent those of the Federal Reserve Bank of Richmond, or Federal Reserve System.

Actually the views expressed are a perfect representation of the mind set at the FRB. Narrow minded, elitist and just plain wrong.

I would suggest that Mr. Arthreya do some additional research. He should look up the word "hubris" (extreme haughtiness or arrogance). After he understands that concept he should write an apology, that or he should resign from the FRB.

Friday, June 25, 2010

Wells Fargo: Money Flow Leader

From the Wall Street Journal: Wells Fargo & Co. topped the list for Selling on Strength , which tracks stocks that rose in price but had the largest outflow of money.

Saturday, June 12, 2010

Six Banks Made $51 Billion in ‘09 (The rest lost money)


Banks Say No. Too Bad Taxpayers Can’t

Bernanke Says Fed Does Not Engage In Stock Market Or "Individual Stock" Manipulation

Voltron says: "whatever"

Worried About Their Dollars, More Are Turning to Gold -

Voltron says: don't buy from goldline; they overcharge. Check prices

NYTimes - Waking Up From the American Dream

"You hear all this rhetoric about stability caused by homeownership," ... "But the communities that survived the housing bubble the best were the ones that had the highest percentage of renters."

a home mortgage deduction ... essentially "bribes people to buy bigger houses." ... renters offer plenty of social good themselves, helping creating vibrant cities. "The idea that homeownership is always great and renting is un-American is an awful state of affairs," he said.

Friday, June 11, 2010

Financial Armageddon: 'Alarmingly Bleak' and 'Littered with Huge and Half-Empty Glasses'

"An optimist sees the glass as half full. A pessimist sees the glass as half empty. I see the glass as twice as big as it needs to be,"

Thursday, June 10, 2010

SDS, BP money flow leaders

Per WSJ:

UltraShort S&P500 ProShares ETF (SDS) topped the list at midday for Buying on Weakness , which tracks stocks that fell in price but had the largest inflow of money.

British Petroleum (BP) topped the list for Selling on Strength , which tracks stocks that rose in price but had the largest outflow of money.

See for the full list of money flow leaders.

Wednesday, June 9, 2010

Women Prefer Men Holding State Bonds, Japan Ad Says

Waterboarding the Laws of Economics

Copied from From:

I'm not certain who it was that said There is no situation so bad that government cannot make it worse, but as proof of that axiom, I offer the following: [Thanks L!]

Last week, three House members introduced a $15 billion stimulus bill to provide homebuilders with construction loans. Yep - the plan is to build more houses in an attempt to save the housing industry from its oversupply of houses. Irony just died.
. . .
There's ample reason to believe this bill will do more bad than good, and arguments used to justify its existence are easy to shoot down.

The National Association of Home Builders, for example, wrote that without this bill and its fostering of new construction, we'd threaten "to end the budding housing recovery before it has time to take root." That's so perfectly wrong, it hurts. You have to put the laws of supply and demand in a medieval torture device to come up with an example of additional supply healing a crash caused by oversupply. When the price of something is falling, increasing supply accelerates the drop. Conversely, removing supply (blowing up houses) lifts prices. No secrets. No magic. No tricks. They call these the laws of supply and demand because there aren't practical exceptions.

Perhaps it's "Hair of the dog that bit him," economic theory. It makes no sense, but which of the stimulus bills did?

Tuesday, June 8, 2010

Bonds could lose 30 percent of their value

Voltron says: Bonds are considered a "safe haven" but they are not.

Bob Froehlich with Hartford Mutual Funds says ... the bubble could pop when the Fed does what it'll have to do to stave off inflation -- raise interest rates. He says when that happens, today's bonds could lose 30 percent of their value if they're resold on the secondary market.

History lesson

I keep reading everywhere that Greece is the new Lehman Brothers .... Lehman itself was the new Argentina (2001), and Argentina was the new CreditAnstalt (1931), and CreditAnstalt was the new previous Argentina (1890), and the previous Argentina was the new South Sea Company (1720), which was the new Philip II of Spain, who through his multiple defaults (1557, 1560, 1575, 1596) managed repeatedly to be the new himself. Governments and bankers have been merrily tossing the bankruptcy baton back and forth for half a millennium.

