Bush: the problem with subprime is there's not enough big government in it!

Bush unveils mortgage proposals:
They would make it easier for borrowers now holding adjustable rate mortgages that are resetting to higher monthly payments to refinance those loans using the resources of the Federal Housing Administration. The FHA is a Depression-era agency created to help low and moderate-income Americans afford homes.

Under the Bush proposal, which FHA officials said would take effect immediately, an estimated 60,000 homeowners who have fallen behind on payments because their mortgages have reset would be able to refinance with FHA-insured loans. That marks a significant change because FHA does not now insure refinanced loans from borrowers who are currently delinquent.

Great. So if private mortgage insurers and private lenders see someone as a bad risk, no problem! We'll just put the risk on the taxpayers! What could possibly go wrong putting government guarantees on loans for people who are already delinquent?

And, as the AP notes, it's going to get a lot worse:
Housing analysts said it was highly likely the limited steps Bush outlined will be expanded in coming weeks by a Democratic-controlled Congress intent on responding to growing voter anxiety as up to 2 million homeowners worry about losing their homes.

I don't think Bush has ever met a problem that more big government couldn't solve.


... and it's a warm, sunny afternoon in Frisco.

See you at Critical Mass!


Thomas Friedman exposed

As this site has said before, Thomas Friedman is a doofus.

We're not as eloquent as this guy, though, who captures the spirit of Friedman exactly.

Larry Craig police interview audio


Just because I know you sick bastards will enjoy hearing him twist in the wind. Don't worry, you'll get your money's worth.

Alan Greenspan destroys marriages

Remember when Alan Greenspan told everyone to go load up on suicidal adjustable-rate mortgages?

Dr. Laura deals with the fallout.

Illegal aliens learn to play the cash-out re-fi game

They want to return to Mexico due to stricter immigration enforcement and a weakening economy. They know their homes are never going to sell in this market. What to do? Cash-out re-fi and stick it to the stupid lender!

Adrian, a 34-year-old undocumented immigrant from Sonora, plans to move back to Mexico as soon as he can sell a 2-acre tract he owns in Tonopah. "Yes, we are desperate to leave the moment I sell my property," said Adrian, who rents a house in Goodyear. He asked that his last name not be used because of his immigration status.

Adrian said his sister also is selling her house with plans to return to Mexico. He knows other undocumented immigrants who are refinancing their houses and getting cash out so they can return right away rather than waiting for their houses to sell.

The lenders, of course, deserve it. They knowingly lent money to borrowers who cannot legally earn any income in this country! What did they expect?

HT: HousingPanic.

Gretchen Morgenson: Master of Puppets to Chucky Schumer

Gretchen Morgenson is a lightweight business reporter at the New York Times. She is high-profile, and the NYT's star business columnist, but that's kind of like being the star knitting columnist at American Rifleman.

Morgenson tries to cultivate a "crusader" image. She takes bold and controversial stands against corporate corruption, greed, and fraud. I wish the NYT would show a little balance by having a pro-corruption columnist.

Despite these bold stands, her columns rarely contain much new information. They are often lukewarm oatmeal rehashes of the blindingly obvious, with a few gossipy details thrown in to spice up the mush. Last week's Countrywide profile was typical. Mortgage lenders are greedy scumbags out to rip off the customers? I'm shocked!

While this may not have been news to anyone with a Fahrenheit I.Q., it was news to New York Senator Chucky Schumer. And, by golly, he's going to do something about it. Right on command, he dances to his master's tune:

Countrywide Financial Corp. should stop paying brokers higher commissions for steering borrowers to adjustable rate subprime home loans, Sen. Charles Schumer, D-N.Y., said Wednesday.

"Startling reports have shed light on how Countrywide has led the industry in the practice of steering borrowers into risky subprime loans," said Schumer, who is chairman of the Senate Housing Subcommittee. Schumer said that as of June 30, approximately one in four of the subprime loans issued by Countrywide was delinquent.

Goldman Sachs: sell your house now before it's too late

They didn't headline it like that, but they did call for a 7% national price decline this year and another 7% decline next year. And they acknowledge that even those declines would leave us on the high side of normal price-to-rent and price-to-income ratios.

I can't give you the whole report, but Calculated Risk has a good summary with excerpts.

While declines of this magnitude are large by historical standards, and certainly larger than recent home buyers were led to believe by their realtors, these declines are miniscule in comparison to the size of the increases that happened on the way up the housing bubble.

