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

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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.

Newsweek: Strategic Defaults On The Rise

By not making mortgage payments on "underwater" homes, borrowers may be paradoxically helping to boost the economy.

http://finance.yahoo.com/news/Mortgages-Strategic-Defaults-bizwk-2756669544.html?x=0&.v=1

Daily Show: Fat Fingers (video)

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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."

http://www.startribune.com/business/93143674.html?elr=KArks:DCiU1PciUiD3aPc:_Yyc:aUU

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: http://www.cbsnews.com/stories/2010/05/06/60minutes/main6466484.shtml

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.

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: http://www.businessinsider.com/henry-blodget-moodys-gets-wells-notice-sec-may-order-ratings-agency-to-cease-and-desist-2010-5

http://online.wsj.com/article/SB10001424052748703338004575230882064318688.html?ru=yahoo&mod=yahoo_hs


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.

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=532490

Feds probing JPMorgan Chase's silver market trades - NYPOST.com

Feds probing JPMorgan Chase's silver market trades - NYPOST.com

"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

Wells Fargo mortgage lending practices probed - MarketWatch

Wells Fargo mortgage lending practices probed - MarketWatch

Posted using ShareThis

High-End Homeowners Falling Into Foreclosure Trap

http://m.cnbc.com/us_news/36993480

Dude, Where's my gold?

http://blogs.forbes.com/greatspeculations/2010/05/06/dude-wheres-my-gold/?partner=yahootix

Holyfuckingshit

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."

http://twitter.com/ComfortablySmug

Banks still playing with numbers

http://marketplace.publicradio.org//display/web/2010/05/05/pm-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: http://www.bloomberg.com/apps/news?pid=20601103&sid=aL7enTzxZttA

hat-tip: calculated risk

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.

http://www.doctorhousingbubble.com/strategic-default-world-mortgages-30000-default-monthly-cash-flow-increase/

Fed knew of housing bubble in 2004

Excerpt:

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?

http://www.huffingtonpost.com/2010/05/03/greenspan-wanted-housing_n_560965.html

Fannie Mae tightens lending standards

Excerpt:

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.

http://finance.yahoo.com/news/Fannie-Mae-tightens-lending-apf-1078217196.html?x=0&.v=8

Huge FDIC Losses from 7 Bank Failures Friday

From MortgageDaily.com 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.

Wells Fargo mostly exists off balance sheet

Source : http://www.thestreet.com/story/10552223/1/wells-fargos-balancing-act.html

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)

http://www.minyanville.com/businessmarkets/articles/fre-fnm-mortgage-off-balance-sheet/2/2/2009/id/20901?page=2

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."

http://www.npr.org/blogs/money/2010/04/the_friday_podcast_1.html

America: A Banana Republic With No Bananas

Excerpt:

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

http://www.nakedcapitalism.com/2010/04/guest-post-a-banana-republic-with-no-bananas.html

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.

http://online.wsj.com/article/SB10001424052748704133804575198502855993706.html?ru=yahoo&mod=yahoo_hs#articleTabs%3Darticle

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: http://www.ustreas.gov/press/releases/tg639.htm

Excerpt:

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: Blownmortgage.com

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.

http://www.nytimes.com/2010/04/17/business/17goldman.html

Ratigan: Financial Fraud For Dummies (video)

Visit msnbc.com for breaking news, world news, and news about the economy

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.

http://marketplace.publicradio.org/display/web/2010/04/13/pm-washington-mutual-fruad/

Jim Chanos says China has a property bubble

Excerpt:

...so 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: http://www.charlierose.com/view/interview/10960

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

http://www.businessinsider.com/henry-blodget-pimcos-pimcos-bill-gross-frantically-dumping-treasuries-thinks-us-interest-rates-will-soar-2010-4

27 Million Believe Home is Underwater

Voltron says: Perception is catching up to reality

http://www.thetruthaboutmortgage.com/27-million-believe-home-is-underwater/

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...)

Excerpt:

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.