Monday, June 7, 2010

Rapper Chamillionaire Strategically Defaults

...His 7,583 square foot mansion in Houston, Texas was a losing endeavor, and ... he simply chose to walk away . . .
Chamillionaire played down the severity of the situation, telling TMZ, “when I’m Chathousandaire, then y’all have a real story.”

Next, Lil Jon defaults . . .

Voltron: Lil Jon, you're house is underwater

Lil Jon: What?!?!

Voltron: You owe more than it's worth

Lil Jon: What?!?!

Voltron: Do you want to stop losing money?

Lil Jon: YEAH!!!

Voltron: You should let the bank foreclose

Lil Jon: OKAY!!!!

with sound effects:

Friday, May 28, 2010

Another Debt Crisis Is Brewing, This One in Student Loans -

Max Keiser: Big Banks Allocate Losing Trades to Clients, Keep Winning Trades for Themselves

Voltron says: Read the comments for the linked article. I had no idea this sh!t goes on!

David Einhorn: Easy Money, Hard Truths

Excerpt: "The Fed hopes that by denying savers an adequate return in risk-free assets like savings deposits, it will force them to speculate in stocks and other 'risky assets.' This speculation drives stock prices higher"

Thursday, May 27, 2010

Hugh Henry: "I recommend you panic" . . .

Voltron says: Hugh, you had me at "panic".

Video and partial transcript:

Saturday, May 22, 2010

FHA-HAMP Helped 171 Homeowners Nationwide in April

"171 nationwide in April. So, very well done there. Crackerjack work, I would have to say."

Here's why:
The traditional compensation model for servicers is based on a flat percentage of a loans outstanding in the portfolio. On conventional loans, servicers are generally paid between 0.25 and 375% of total unpaid loan principle in their portfolio. Every incremental dollar spent counseling borrowers and mitigating the losses of the end investor (not their own losses) is cutting into the servicers margin.

Tuesday, May 18, 2010

Suddenly, Everyone's In the CRASH Camp, Not Just The Bear Camp

Read more:

Meredith Whitney is getting fired up again

Meredith Whitney Sees Bleak Second Half in Stock Market, Small Business Credit Crunch, Double Dip in Housing, Says European Banks in Worse Shape

Germany bans short selling of some stocks and bonds

Voltron says: This takes effect at midnight at is in force until 31 March 2011. The US enacted a similar ban, just as hastily, during September 2008, with disastrous results. Short sellers are the only buyers in a crashing market when they close out their positions, so when you ban short selling, you create a vacuum under the market.

See my previous blog posts from Sept 08:

Nassim Taleb: Robustness and Fragility

Voltron says: The second edition paperback of Nassim Taleb's instant classic book "The Black Swan" has been released with new chapters on "Robustness and Fragility" here two excerpts:
Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence.”

Let us move voluntarily into a robust economy by helping what needs to be broken break on its own, converting debt into equity, marginalizing the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here (by claiming restitution of the funds paid to, say, Robert Rubin or banksters whose wealth has been subsidized by taxpaying schoolteachers), and teaching people to navigate a world with fewer certainties. Then we will see an economic life closer to our biological environment: smaller firms, a richer ecology, no speculative leverage—a world in which entrepreneurs, not bankers, take the risks, and in which companies are born and die every day without making the news.

Voltron says: Nassim's hedge fund, "Universa", was at one point accused of causing the 1,000 point "Flash Crash" of 2:45 on May 6th. Here is a video of Nassim (briefly) addressing that and other matters:

Monday, May 17, 2010

‘There’s No Money Left,’ U.K. Minister Learns From Predecessor

May 17 (Bloomberg) -- Arriving for work at the U.K. Treasury last week, the incoming chief secretary, David Laws, found a note from his predecessor, Liam Byrne, offering advice on the job.

According to Laws, it read: "Dear Chief Secretary, I'm afraid to tell you there's no money left."

"Which was honest," Laws, whose position is the No. 2 in the Treasury after the chancellor of the exchequer, told a press conference in London today. "But slightly less than I was expecting."