I believe that the size and duration of a bubble bears some relation to the magnitude and duration of the wreckage that follows it. And if that's true, mere 7% declines for a mere two years would be an extremely rosy scenario.


America, &*%$ yeah!!!!

U.S. most armed country with 90 guns per 100 people:

The United States has 90 guns for every 100 citizens, making it the most heavily armed society in the world, a report released on Tuesday said.

U.S. citizens own 270 million of the world's 875 million known firearms, according to the Small Arms Survey 2007 by the Geneva-based Graduate Institute of International Studies.

About 4.5 million of the 8 million new guns manufactured worldwide each year are purchased in the United States, it said.

America, I love you, baby. Don't ever change.

For everything else, there's stupid lenders

3-bedroom house with 1981 shag carpet in the middle of nowhere... $200,000.

Cash-out refinancing... $550,000.

Knowing that some dope in a hedge fund somewhere is holding the bag while you sail off to Costa Rica... Priceless.


As in "happy"

Larry Craig: "I am not gay."

He looks like he prefers Cub Scouts

Edwards wants law against Brownies

The World is Flat - and filled with bad writers

Talk about zealot! Thomas L. Friedman is a sensationalist writer who has no need to ever let facts or cause and effect get in the way of his moronic statements. Take for example his Iraq statements: Article

"And thank god the rest of the world's people are not like those nihilistic Iraqis. Now it is clear what went wrong in Iraq. I urged the United States to invade Iraq for a very simple reason: Iraq was run by a bad man. It was very important to eliminate the bad man and replace him with a good person. Maybe even a woman. Or a transgender person. But two things prevented this plan from the success it should have had. First, the Bush administration refused to follow my suggestions. I repeatedly said that we needed a troop surge in Iraq three years ago. And we needed to spend a lot more money. Not just billions of dollars per day. But trillions per day, if that's what it took. You can't expect to build democracy on the cheap. No, democracy is precious. It is what makes us the peaceful, rich nation we are today. Isn't that worth spending a few trillions to protect? I know what nihilistic defeatists will say: We don't have that kind of money. 'It will bankrupt us,' they say. But I say bankruptcy is a small price to pay for prosperity. But now, it is probably too late."

I have a couple of cynical questions to ask which may appear to indicate an opinion but they are only questions.
1. How many dead would there be if we had left Saddam in power? More or less then we have now?
2. How many dead Americans would there be if we had left Saddam in power? And please produce the WMDs before claiming we were at risk.
3. Is it really worth bankrupting the United States of America to pay for prosperity in a desert country? And does that imply that Iraq was the only bad nation in the world? Are the rest just perfect and once we fix this last one we will have created Nirvana?

Thomas Friedman is a sensationalist writer not fit for anyone with close to 3 digit IQs. Of course in his childish world cause and effect are just words. Trillions spent on a small country far away, that's what we need. I wonder which economy pays for his food?

Casey Serin South update

An update on former hot-shot Bakersfield realtor David Crisp:
Missouri-based Chicago Title Company, represented by a Pasadena law firm, is suing David Crisp, his wife Jennifer and Crisp's former real estate company, Crisp & Cole and Associates for more than $160,000.The lawsuit alleges Crisp took out a line of credit on a Central Bakersfield property for more than $149,000 from Wells Fargo bank. But, when he sold the house in November of last year, the line of credit was not paid off at closing. The principal, plus interest and other fees add up to $160, 917.91.In July, Chicago Title paid off Crisp's note in full. Wells Fargo then assigned the note to the title company.
Somehow, I don't think Chicago Title is going to get its money back. Blood from a stone, as they say. Little Davey Crisp appears to have a negative net worth in the 7- or 8-figure range.

I'll bet those dopes at Countrywide will still give him a loan, though.


Master of the Obvious

Former Treasury Secretary Larry Summers: US could be heading for recession.

Dems propose dropping nuclear bomb on real estate industry

I like it.

Tax deduction under fire for 'McMansions':
To add to the mortgage meltdown miseries, the credit panic, the plunging home sales and the rising foreclosures, here's a new worry: a proposed cutoff of mortgage-interest tax deductions for houses with more than 3,000 square feet.

One of Capitol Hill's most experienced and most powerful legislators is drafting a "carbon tax" bill that would do precisely that. The chairman of the House Energy and Commerce Committee, John D. Dingell (D-Mich.), expects to introduce comprehensive climate-change legislation when Congress returns next month.