Quotes:

"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

http://www.bloomberg.com/apps/news?pid=20601206&sid=ayhRMX.B.hJE

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

http://www.thetruthaboutmortgage.com/some-markets-wont-see-peak-home-prices-until-after-2039/

NYT: Interest Rates Have Nowhere to Go but Up

http://www.nytimes.com/2010/04/11/business/economy/11rates.html

NPR: Inside Job (audio)

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

MP3: http://podcast.thisamericanlife.org/podcast/405.mp3

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,



mp3: http://podcast.thisamericanlife.org/special/405_Bonus_Bet_Against_the_American_Dream.mp3

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.

http://online.wsj.com/article/SB10001424052702304830104575172280848939898.html?mod=WSJ_Markets_MIDDLETopNews

http://www.zerohedge.com/article/evidence-primary-dealers-have-collectively-engaged-repo-105-and-qtr-end-book-cooking-type-sc

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"

Excerpt:

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.

Explainer: http://www.propublica.org/special/the-anatomy-of-the-magnetar-trade

Full article: http://www.propublica.org/feature/all-the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble

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

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

http://www.irvinehousingblog.com/blog/comments/bank-of-america-to-increase-foreclosure-rate-by-600-in-2010/

Credit Sights: "Wells Fargo is particularly vulnerable"

Excerpt:

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.

http://blogs.reuters.com/rolfe-winkler/2010/04/08/home-equity-horror/

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: http://www.fanniemae.com/media/pdf/2010/National-Housing-Survey-040610.pdf

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: auditintegrity.com 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

http://classic.cnbc.com/id/36195838

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

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

http://www.structuredfinancenews.com/news/-204756-1.html?zkPrintable=true

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."

http://www.cnbc.com/id/36179757

Rick Bookstaber: The next crash

Excerpt:

... 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.

http://rick.bookstaber.com/2010/04/municipal-market.html

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.

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."

http://www.latimes.com/business/la-fi-hemet30-2010mar30,0,4976165,full.story

Wells Fargo most exposed to home equity hit: CreditSights

http://www.marketwatch.com/story/wells-most-exposed-to-home-equity-creditsights-2010-03-30?siteid=yhoof

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: http://www.newdeal20.org/2010/03/30/bill-black-not-dead-yet-9279/

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."

http://www.theglobeandmail.com/report-on-business/economy/us-housing-market-shifts-from-liar-loans-to-hard-cash/article1516368/

Mortgage program comes with a catch

Excerpt:

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.

http://hamptonroads.com/2010/03/mortgage-program-comes-catch

Behavioral Finance

Confessions of a Value Investor- A Few Lessons in Behavioral Finance

California to offer $10,000 tax credit to homebuyers

http://www.mcclatchydc.com/2010/03/24/91023/california-to-offer-10000-tax.html

Bloggers and Short sellers do what the SEC won't

Voltron says: Epilog to MBIA, Lehman and Crazy Eddie. The story of the collapse is not a story about numbers, it's about people.

Excerpt:

Ackman’s bet was spectacularly contrarian. He was wagering on the collapse of a company [MBIA] that the rating companies had awarded their highest AAA rating and that everyone else was counting on.

...Ackman told the receptionist [at MBIA] they were there for the meeting with [CEO] Jay Brown. She pointed Ackman toward a closed conference room door just behind the reception desk. Opening it, he found Brown seated at a conference table with a dozen other men. The conversation in the room came to an abrupt halt.

“I’m Bill Ackman. I’m here to--”

“Wrong meeting,” one man said as he jumped up to close the door. Ackman returned to the reception area, convinced he’d just interrupted a tired and frazzled-looking Brown in a meeting with his crisis-management team. The Gotham group was shown to another conference room and told to wait.

Fifteen minutes later, Brown joined them with MBIA’s general counsel, Ram Wertheim, whose first question to the Gotham group was whether it planned to record the meeting. Ackman told him no, then asked Wertheim whether he and Brown planned on recording. They did not, Wertheim said.

Brown got to the point. He had been in the insurance industry for years, and no one had ever questioned his reputation, Ackman remembers Brown saying.

‘Friends in High Places’

“No one has ever gone to my regulators without my permission.”

Ackman asked Brown whether he disputed any of the assertions Ackman had made about MBIA. Brown was aware of the issues in Ackman’s report from questions he had received from a Wall Street equity analyst with whom Ackman had shared his findings.