James Galbraith On Economic Theory As A Disgraced Profession

Reindexing The Unemployment Rate

Reindexing The Unemployment Rate By America's Population Growth Yields Some Ugly Results

GM Wants More Subprime Lending

Voltron says: GM wants to sell more cars before it issues new stock
but it sold it's finance arm in 2006 and no one is the the mood to
make subprime car loans.

Saturday, May 15, 2010

Daily Show: The banks can't lose (video)

The Daily Show With Jon StewartMon - Thurs 11p / 10c
Daily Show Full EpisodesPolitical HumorTea Party

Financial Crisis

Last week, we had a "financial crisis" which Nouriel Roubini defines as:
"an event that forces policy officials to spend a long weekend trying desperately to announce a new bailout package in order to avoid national and global panic before the markets open on Monday."

Despite a trillion dollar bailout and pledge to defend the Euro, the Euro has crashed to an 18 month low. That's it . . . Europe fired it's bailout bullet . . . and missed. Paul Krugman is panicing.

German Chancellor, Angela Merkel said the bailout may not work.

Former Fed Chairman Paul Volker said the Euro may brake up.

California Governor, Arnold Schwarzenegger compared California to Greece while announcing crushing budget cuts.

Monday, May 10, 2010

Wells Fargo is rotten

Voltron says: E-mail evidence in a stock lending lawsuit reveals the rotten culture at Wells Fargo

"I think it is a bad idea to answer these questions right now,"

"We never admit to 'having problems.'"

"Is there a likelihood of a rush to the exits [by clients]?"

"Admitting to losses ... is a big deal for all future business."

"We haven't communicated about this at all. It feels like a ticking time bomb without telling our clients."

CBS 60 Minutes: "Strategic Default: Walking Away from Mortgages"

Intro: (CBS) Despite some indications that the economy is recovering, the housing market remains a disaster area. Currently, about seven million homeowners are behind on their mortgages and that number is only getting worse.

Banks, with the help of the government, are offering some relief to homeowners who've lost jobs and just can't meet their payments.

But there's a growing number who can pay but are simply walking away from houses that are now worth as little as half of what they paid for them.

It's called "strategic default." People have done the math and decided making those monthly payments is just throwing money away, leaving the mortgage holders - the banks - as zookeepers of an ever-growing parade of white elephants.

In the past year it is estimated that at least a million Americans who can afford to stay in their homes simply walked away.

Video and Transcript:

Is that all you got?

Voltron says

The "Euro TARP" announced after an all-nighter on Sunday right before the asian markets opened (<sarcasm on> like all carefully thought out plans <sarcasm off>) is a 700 Billion Euro (about 1,000 Billion Dollars) package of loans and loan guarantees for Greece. The 2008 US TARP was for the same nominal 700 Billion amount (in dollars). How did the US come up with 700 Billion? "It's not based on any particular data point . . . We just wanted to choose a really large number." No Kidding. If this package is a good bailout, why didn't they do it last week, last month, last year, 10 years ago and why don't they do another trillion tomorrow and the day after that? By the way, it's a preview of the coming US bailout of California. All the European nations and the IMF (mainly the US) are going to contribute. Does it make sense for Spain to borrow money at 8% to loan to Greece at 5%? Why is the solution to debt always more debt? None of this will solve anything because the Greek citizens will not adopt austerity measures or pay their taxes and none of the money is "stimulus".

I feel exactly the way I did after the TARP bailout in 2008. "Is that all you got?" A Trillion dollars of debt thrown into hole and all they get is a modest pop in the Euro and 400 point pop in the DOW pre-market. The DOW usually goes up on Monday's when the 401k purchases come through and most of the increase in the DOW since March have been pre-market.

The Europeans are trying to hurt the speculators, but they can't. If they cushion market volatility to clam the markets, that makes options cheaper and carry trades more attractive. If they increase volatility to shake out short sellers, it will spook the markets. No matter what they do, Goldman Sachs will figure out a way to rape them. Goldman just announced that they made money EVERY TRADING DAY LAST QUARTER and make over $100 million on half of the days.

Despite all this Moody's just put Greece, Ireland and Portugal on negative ratings watch.

By the way, after the money is used to bailout the politically connected, Greece will default anyway.

Sunday, May 9, 2010

Yanking on the Leash?