Besides imposing hefty new federal taxes on gasoline, the forthcoming bill would, in Dingell's words, seek to "remove the mortgage interest deduction on McMansions -- homes over 3,000 square feet." Dingell said he recognizes that such a proposal will spark much criticism, but he also said it is essential to reducing carbon emissions by 60 percent to 80 percent by 2050.

It's certainly fair. Why should taxpayers subsidize excess consumption by the affluent?

Of course, it would destroy the real estate industry as it crushes prices for 3000+ square foot homes and has follow-on effects on smaller homes. This would restore some much-needed sanity to real estate prices.

Democrats could absolutely forget about ever again getting donations from the real estate, mortgage, home-building, and home furnishings industries.

I'm starting to like these Democrats. A new direction for America indeed!


Now that's what I call a sticky situation

Today I thought it would be a good idea to go catch a matinee show, and didn't think much about going by myself to see "I Now Pronounce You Chuck and Larry." That is, until the only other lone-attending male decided to come sit right next to me.

I just can't believe I fell for the old penis-in-the popcorn trick.

Your American public schools at work

HT: Ace of Spades.

Fun with Google

Google "orange midget" and you get this.

Curiously, while the top link is a CNBC news story on Countrywide, it doesn't contain the words "orange midget" or even the name "Angelo Mozilo."

New York Times jumps on anti-Countrywide bandwagon

We knew they were stupid and made ridiculous loans that were certain to default. The New York Times (free registration required) tells us they were also evil and screwed their customers.
[P]otential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.

Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.


“In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.”


[Orange midget Angelo] Mozilo has ridden this remarkable wave to immense riches, thanks to generous annual stock option grants. Rarely a buyer of Countrywide shares — he has not bought a share since 1987, according to Securities and Exchange Commission filings — he has been a huge seller in recent years. Since the company listed its shares on the New York Stock Exchange in 1984, he has reaped $406 million selling Countrywide stock.

As the subprime mortgage debacle began to unfold this year, Mr. Mozilo’s selling accelerated. Filings show that he made $129 million from stock sales during the last 12 months, or almost one-third of the entire amount he has reaped over the last 23 years.
Their commission structure rewarded brokers for putting borrowers into subprime loans, or loans with huge prepayment penalties, etc., even when borrowers qualified for better terms. They gave loans to borrowers that would leave them little money for food in the monthly budget. Even borrowers who got reasonable loans got raped with multiple documentation, appraisal, and other fees, all much higher than industry averages. It goes on and on. It's a huge, five-page article.

There's not much here that will surprise followers of the mortgage industry, but such a prominent and negative story may start to change Countrywide's "best in the industry" and "too big to fail" public image. Enron and WorldCom were pretty big, too, but no one shed a tear for them.


Badly designed rhetorical questions

I just listened to baseball Hall-of-Famer-turned-broadcaster Ralph Kiner stumble his way through a couple barely coherent innings as a guest on Fox's telecast of the Mets game. Among his greatest hits:

"Tell me, how many guys can you think of, Tim, that are the greatest base stealer of all time, and also the greatest leadoff hitter of all time?"



Bill Gross, you are Put On Notice!

I used to respect this guy, and some people still do, but he's really jumped the shark this time.

Bill Gross calls for a massive government bailout of housing speculators:
If we can bail out Chrysler, why can’t we support the American homeowner? ... Write some checks, bail ‘em out, prevent a destructive housing deflation that Ben Bernanke is unable to do. After all “W”, you’re “the Decider,” aren’t you?

Brilliant. Reward the mortgage fraudsters and housing speculators, and punish those who responsibly saved and didn't buy houses they couldn't afford. Use the tax money of the responsible to bail out the speculators, re-inflate the housing bubble, and assure that those who don't own a house now will never be able to afford one.

Bill Gross, you are Put On Notice!


The Wall Street Journal's decline continues

A letter to the editor:

Dear Sirs:

I read today's BreakingViews article "BofA's Countrywide Gamble" on wsj.com.

I understand the cost-driven need to bring third-party content into the Journal, but this sort of mindless commentary is beneath the standard set by the Journal's proud heritage.

It is naive to believe that BofA is not hedging this transaction via short sales, swaps, or options.

If they hedge it, it's a free half billion dollars, with the added bonus of the interest rate spread between the 7.25% they receive on the preferred and the 3% they'd pay shorting the common.

Unhedged, it's a huge gamble.

If BofA did not hedge this, they are almost criminally negligent with shareholder funds, passing up a free-money, riskless-arbitrage deal for a riverboat gamble.