“This isn’t about the facts; it’s about process,” Ackman recalls Brown saying. “You’re a young guy, early in your career. You should think long and hard before issuing the report. We are the largest guarantor of New York state and New York City bonds. In fact, we’re the largest guarantor of municipal debt in the country. Let’s put it this way: We have friends in high places.”

In a follow-up letter to Ackman after the meeting, Wertheim reminded Gotham what was at stake.

“MBIA is a regulated insurance company that operates in a regulated environment and acts in a fiduciary capacity for the benefit of our many constituencies. ... MBIA’s credibility and reputation in the market, and its AAA ratings, are critical to our continued ability to service these constituencies.”

In the meeting, Brown compared Gotham to Enron Corp., which had been accused of manipulating the California electricity market. Was Gotham seeking to manipulate perceptions about a regulated insurance company by taking positions in the unregulated CDS market? Brown also asked Ackman how long Gotham planned to hold its CDS position on MBIA.

Ackman explained that for the hedge fund to make money on its CDS position, it was going to have to be correct in its criticism of MBIA. Ackman told Brown that the CDS market was not liquid enough for Gotham to easily trade in and out of such a huge position.

Wertheim asked to see a copy of Gotham’s report before it was published so MBIA could check Gotham’s facts. Ackman countered that it was considered inappropriate for analysts to give advance copies of research reports to companies but again offered to discuss any findings at the meeting.

The meeting ended abruptly. As the men filed out of the room, Ackman reached out to shake Brown’s hand.

“I don’t think so,” Brown said, refusing to extend his hand.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aLmOb9zzVZ9A


Excerpt:

When hedge fund manager David Einhorn told an audience of investors in 2002 that he recommended shorting Allied, the SEC investigated him before they bothered to probe the company. The lukewarm probe the SEC wound up doing didn’t even include a visit to Allied headquarters two blocks from the SEC. Ultimately, the SEC’s documents on Allied were mysteriously deleted from the agency’s computers, the new Kotz report says.

In a classic SEC farce, the agency has acknowledged the shorts’ important role in balancing the boundless swamp of financial hype by slapping new curbs on them on Feb. 24.

No less an expert on white-collar crime than onetime jailbird Sam Antar, whose Web page says he masterminded “one of the largest securities frauds of its time” when he was chief financial officer of Crazy Eddie Inc. in the 1980s, says the way to counter market hype is to make it easier to research short- sale ideas and sue fraudsters. And trust me, Antar should know.

“There is nothing worse for a criminal to deal with than an adversary with a profit motive,” he told me in a telephone interview.

Bloggers are doing their part to fill in where the regulators fail, too. Blogger Barry Ritholtz said on June 3, 2008, that it was time to sell Lehman Brothers at $30.61. Less than four months later, and after interminable carrying on by Lehman and others about short sellers telling unfair tales, the firm filed for bankruptcy.

http://www.bloomberg.com/apps/news?pid=20601039&sid=aL7vxobpVgYo

Housing Double-Dip

Voltron says: Second straight drop in California year-over-year sales. Double-dip is happening right on cue. See "the only chart that matters" on the right side of the blog. I like that chart so much because it is not a chart of the past trying to predict the future, it is a chart of what is actually already scheduled to happen in the future (mortgage resets).

http://www.businessinsider.com/california-housing-is-double-dipping-right-now-2010-3

Greece looks in the mirror

Voltron says: During the Greek bond crisis when the government blamed the speculators, it was so trite that I didn't bother blogging about it even though they took the unprecedented step of order their intelligence agency to root out the speculators. Well, they found out who the speculators were. This is too good. I'm not making this up . . . it was themselves . . . state-owned Hellenic Post Bank. They were betting against themselves. That's like Pete Rose betting against the Reds (I'm showing my age).

http://www.zerohedge.com/article/biggest-greek-cds-speculator-has-been-uncovered-culprit-greek-state-controlled-hellenic-post

Wells Fargo's Wachovia Unit Confirms Laundering Settlement

Voltron says: Back in December I posted an entry about how drug cartel money saved the banks. I'm not making this $h!t up.

Excerpt:

Wachovia Bank NA, a unit of Wells Fargo & Co. (WFC), confirmed it will pay $160 million to settle a federal investigation into whether the bank's lax controls enabled Mexican exchange houses to launder drug money.