Voltron says: On April 18th, I said that Wall Street would start "yanking the leash" by crashing the market whenever the government threatened to regulate. I'm not saying that happened on Thursday, but it clearly demonstrates that it would not be difficult to do so.

Moody's under SEC investigation, tugs on leash

SEC May Order Ratings Agency To "Cease And Desist"

Read more:

Voltron says: The investigation is with respect to some 2008 constant-proportion debt obligations (CPDOs) that Moody's knew were overrated due to a "computer bug" but knowingly did not correct the error. The US may revoke Moody's charter to rate securities (NRSRO). Coincidently Moody's is now saying the the US may lose it's triple-A credit rating as soon as 2013. Unlike bond issuers, the US does not pay Moody's for ratings.

Feds probing JPMorgan Chase's silver market trades -

Feds probing JPMorgan Chase's silver market trades -

Saturday, May 8, 2010

"The dirty little secret is: The world has no money, and the Emperor has no clothes."

Voltron says: It doesn't get more main stream than Brian Williams

Thursday, May 6, 2010

Dude, Where's my gold?


Voltron says: word on the street is that some bonehead at Citigroup fat fingered a "B" instead of an "M" and caused a cascade of automatic trades that sent the DOW down about 7% in about 15 minutes. Ironically the high frequency traders panicked and shut off their systems, removing needed liquidity. The market subsequently recovered almost all of the loss from the dip, but not 3% it had been down before the dip. It's odd that the dip happened right after 2:30 when it would not have triggered a market closure unless it fell 20%

Voltron says: A trillion dollars was transferred during the dip. Many people had stop loss orders triggered. Was it a last desperate money grab by Citigroup or Goldman?

Just sold out of DKA, DBN, DBU

Voltron says: Dow plunged almost 1,000 points in a few minutes

Way to go Freddie!

"FREDDIE MAC has now lost 82 BILLION DOLLARS over 10 of the last 11 quarters more than TWICE what it EARNED over the previous THIRTY YEARS."

Wednesday, May 5, 2010

Banks still playing with numbers

Whitney: Banks Under-reserved for 'Double-dip' in House Prices

Banks continue to suffer from losses on non-performing loans, and U.S. home prices will fall again amid increasing supply and sluggish demand, according to [banking analyst Meredith Whitney].

“I’m steadfast in my belief there’s going to be a double- dip in housing,” she said. “You will see clearly that the banks are under-reserved when housing dips again.”

story and video:

hat-tip: calculated risk

Tuesday, May 4, 2010

Strategic Default Update

  • $100,000 negative equity is the tipping point.
  • 12 percent of all U.S. defaults in February were strategic.
  • 30,000 people a month are able to pay their mortgage but are deciding not to.

Monday, May 3, 2010

Fed knew of housing bubble in 2004

As top Federal Reserve officials debated whether there was a housing bubble and what to do about it, then-Chairman Alan Greenspan argued that the dissent should be kept secret so that the Fed wouldn't lose control of the debate to people less well-informed than themselves.

"We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand," Greenspan said, according to the transcripts of a March 2004 meeting.

At the same meeting, a Federal Reserve bank president from Atlanta, Jack Guynn, warned that "a number of folks are expressing growing concern about potential overbuilding and worrisome speculation in the real estate markets, especially in Florida. Entire condo projects and upscale residential lots are being pre-sold before any construction, with buyers freely admitting that they have no intention of occupying the units or building on the land but rather are counting on 'flipping' the properties--selling them quickly at higher prices."

Had Guynn's warning been heeded and the housing market cooled, the financial collapse of 2008 could have been avoided. But his comment was kept secret until Friday, when the central bank released the transcripts of Federal Open Market Committee meetings for 2004 and CalculatedRisk spotted it. The transcripts for 2005 to the present are still secret.

Voltron says: I have been a connoisseur of arrogance all my life and I must say that this is truly magnifique. Absolutely breathtaking. The current Fed Chairman and Treasury Secretary are also implicated in this cover up. "it is possible to lose control of a process that only we fully understand" WTF is that supposed to mean? Fiat currency collapse?