The credulous reporting of BofA's extortionate terms as a vote of confidence in Countrywide demeans the stature of the Wall Street Journal.


W.C. Varones

Cleveland rocks

This one's for IPFreely, a long-time reader and occasional commenter, who is an escapee from Cleveland:

The Fraud that Ate Cleveland

CFC trade

I'm closing last night's after-hours short here at $24 for a 2 point gain. Still short the lot I had open from $29.



You may recall that on July 26, I posted Harbinger of Doom, wherein a skunk visited the Varones estate to warn of trouble to come. Countrywide subsequently plummeted from $27 to $19 before rebounding to today's close just under $22.

Tonight, we have news of a savior for Countrywide: a $2 billion preferred equity investment from Bank of America. A match made in heaven? Fortune suggests not: the Varones estate tonight witnessed skunks having sex.

I hate to be the one to spoil a love story, but let's look at this from Bank of America's perspective. For the sake of argument, let's assume that someone at B of A knows something about finance.

You have a perpetual $2 billion 7.25% money machine and a call option at $18. You're sitting pretty, as long as CFC doesn't go below $18 heading toward bankruptcy. What on earth do you do?

If CFC opens where it's trading in the after-hours, around $26, you short 111 million shares, locking in a gain of $8 times 111 million shares = $888 million. Meanwhile, you're still earning your outrageous 7.25% on the preferred while paying less than 3% on the short common (and that's assuming the dividend doesn't get cut -- a big if!!!). Even if the stock trades down and B of A can only short in the low 20's, it's still hundreds of millions in free money!!!

The skunks have spoken.

UPDATE 8/23/07 10:42 am: CFC has now traded 113 million shares above $22. If B of A is not taking advantage of this volume to short, they are STEW PUD. If the shares are not available to borrow, they can accomplish the same thing by swap agreement or options.

You pays your money and you takes your chances

I just shorted more Countrywide at 25.95 in the after hours on the news that B of A is making a $2 billion preferred stock investment.

Yes, it helps the short-term liquidity situation, but the terms are extortionate. A 7.25% coupon, leaving CFC no profit margin on its mortgages (what are they going to do, start writing prime mortgages at 8%?), and an $18 conversion price. That's what's known as "dilutive." Bank of America borrows from the Fed's new free money program, and pockets the difference and a free call option with an $18 strike! I don't see how that's good for the existing stockholders.

I could be wrong.

Conversations with Countrywide

I stopped at the Countrywide office this morning a few minutes before it opened. I got out my camera and started taking pictures through the front window into the lobby.

A thirty-ish Countrywide employee on her way into the office approached hostilely.

Hostile Countrywide employee: “May I help you?”

Me: “No thanks, just taking pictures.”

Hostile Countrywide employee: “Of WHAT?”

Me: “That ‘No Cash in Office’ sign. It’s kind of funny, you know, ‘cause they’re going bankrupt.”

Hostile Countrywide employee: “It’s not going bankrupt. I work here.”

Me: “Sorry to hear that.”

In retrospect, it would have been even funnier if I’d used the line suggested by co-blogger Negocios Loucos: “I’m with CB Commercial and we’re going to be leasing this place out. Just taking a few pictures.”

That's an understatement!


Niche marketing

Paolo on Fillmore Street. For bald chicks who want to put boots on their heads.

Bakersfield baron takes England by storm

We've been following the story of Bakersfield's David Crisp, a busboy-turned-real-estate-magnate who's run into a little trouble recently: IRS tax liens, dozens of employees laid off, properties in foreclosure, etc.

So it's nice to see that troubled David Crisp still takes the time to get away for a European holiday:
Drunk David Crisp, 32, barricaded himself inside a bank after a Barclays cash machine swallowed his card. A judge in Portsmouth gave him a suspended sentence

A deeply philosophical legal question

I could ask Old Zeke about this if he'd ever attended class instead of playing poker through law school:

Can a short-seller join a class-action shareholder suit?

Lerach Files Class Action Suit Against Countrywide Financial Corporation:
[Lerach Coughlin] today announced that a class action has been commenced in the United States District Court for the Central District of California on behalf of purchasers of Countrywide Financial Corporation common stock during the period between January 31, 2006 and August 9, 2007.
Hey, I was a purchaser of CFC during that period... FOUR TIMES!!! I bought at $41 and $39 in February, at $37 in June and at $25 in August. And all because that big meany (well, OK, little orange meany) Angelo Mozilo kept saying everything was OK.