Voltron says: It seems like the government will only prosecute companies after they fail.

http://online.wsj.com/article/BT-CO-20100317-712770.html?mod=WSJ_latestheadlines

Money Multiplier is negative

Voltron says: The "money multiplier" has gone negative. That is, each additional dollar borrowed and spent by the government actually lowers GDP.



http://economicedge.blogspot.com/2010/03/most-important-chart-of-century.html

Bond volatility is low.

Voltron says: The "MOVE" index is to the bond market what the VIX (volatility index) is to stocks. It measures how much people are willing to pay for "insurance" on bonds. The current level of 80 indicates extreme complacency. The market tends to get "surprised" when it is complacent. It can take a year or two for something to trigger a panic.



http://www.businessinsider.com/the-move-index-bonds-2010-3

Wells Fargo makes stupid loans

Voltron says: Taken from a Wells Fargo ad:

Wells Fargo is one of the few lenders that will refinance a vehicle for more than its current value. That means access to cash over and above the value of the new cash out refinance auto loan. Use the available cash however you choose. For example: holiday expenses, summer landscaping . . .

see for yourself:

http://auto-loans.wellsfargo.com/debt-consolidation/vehicle-cash-out-refinance.html

hat tip to Karl Denninger

60 Minutes on Michael Lewis' new book The Big Short (video)

Hat Tip to Rich:

http://seekingalpha.com/article/193958-michael-lewis-on-wall-street-s-delusion

Voltron says: I'm boycotting the book until I can get it on my amazon kindle.

Wells Fargo sold on strength

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

Voltron says: I bought some 2012 $15 puts. The VIX is low, so options are pretty cheap right now.

http://online.wsj.com/article/SB10001424052748703580904575132081884080788.html?ru=yahoo&mod=yahoo_hs

Former Soviet Union to blame for housing bubble: Greenspan

I can no longer sit back and allow Communist infiltration, Communist indoctrination, Communist subversion and the international Communist conspiracy to sap and impurify all of our precious bodily fluids. (Col Ripper from the Stanley Kubrick film Dr. Strangelove)

Voltron says: Sir Alan Greenspan has become completely disconnected from reality.

The fall of the Soviet Union led to hundreds of millions of workers entering the global marketplace, he said in a paper to be presented to a Brookings Institution conference. This new market-based workforce, Mr. Greenspan said, helped push up growth in the developing world. This in turn fuelled a global savings glut that drove down long-term interest rates, leading to an "unsustainable boom" in house prices, he said.

Voltron says: Wow . . . just . . . . wow

A better approach, he said, would be higher capital buffers. "Capital and liquidity, in my experience, address almost all of the financial regulatory structure shortcomings exposed by the onset of crisis," Mr. Greenspan said. "Adequate capital eliminates the need for an unachievable specificity in regulatory fine-tuning."

Voltron says: Translation: we don't need regulation, we just need cash so we can paper over the fraud.


http://www.financialpost.com/story.html?id=2698103

Stephen Roach, Chairman of Morgan Stanley Asia says "We should take out the baseball bat on Paul Krugman"

More Gems: "America does not have a China problem. America has a savings problem. America has the biggest savings shortfall of any leading country in modern history, When you don't have savings you have to run current account deficits to import surplus savings from abroad and run massive trade deficits to attract the capital... Isn't it the height of hypocrisy that America can articulate a particular position in its currency but the Chinese are not allowed to do that."

Wells Fargo option activity

Excerpt:

It looks like one investor purchased 28,000 put options at the deeply out-of-the-money April $23 strike for a premium of $0.08 per contract . . . the put action could also be the work of extremely bearish players looking to amass profits should Wells Fargo's shares decline substantially ahead of April expiration.

http://www.forbes.com/2010/03/17/owens-corning-markets-wells-fargo.html

Daily Show: In Dodd We Trust

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
In Dodd We Trust
www.thedailyshow.com
Daily Show Full Episodes Political Humor Health Care Reform

Wells Fargo is top mortgage lender

Voltron says: Congratulations to Wells Fargo for being the top mortgage lender for the second year in a row! The title holder for the previous four years was Countrywide which exploded in a spectacular blaze of glory that lit up the night sky. Good luck Wells Fargo!

http://www.thetruthaboutmortgage.com/top-mortgage-lender-in-2009-is-wells-fargo/

DoD provides house put option for military PCS movers

Hat tip to Rich:

if you have PCSed and own a home that's rent doesn't provide positive cash flow military service members are [may be] eligible for the HAP program. You can walk away, and get 90% of the original value back with no credit hit.

http://hap.usace.army.mil/

Voltron says: It also saves your security clearance.