Fannie Mae tightens lending standards

WASHINGTON (AP) -- Battered by a tidal wave of loan defaults, mortgage finance company Fannie Mae is tightening standards for the adjustable-rate and interest-only loans that fed the housing boom and contributed to the bust.

The company said Friday it will require mortgage lenders to consider how high a borrower's mortgage payments might rise after teaser rates expire.

Fannie Mae also will enact tighter standards for "interest only" loans that allow borrowers to avoid making principal payments for several years. To get those loans, borrowers taking out new mortgages must have a down payment of at least 30 percent and enough assets for two months of living expenses.

Washington-based Fannie and sibling company Freddie Mac buy mortgages from lenders and sell them to investors with a guarantee against default. They have effectively been owned by the government since they nearly collapsed in September 2008.

Voltron says: No rush though . . . the new rules take effect in September 2010.

Huge FDIC Losses from 7 Bank Failures Friday

From rss feed:

In all, the Federal Deposit Insurance Corporation projected $7.3 billion in losses from seven bank failures [last] Friday.

The toll is higher than the $6 billion in losses projected for IndyMac Bank FSB's failure.

No losses to the Deposit Insurance fund occurred from the failure of Washington Mutual Bank -- the biggest bank failure in U.S. history.

Friday, April 23, 2010

Wells Fargo mostly exists off balance sheet

Source :

Excerpt from another article explains:

from Wells Fargo's third-quarter 2008 release:

"Almost all of our off-balance sheet arrangements result from securitizations [of] home mortgage loans and other financial assets, including commercial mortgages. We normally structure loan securitizations as sales, ... This involves the transfer of financial assets to certain qualifying special-purpose entities (QSPEs) that we are not required to consolidate [on the balance sheet]."

Voltron says: They subsequently removed this note from future filings.

Voltron says: structuring loans as sales is exactly what Lehman ($50 billion) and Enron ($14 Billion) did, but this is on a much larger scale ($1,900 Billion)

Bureaucracy in India

"the only thing worse than a society with a rigid, overcentralized, dishonest bureaucracy is one with a rigid, overcentralized, and honest bureaucracy."

America: A Banana Republic With No Bananas


let’s look at Wikipedia’s description of the four factors which make a country a banana republic.
  • Profits Privatized and Debts Socialized
  • Devalued Paper Currency
  • Politicians Use Time in Office to Maximize Their Own Gains
  • Corruption Remains Unchecked, Politicians Are Only for Show

Wednesday, April 21, 2010

Wells Earnings Released

Excerpt: The bears think Wells is more vulnerable than rivals to losses from bad loans. For instance, J.P. Morgan Chase's bad-loan reserve looks stronger, at 5.64% of loans, versus Wells's 3.22%. What's more, J.P. Morgan's reserve-to-past-due-loan ratio is 212%, more than twice Wells's 92%. Those suggest Wells would be more exposed if the economic recovery faltered. The bank's $125 billion of home-equity loans could yet show elevated losses.

Sunday, April 18, 2010

Life imitates comedy

Voltron says: The Treasury Dept. is "open to suggestions" on how to deal with bankrupt, too big to fail, mortgage giants Fannie Mae and Freddie Mac:

The Obama Administration today released questions for public comment on the future of the housing finance system, including Fannie Mae and Freddie Mac, and the overall role of the federal government in housing policy. The questions have been designed to generate input from a wide variety of constituents, including market participants, industry groups, academic experts, and consumer and community organizations. The questions will also be published in a Federal Register notice requesting public comments, and information on the process for submitting comments will be included in that notice.

"A well-functioning housing finance system is critical to the long term stability of the housing market," said Treasury Secretary Tim Geithner. "Hearing from a wide variety of perspectives as we embark on this process is an important part of establishing a more stable and sound housing finance system for the American people."

Here are the actual questions:
  1. How should federal housing finance objectives be prioritized in the context of the broader objectives of housing policy?
  2. What role should the federal government play in supporting a stable, well-functioning housing finance system and what risks, if any, should the federal government bear in meeting its housing finance objectives?
  3. Should the government approach differ across different segments of the market, and if so, how?
  4. How should the current organization of the housing finance system be improved?
  5. How should the housing finance system support sound market practices?
  6. What is the best way for the housing finance system to help ensure consumers are protected from unfair, abusive or deceptive practices?
  7. Do housing finance systems in other countries offer insights that can help inform US reform choices?