It doesn't matter that my purchases were all short covers, does it? I'm still out the additional money I should have made if I'd left all those shorts open.

By the way, yes, it is THAT Lerach, the strike suit king who is still under a cloud of suspicion for activities at his prior (indicted) firm, Milberg Weiss.


Next time, get her a vibrator

An Australian woman was killed by a pet camel given to her as a 60th birthday present after the animal apparently tried to have sex with her, police have said.


The woman was given the camel in March as a birthday present from her husband and daughter. "She had a love of exotic pets," Mr Gregory said.

Whoops, keep feeding her pork rinds after all

As it turns out, your wife's weight loss might mean she's developing Alzheimer's.

UC corruption scandal update

Last year, we told you about the University of California scandal, where fatcat administrators handed themselves and others millions in undisclosed, and apparently illegal, perks and pay. The scandal-tainted UC Santa Cruz chancellor even jumped off of a high-rise.

The capo di tutti capi, however, is not making such an honorable exit. UC President Robert Dynes, who was at the helm during this scandal, is getting a perks and pay package of his own.

The Chronic's Matier and Ross report:

Goodie No. 1: A year off with pay.

Dynes, 64, says he plans to return to teaching physics - presumably at UC San Diego, where he used to be a professor and chancellor and where his new wife works as a lawyer.

Under his contract, if Dynes does go back to the classroom, first he will be entitled to a full year's paid leave to brush up on his studies. UC spokesman Brad Hayward said Dynes plans to take the leave, during which he will be paid his $405,000 president's salary.

Goodie No. 2: Now that he has to vacate the UC-provided president's mansion in Kensington, Dynes - like all senior administrators - is eligible for a low-interest home loan to help him relocate. Hayward said it's uncertain whether Dynes will take advantage of the benefit.

Finally, there's the pension.

When Dynes chooses to retire completely from academic life, his pension will be based on a percentage of the average of his last highest-earning years. That would include his time as president.

Upshot: Calculations show that if he were to stop working next June, he could either cash out for $1.6 million or get $145,524 a year in retirement pay.

Not bad. Kenneth Lay got prosecuted, and Robert Dynes gets a massive golden parachute. "Public service" is not so bad, huh?


Science catches up to W.C. Varones blog

In March, we told you that ethanol will destroy the environment.

Now, NewScientist Magazine reports: Forget biofuels - burn oil and plant forests instead.
It sounds counterintuitive, but burning oil and planting forests to compensate is more environmentally friendly than burning biofuel. So say scientists who have calculated the difference in net emissions between using land to produce biofuel and the alternative: fuelling cars with gasoline and replanting forests on the land instead.


Barron's on the mortgage mess

It was all a big scam to unload garbage loans on stupid foreigners. Randall Forsyth explains:

How did this all come about? A (bearish) hedge-fund operator, in a letter to his investors, describes how a senior Wall Street marketing director recounted the genesis of the current situation:

"'Real money' (U.S. insurance companies, pension funds, etc.) accounts had stopped purchasing mezzanine tranches of U.S. subprime debt in late 2003 and [Wall Street] needed a mechanism that could enable them to 'mark up' these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!!

"He told me with a straight face that these CDOs were the only way to get rid of the riskiest tranches of subprime debt. Interestingly enough, these buyers (mainland Chinese banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, U.K. banks) possess the 'excess' pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the U.S. in U.S. dollars, 2) petrodollar recyclers. These two pools of excess capital are U.S. dollar-denominated and have had a virtually insatiable demand for U.S. dollar-denominated debt... until now."

These investors then had standing orders on Wall Street desks for any U.S. debt rated triple-A. Through the "alchemy of CDOs" and "the help of the ratings agencies," the CDO managers collected triple-B and triple-B-minus subprime and repackaged them so the top tier got paid out first. Then leverage the lower mezzanine tranches by 10-20 times and, "POOF... you magically have 80% of the structure rated 'AAA' by the ratings agencies, despite the underlying collateral being a collection of BBB and BBB- rated assets."

The letter concludes: "This will go down as one of the biggest financial illusions the world has EVER seen."

Top of your Netflix queue

Maxed Out, a documentary on consumer and national debt.

Summary: credit card companies are evil, consumers are stupid, politicians are corrupt, the national debt is a ticking time bomb, and we are all doomed.

Not a thing I disagree with there. And it sheds a new light on the current mortgage industry troubles. The financial companies are getting exactly what they deserve. Too bad the executives like orange midget Angelo Mozilo will walk away with hundreds of millions even if the companies go under.