The banks are insolvent

Excerpts:

Home prices have fallen so far in the hardest hit areas, the areas where the bulk of the troubled loans are, that banks would have to write down principal 30 to 50 percent to put borrowers back in the green. Accounting rules require that banks write down the value of those loans on their books, and experts tell me that if banks really accounted for all the losses in the home loan market, they'd all be insolvent.

...housing consultant Howard Glaser: "We're spending tens of billions of dollars on a tax credit to get people to purchase homes, we're spending federal money to keep them in their homes through the modification program, and now we're going to pay them to move out of their homes. This is not a sustainable system for the housing market. It's a shell game. Bernie Madoff could have created this system,"

http://www.cnbc.com/id/35768105/

Flipping and Flopping

The FBI recently added short sale flipping, dubbed "flopping" by some mortgage fraud experts, to its list of recognized real estate fraud.

Voltron says: Flopping relies on the use of "Broker Price Opinions" or BPOs to lowball the short sale price. They can then do a "classic" flip using a typically inflated appraisal.  None of this would be possible if the banks would use rent to establish the value of the house. 

http://www.heraldtribune.com/article/20091115/ARTICLE/911151083

Frank: "second liens have no real economic value"

Excerpt from a letter from Rep Barney Frank (Chairman of the House Financial Services Committee) to the CEOs of Bank of America, JP Morgan Chase, Citigroup and Wells Fargo (emphasis mine):

...holders of second-lien mortgages are now a principal obstacle to many [loan] modifications. The problem of second-lien mortgages standing in the way of successful principal reduction modifications has reached a critical stage and requires immediate attention from your institutions.

Large numbers of these second liens have no real economic value - the first liens are well underwater, and the prospect for any real return on the seconds is negligible. Yet because accounting rules allow holders of these seconds to carry the loans at artificially high values, many refuse to acknowledge the losses and write down the loans, which would allow willing first lien holders to reduce principal and keep borrowers in their homes.

From a proposal from the Mortgage Investors Coalition (never hear of 'em) to Congress:

A systemic program to modify second lien mortgages called 2MP does exist but Treasury has stalled on implementation because the banks that hold them can’t afford it, six buyside investors said. The sources all said implementation of the program, called 2MP, would result in “catastrophic” losses for the nation’s four largest banks

[earlier in the letter...] The four banks in question collectively own more than USD 400bn of the USD 1trn in second lien mortgages outstanding. BofA holds USD 149bn, Citi holds USD 54bn, JP Morgan holds USD 101bn and Wells Fargo holds USD 115bn, according to fourth quarter 2009 10Q filings with the Securities & Exchange Commission.

Voltron says: Wells Fargo's entire market cap is only 153bn and it's book value is about 104bn, so if the 115bn in second liens has "no real economic value", they are pretty much broke.

The current Treasury Dept HAFA program is offering second lien holders only 3% not to exceed $3,000 with 2/3 of that to be paid by the first lien holder and 1/3 paid by the taxpayer. That's peanuts.

http://www.zerohedge.com/article/barney-frank-asks-top-four-banks-write-down-second-lien-mortgages-claims-have-no-economic-va

http://www.ft.com/cms/s/2/0fa0618c-2b0b-11df-93d8-00144feabdc0,dwp_uuid=e8477cc4-c820-11db-b0dc-000b5df10621.html

http://www.calculatedriskblog.com/2010/03/more-short-sales-and-2nd-liens.html

MUST READ: Betting on the Blind Side

Voltron says: Vanity Fair has published a lengthy excerpt from The Big Short, a new book by Michael Lewis (author of "The Blind Side", "Liar's Poker" and "Moneyball") about “a medical resident with only one eye, an awkward social manner, and $145,000 in student loans" named Michael Burry (turns out he's an x-in-law of a friend of mine, KxB) who started his own hedge fund, Scion Capital, in 2001 and by 2005 was the first person to attempt to profit from the demise of the housing bubble through very high powered side bets (Credit Default Swaps on Collateralized Debt Obligations) a full year before anyone else. It's a fascinating human story.