Here's the SNL skit (from a year ago - March 2009, right at the bottom of the stock market):

Hat tip to:

SEC charges Goldman Sachs

Voltron says: I knew years ago about the fraud and deceit in the mortgage and mortgage derivatives market but, I have to admit I was surprised that some CDOs were actually intentionally structured to fail while being marketed as Triple-A good paper. I knew that people were betting against them, but this is even worse than I ever imagined. This has all come to the surface in the last couple of weeks, and already there is an SEC action against Goldman Sachs. Simultaneously financial reform legislation is being drafted, hearings are being held and an avalanche of option arm mortgages made at the peak of the bubble are about to have interest rate resets. I think Wall St is going to start yanking on the leash . . . whenever the status quo is threatened the stock market and house prices will go down and interest rates and oil prices will go up. The government may take Goldman down, but they are not going to go quietly . . . they'll drag the economy down with them . . . and somehow profit from it.

I've adjusted my forecast (right panel of the blog). It may be time to start getting short, while you can.

Wednesday, April 14, 2010

NPR: Did WaMu's fraud lower rest of market?

Kai Ryssdal: For a long time, Washington Mutual had this catchy tagline it used in its ads to show that it could help everybody buy a home. The "power of yes," it went. As new congressional investigations show, WaMu wasn't just talking the talk. Widespread fraud let it say yes to just about everybody, which might have helped set the bar for everybody else.

Marketplace's Alisa Roth reports.

ALISA ROTH: The stories this investigation have turned up are pretty alarming. WaMu gave bonuses for selling higher risk loans. There were also bonuses for using things like higher interest rates or extra points to over-charge clients. Employees even helped loans get processed faster by falsifying bank statements.

John Coffee is an expert on securities law and corporate governance at Columbia. He says the easiest way for a bank to increase its profitability in the short-term is to take on more risk.

JOHN COFFEE: And that can arguably produce the lemming-like race over the cliff as each institution increases its level of risk because it wants to have its profitability look at least comparable to its rivals.

He says WaMu was one of a lot of institutions in the game.

Tuesday, April 13, 2010

Jim Chanos says China has a property bubble

Excerpt: much of their GDP growth is construction -- 50 percent to 60 percent of this country’s GDP is construction. We’ve not seen that in terms of a major country I think for a long time if not at all.

And so for them to get off of stopping construction, you’ll see GDP growth go negative very quickly. That’s not going to happen, because in China it’s all about making the number.

...I’m more concerned even philosophically about the whole idea -- as we say, it’s all about the number. So in the west our economic growth is a result of decisions that you make and I make and that the market reflects via pricing, and at the end of the day we calculate all activity, and that’s our economic growth.

In China it starts with, "We are going to grow nine percent next year. Now, how do we get there?" It’s the start of the equation and the activity is the residual. And that’s ultimately philosophically the problem.

Video and Transcript:

Monday, April 12, 2010

PIMCO's Bill Gross Frantically Dumping Treasuries, Thinks US Interest Rates Will Soar

27 Million Believe Home is Underwater

Voltron says: Perception is catching up to reality

Bank Profits Dimmed by Prospect of Home-Equity Losses

Voltron says: All of Wells Fargo's profits this year could be wiped out by second mortgage losses (and yet the stock price goes up...)


Wells Fargo holds about $123.8 billion of home-equity loans, with about $103.7 billion in a junior-lien position, according to company filings. The lender has $5.3 billion in reserves set aside to cover the second-lien mortgage loans and wrote off $4.6 billion last year. Almost 2.2 percent of the second liens are more than 120 days past due, the company said in its annual report.

CreditSights said potential home-equity losses could knock $12.8 billion, or $2.47 a share, off earnings at Wells Fargo. That's more than the $10.9 billion the bank is expected to earn this year, according to the average estimate of 15 analysts surveyed by Bloomberg.


Second-lien reserves set aside by the four big banks are $100 billion to $125 billion short of what's needed in the next few years, said Joshua Rosner, an analyst at Graham Fisher & Co., an independent research firm based in New York, and co- author of a May 2007 report that said ratings companies were underestimating the risk of subprime-mortgage bonds.