Morning commute

Commuting really sucks, huh?


Nothin' like a good old-fashioned run on the bank

At Countrywide, none the less:

Down the street from the corporate headquarters in Calabasas, deposit holders besieged a Countrywide retail branch yesterday morning. The outlet had only one banking representative and one mortgage officer on hand, and they compiled a waiting list to handle the heavy flow of clients anxious about the security of their certificates of deposit, savings and checking accounts.

Although the FDIC guarantees deposits at Countrywide up to a limit of about $100,000, Leilani Tedeski rushed in from neighboring Woodland Hills to withdraw a $20,000 CD that matured earlier in the week. Until a few days ago, "I was thinking I would roll it over. But I am managing this for my parents, and I want to move it somewhere where I know it will be safe," Ms. Tedeski said.

She said that she has other Countrywide CDs that haven't matured, and she inquired about early withdrawal penalties. The Countrywide officer who attended to Ms. Tedeski sought to reassure her about the company's financial health and the federal insurance that applied to her deposits. Still, she said, "I will have to think about the risks of keeping the CDs," she says.

The majority of customers who camped out in the Countrywide branch were senior citizens worried about their retirement nest eggs. One man who declined to identify himself said he had just withdrawn all his deposits in Countrywide checking and savings accounts.

Interesting that this is happening in the hometown of Countrywide's headquarters. Think people in the community are seeing or hearing things from Countrywide's corporate insiders? Eh, maybe it's just that Countrywide's troubles are getting big play in the local news.


On a different note, as many of you may be aware, craigslist.org or .com is a GREAT free classifieds website started in SF and pretty much present around the world now. When accessing the site DO NOT forget the ‘s’ in craigslist. Especially those of you who work for institutions that actively track your websites.

Or maybe forget the ‘s’ and enjoy. Who am I to judge……

20% and 3x income HOUSE?

This is what you'll get

Mr. Varones, W.C., are you suggesting the average Bay Area resident move to West Oakland?

In other news, Happy Bouncy Day everyone. Yesterday we hit bottom. It's only up from here.......good luck.


Liquidity? I think not.

We keep hearing from the interested parties that this is just a short-term liquidity problem. That the market is temporarily too freaked out about mortgages.

Wrong. This is a bad loan problem. Countrywide and others made no-doc, no-down, cash-back, inflated-appraisal loans to people who had absolutely no chance of paying them back. This will not go away when "liquidity" returns to the market. It will go away when people start putting 20% down and buying houses for 3x income again.


Schwab's site has been down for about an hour. Good thing nothing's happening in the market today.

UPDATE: Here's the explanation: Schwab lawyers cite brain disorder.

Free Google 411

Yes, it's from the Evil Empire. But it beats paying Verizon 50 cents or a buck for every 411 call.

Google 411.

Thanks to Tex for the heads up.


Where have all the conservatives gone?

Republican and self-proclaimed "conservative" Larry Kudlow calls for a massive government bailout of the entire mortgage industry.

Milton Friedman is spinning in his grave.


How do you make money lending at 6% or 8% when your borrowing costs are 12.54%?

Ask the orange midget:

...dealers in the commercial paper market are currently quoting Countrywide Financial's 30-day commercial paper at a yield of 12.54%--this for a company that was borrowing in that same market at 15 basis points over the London
interbank rate, currently around 6%....

Back on Aug. 2, Countrywide said it has experienced no disruption in fiancing ongoing operations, inlcluding placement of commercial paper.

I'm starting to think bankruptcy is becoming pretty likely. If they can't use commercial paper, how do they get funding to make loans? Theoretically, they still have bank commitments, but that money is going to run out or the banks will find a way to cut them off. If S&P or Moody's wakes up and declares CFC no longer investment grade, that should be the death knell. Want to bet Mozilo is begging the rating agencies on a daily basis not to downgrade him?

UPDATE: or maybe not.

In case you were wondering

Yes, I'm enjoying Countrywide today.


Nappy-headed ho sues Imus

Here's the story.

I thought libel required some actual damages, or at least that people might actually believe the defamatory statements. This nappy-headed ho is claiming that reasonable people might mistake her for a garden tool with diapers on her head?

Sad. She's gone from being a celebrated college athlete to a lottery ticket lawsuit queen. What Imus said was stupid and racist. But we still have a First Amendment in this country, and calling someone a “nappy-headed ho” in a comedic context still falls well within its purview.