http://www.vanityfair.com/business/features/2010/04/wall-street-excerpt-201004

"unusual cash management arrangements" at GMAC

Excerpt:

GMAC commingled cash flows from multiple bonds in a single custodial account, Moody's said in a statement. This allowed GMAC to use cash from loans in one bond for principal and interest payments on another, it said.

...This could give rise to competing claims in a bankruptcy proceeding, the rater said.

Voltron says: yes, we bailed them out.

http://www.reuters.com/article/idUSN0416567720100304

Like Button

Voltron says: I added a "Like" button to the blog format. I will use the (binary) feedback to tailor future posts and to create a permanent "Voltron's Greatest Hits" section in the sidebar. If you have the time please "Like" your favorite posts from the past as well.

Economists in fantasyland

Voltron says: In my forecast (sidebar) I have been saying for a while that "The economy is fake and is dominated by fraud and criminal activity." What do I mean? I'm sure you remember this exchange from "Back to School"

Thornton Melon: Oh, you left out a bunch of stuff.

Dr. Phillip Barbay: Oh really? Like what for instance?

Thornton Melon: First of all you're going to have to grease the local politicians for the sudden zoning problems that always come up. Then there's the kickbacks to the carpenters, and if you plan on using any cement in this building I'm sure the teamsters would like to have a little chat with ya, and that'll cost ya. Oh and don't forget a little something for the building inspectors. Then there's long term costs such as waste disposal. I don't know if you're familiar with who runs that business but I assure you it's not the boyscouts.

Dr. Phillip Barbay: That will be quite enough, Mr. Melon! Maybe bribes, kickbacks and Mafia payoffs are how YOU do business! But they are NOT part of the legitimate business world! And they are certainly not part of anything I am doing in this class. Do I make myself clear, Mr. Melon!

...now, not withstanding Mr. Mellon's input. The next question for us is where to build our factory?

Thornton Melon: how 'bout fantasyland?

Here's a chart that shows the percent of GDP for different countries that is part of the "underground economy"

Comparison with regular economy

Country	Size of shadow economy in percent of GDP, average over 1990-93[24]
Developing economies
Africa
Nigeria and Egypt	68-76%
Tunisia and Morocco	39-45%
Central and South America
Guatemala, Mexico, Peru and Panama	40-60%
Chile, Costa Rica, Venezuela, Brazil, Paraguay and Colombia	25-35%
Asia
Thailand	70%
Philippines, Sri Lanka and Malaysia	38-50%
Hong Kong and Singapore	13%
Transition economies
Central Europe
Hungary, Bulgaria and Poland	20-28%
Romania, Slovakia and Czech Republic	7-16%
Former Soviet Union
Georgia, Azerbaijan, Ukraine and Belarus	28-43%
Russia, Lithuania, Latvia and Estonia	20-27%
Developed economies
Greece, Italy, Spain, Portugal and Belgium	24-30%
Sweden, Norway, Denmark, Ireland, France, The Netherlands, Germany and Great Britain	13-23%
Japan, United States, Austria and Switzerland	8-10%

Voltron says: What meaning does economic analysis have when, as mainstream economists do, you exclude the "dark matter"? There is a lot of hidden money sloshing around. As I previously reported, During the height of the crisis, banks desperate for cash took in an estimated $352 Billion in illicit drug money. So what "saved" the economy? The stimulus package or the drug money? What happens when it runs out? How will you see it coming?

http://jia.sipa.columbia.edu/pdf/farrell_capstone_final.pdf

Stiglitz, Nobel Prize-Winning Economist, Says Federal Reserve System 'Corrupt'

http://www.huffingtonpost.com/2010/03/03/stiglitz-nobel-prize-winn_n_484943.html

Wells Fargo hush money

Voltron says: Compensation for the top Wells Fargo executives is up 200-300% and is paid in all cash (no company stock).

http://www.invesguard.com/?p=113