"There's very little recovery for home-equity loans," -Paul Miller, FBR Capital Markets

"If banks were properly accounting for their second liens, there would be no problem with them choosing to do principal writedowns, They would already be reserved for it." - Joshua Rosner, Graham Fisher & Co.

"Banks have been saying we're close to the end, People have built that into their expectations. I don't think we're there yet." -Nancy Bush, NAB Research

"The banks are saying that they can work through it . . . it may be bigger than they are letting on." -Baylor Lancaster, CreditSights

"This is a problem that's not going away for several years," -Charles W. Scharf, JPMorgan

Some Markets Won't See Peak Home Prices Until After 2039

NYT: Interest Rates Have Nowhere to Go but Up

Sunday, April 11, 2010

NPR: Inside Job (audio)

Voltron says: Here's the link to the NPR This American Life show on Magnetar

Humor: Bet Against the American Dream (video/mp3)

Voltron says: Hilarious video and mp3 in the style of Mel Brook's musical "The Producers" from "Inside Job" on NPR's This American Life, the companion to ProPublica's article The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going,


Saturday, April 10, 2010

WSJ: Big Banks Mask Risk Levels

Excerpt from the Wall Street Journal:
Major banks have masked their risk levels in the past five quarters by temporarily lowering their debt just before reporting it to the public, according to data from the Federal Reserve Bank of New York.

A group of 18 banks—which includes Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. and Citigroup Inc.—understated the debt levels used to fund securities trades by lowering them an average of 42% at the end of each of the past five quarterly periods, the data show. The banks, which publicly release debt data each quarter, then boosted the debt levels in the middle of successive quarters.

Excessive borrowing by banks was one of the major causes of the financial crisis, leading to catastrophic bank runs in 2008 at firms including Bear Stearns Cos. and Lehman Brothers. Since then, banks have become more sensitive about showing high levels of debt and risk, worried that their stocks and credit ratings could be punished.

That practice, while legal, can give investors a skewed impression of the level of risk that financial firms are taking the vast majority of the time.

Voltron says: I want to know how Wells Fargo breaks out . . . anyhow Zero Hedge has a great graph summarizing the data:

Voltron says: Notice how the red dot seems to be randomly distributed within the bars then suddenly starting in Q4 2008, it is always at the bottom.

The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going

Voltron says: A lengthy ProPublica article (to be featured on NPR's This American Life tomorrow) details how a hedge fund named Magnetar "sponsored" the creation of mortgage pools by purchasing the riskiest parts that were rapidly becoming unwanted in the markets, in order to keep the mortgage pipeline going and also use the money to fund large bets against the rest of the mortgage pool. The deal was also described in Yves Smith's book "Econned". Morgan Stanley lost $9 Billion by doing the opposite (funding bets on low rated debt by selling insurance against lots of high rated debt - right before it all went bad) according to Michael Lewis' book "The Big Short"

Magnetar solved a conundrum of those who bet against the market. An investor might be confident that things are heading south, but not know when. While the investor waits, it costs money to keep the bet going. Many a short seller has run out of cash at the gates of a big payday.

...Even today, bankers and managers speak with awe at the elegance of the Magnetar Trade. Others have become famous for betting big against the housing market. But they had taken enormous risks. Meanwhile, Magnetar had created a largely self-funding bet against the market.


Full article:

More Gold Hanky Panky

Voltron says: A trio of articles from Zero Hedge about gold ETFs, worthless paper and empty vaults.

Has The iShares Gold ETF (IAU) Been Covertly Depleted Of 90% Of Its Physical Holdings, With Banks Like JPM And Goldman Pocketing The Actual Gold?

The Latest Gold Fraud Bombshell: Canada's Only Bullion Bank Gold Vault Is Practically Empty

Got Gold? Why Owning GLD Can Be Hazardous To Your Wealth

Thursday, April 8, 2010

Bank of America to Increase Foreclosure Rate by 600% in 2010

Bank of America, which currently forecloses on 7,500 homes a month nationally, will increase that number to 45,000 homes per month by December of 2010

Credit Sights: "Wells Fargo is particularly vulnerable"

Total home equity exposure at banks is pretty big. Amherst Securities has said commercial banks hold approximately $767 billion of the total $1.05 trillion of second mortgages outstanding, with the Big 4 holding over $400 billion alone.