The hits just keep coming

Man, this is beautiful. Countrywide didn't just make bad loans to real estate speculators; they also made bad loans to other bad lenders:
In court papers, Aegis listed more than $100 million of assets, and estimated it owes more than $600 million to creditors. The latter included $178 million of unsecured debt owed to Madeleine LLC, a Cerberus affiliate that has an 80.9 percent equity stake, the papers show....

According to the bankruptcy filing, Aegis' largest unsecured creditors included affiliates of Morgan Stanley and Countrywide Financial Corp, among others.

Closing the barn door after the horse is gone

Months after discovering that making no-doc, cash-back, inflated-appraisal loans to unemployed 24-year-olds might be a bad idea, Countrywide tightens lending standards.

How tight? Well, not so tight. Borrowers in the three worst bubble markets in the country will now have to put 5% down.


Weekend gloom & doom

Even if you don't share his ultra-bearish conclusions, Denninger's latest is an excellent synopsis of where we are and how we got here. Ignore it at your peril.

Fortuitous timing

Just as new owner Rupert Murdoch wants to make the Wall Street Journal a little flashier, colorful Countrywide CEO Angelo Mozilo makes the front page.

Story here.

A tale of vigilante justice in Africa

HT: Ang.


Every bubble has its villains

"Nouveau Riche" was late to the real estate bubble, but they're still finding plenty of suckers to pay big fees getting deep into debt on bad real estate investments.

Welcome to the club

I've been saying for years that Alan Greenspan was a horrible Fed chief, a serial-bubble-creator whose coup de grace was the greatest financial bubble in the history of the world, the housing bubble. And he's left his successors to clean up the mess.

Now some in the mainstream media are starting to agree. Reuters:

During his 18 years at the central bank, Greenspan unleashed the greatest credit boom in recent memory, bringing interest rates to their lowest levels in a generation.

The result was an unprecedented lending bonanza that saw risk spreads narrow to all-time lows and sent investors far and wide in search for the highest possible returns.

"Years and years of easy monetary policy under Greenspan created a tremendous amount of excess liquidity, which caused a total mispricing of risk," said Frank Hsu, director of global fixed-income at Fimat. "Now we're getting payback."


Countrywide is like a box of chocolates

I haven't read it yet, but judging by the after-hours market action, there's a steamy dump in CFC's 10-Q.

UPDATE: Maybe this?

Item 1A. Risk Factors
Item 1A of our 2006 Annual Report presents risk factors that may impact the Company’s future results. Inlight of recent developments in the mortgage, housing and secondary markets, those risk factors are supplemented by the following risk factor:

Debt and secondary mortgage market conditions could have a material adverse impact on our earnings and financial condition. We have significant financing needs that we meet through the capital markets, including the debt and secondary mortgage markets. These markets are currently experiencing unprecedented disruptions, which could have an adverse impact on the Company’s earnings and financial condition, particularly in the short term.

Current conditions in the debt markets include reduced liquidity and increased credit risk premiums for certain market participants. These conditions, which increase the cost and reduce the availability of debt, may continue or worsen in the future. The Company attempts to mitigate the impact of debt market disruptions by obtaining adequate committed and uncommitted facilities from a variety of reliable sources. There can be no assurance, however, that the Company will be successful in these efforts, that such facilities will be adequate or that the cost of debt will allow us to operate at profitable levels. The Company’s cost of debt is also dependent on its maintaining investment-grade credit ratings. Since the Company is highly dependent on the availability of credit to finance its operations, disruptions in the debt markets or a reduction in our credit ratings, could have an adverse impact on our earnings and financial condition, particularly in the short term.

I read that as, "If we get downgraded, we're toast."

Is there anybody other than Moody's and S & P that still believes Countrywide is an investment grade company?



Please can we update the dictionaries so they catch up with our political talking heads so that the definition of contained represents what they really mean.

Pre-Political definition:

American Heritage Dictionary

con·tain (kən-tān') Pronunciation Key
tr.v. con·tained, con·tain·ing, con·tains


a. To have within; hold.

b. To be capable of holding.

c. To hold or keep within limits; restrain: I could hardly contain my curiosity.

d. To halt the spread or development of; check: Science sought an effective method of containing the disease.

2. To have as component parts; include or comprise: The album contains many memorable songs.


a. To hold or keep within limits; restrain: I could hardly contain my curiosity.

b. To halt the spread or development of; check: Science sought an effective method of containing the disease.