But the key issue is what portion of these are at risk of writedowns. Most vulnerable are loans (or portions thereof) that are no longer backed by property. That is, the price of the underlying home has fallen below the balance on the loan. In banker shorthand: “loan-to-value” (LTV) is greater than 100%.

These are in peril because home equity loans are frequently structured with big principal payments on the back end, so even though many borrowers are currently making payments they’d need to stump up an awful lot of cash to pay off the balance. Unless housing miraculously recovers and they can sell or refinance at a price that will pay back all their debt, well, expect a spike in walk-aways…

CreditSights takes a stab at the potential writedown for the Big 4 banks and finds that Wells Fargo is particularly vulnerable.

Fannie Mae National Housing Survey

Voltron says: people still think it's a good time to buy, even though they realize home prices don't go up forever.

Full report here:

Tuesday, April 6, 2010

Houses still overpriced?

Voltron says: we're still 22% above the historical average.

Hat tip to Michael David White of New Observations

Wells Fargo are liars

Voltron says: says Wells Fargo's Audit Integrity Accounting and Governance Risk (AGR) rating is in the bottom 1 percentile.

hat tip to Dollar$

Foreclosures Are Rising - CNBC

Moody's Downgrades $6B of Wells Fargo-Issued Jumbo RMBS

Voltron says: doesn't say how far they were downgraded

Monday, April 5, 2010

Diana Olick: Let the Short Sales Begin

"I'm also starting to hear rumblings among the number crunchers that the wave of foreclosures we keep hearing about is about to hit with a thunderous roar."

Sunday, April 4, 2010

Rick Bookstaber: The next crash


... guess where we have a market that is (1) leveraged and opaque, that is (2) very big and tied to the credit markets; and is (3) viewed by investors as being diversifiable by holding a geographically broad-based portfolio; with (4) huge portfolios where assets and liabilities are apparently matched; and with (5) questionable analysis by rating agencies; and where (6) there are many entities, entities that may not approach default with business-like dispatch, and that have already mortgaged sources of revenue that are thought to support their liabilities?

Answer: The municipal market.

If we've bottomed . . .

Voltron says: Looks like 18 months to go. If you try and pick bottoms, you just end up with smelly fingers.

Tuesday, March 30, 2010

gated ghetto

Hemet's Willowalk tract was family-friendly. Then the recession hit.

"living in a gated community is absurd when drug busts are a regular occurrence.",0,4976165,full.story

Wells Fargo most exposed to home equity hit: CreditSights

Bill Black: To Rob a Country, Own a Bank (video)

Voltron says: If you don't know who Bill Black is, check out my previous post.

Key Points:
  • There are probably at least half a million cases of mortgage fraud a year
  • 80% of the fraud is committed by the mortgage companies
  • "There are so many shoes yet to drop it is going to be like being in Imelda Marcos' closet during an earthquake"
  • The US has descended into crony capitalism like Indonesia under Suharto
  • The proposed financial regulations won't work
  • There are 1/6th as many FBI investigators as during the S&L crisis when today's problems may be 30 times larger
  • "The next big one will be even worse"
Video here:

U.S. housing market shifts from liar loans to hard cash

"We've had this huge pendulum swing - from liar loans, no-doc loans and no-income loans - to no loans at all," NAR spokesman Walter Molony said. "We've gone to the opposite extreme."

Monday, March 29, 2010

Mortgage program comes with a catch


The federal $75 million Making Home Affordable program is supposed to keep some of the 5 million Americans on the verge of foreclosure from losing their homes.

That's if the loans they want to refinance are backed by the federal mortgage companies Fannie Mae and Freddie Mac. And if they don't have a second mortgage or private mortgage insurance that can hinder refinancing. And if the cost of refinancing is worth the lower interest rates. And if lenders have been able to update their computer systems to work with the program.

And, it turns out, if homeowners don't mind watching their credit scores drop by as much as 100 points.

...The government should make it clearer to interested homeowners that their credit scores could take a hit simply by applying, even if they never miss a payment.