4. To check the expansion or influence of (a hostile power or ideology) by containment.

5. Mathematics To be exactly divisible by.

NEW Definition:

American Loucos Dictionary

con·tain (kən-tān') Pronunciation Key
tr.v. con·tained, con·tain·ing, con·tains


a. To be acknowledged as existing

b. To be present

c. To realize that such is; The subprime problems are contained.

Mais pourquoi, mais pourquoi

So a French Bank suspends redemptions because they can’t value the Mortgage Backed Securities. Interesting.

Pardon monsieur investor, but your account balance is, how do you say, je ne c’est qua.

And Cramer, who apparently is an actor to provide quality entertainment for CNBC, stated that all of the mortgage companies could go bankrupt, the housing companies could go bankrupt but it would not impact our economy. REALLY? And the fact that every single time in HISTORY that we have had a housing downturn it was followed by a recession has no bearing here?

Cramer is a manic depressive and on days he is going to be on the air they take him off the lithium. "We’re ALL DEAD", "the market is fine", "ONLY THE FED CAN SAVE US", "housing really doesn’t matter". I just think ethically speaking we shouldn’t be taking advantage of Cramer’s mental and sometimes physical conditions for our own entertainment. What a clown.

We are not ze stupeed ones!

French bank BNP Paribas is freezing three troubled ABS hedge funds.

BNP Paribas, the second biggest bank by market capitalization in the euro zone, said the subprime crisis was preventing it from calculating the value of the asset-backed securities funds and barred investors from redeeming cash from them.

"The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly, regardless of their quality or credit rating," it said.

"In order to protect the interests and ensure the equal treatment of our investors during these exceptional times, BNP Paribas Investment Partners has decided to
temporarily suspend the calculation of the net asset value as well as subscriptions/redemptions, in strict compliance with regulations, for these
funds," it added.

Translation: we took your money and invested it in ridiculous no-doc, no-down, cash-back, stated-income, inflated-appraisal mortgages. Now the market says your money is gone. But the market is stupid, and we are smart. If we just refuse to show you your account statement with a big donut on it, everything will be better next month.

Bonus related items: here's what a good hedge fund tells its investors (thanks to Lee Distad), and here's where Bushie tells Fannie and Freddie to pound sand.


Back to the crack pipe

You probably knew I couldn't leave it for long. We got the bounce I feared in CFC and the other garbage stocks, so I'm putting the short back on. 29.12 in the after hours.

If orange midget Angelo Mozilo is still dumping this stock at 28.06, who am I to not short it at 29.12?


Bloodbath in paradise

Great post from Florida's Mike Morgan, a realtor who sees Florida's troubles as a sign of things to come for the rest of us.

Better to be lucky than good

We got lucky with the timing on that CFC short cover yesterday. The stock's up 3 points since then.

The big news is this, that regulators may relax restrictions on Fannie Mae and Freddie Mac, allowing them to swoop in and buy huge quantities of mortgages at fire sale prices. There would suddenly be a big buyer where there has been no buyer. This could be the bottom in the mortgage-backed market.

I'm out of all shorts and fully invested in foreign and domestic stocks and commodities.

Thought for the day

"All bicycles weigh fifty pounds. A thirty-pound bicycle needs a twenty-pound lock. A forty-pound bicycle needs a ten-pound lock. A fifty-pound bicycle doesn't need a lock."

- Author unknown

Top 55 housing blogs

Dr. Housing Bubble has posted a list of tht 55 best housing bubble resources.

And, lookie, lookie!!! Little ol' W.C. Varones is among them!


Cramer on housing, November 2006

Thanks to HousingPanic.

Covering CFC

I'm covering the Countrywide short here at 25.39. Sentiment has gotten so negative that I'm worried that any marginal positive news could cause a big short squeeze. I may be leaving a lot of money on the table, but 16 points in three months isn't bad.


Like minds

I've been struggling to reconcile my market view (stocks up) with my economic view (mortgage/housing/consumer Holocaust).

Yesterday's Barron's brings an interview with someone who shares my views and explains it better than I could, David Richards, retired portfolio manager from Cap Research ($).


For the first time since [...] 2000, I have no shorts. I believe the growth potential of the international economy and the potential for higher rates of inflation are not fully appreciated in the current valuations of stocks and bonds.


What gets overlooked are two major developments that have occurred in the last 10 to 15 years, but really got going in the last five or six years: One, the whole world has adopted the notion that market-economy-oriented policies are correct [...] There are 3.5 billion people from Eastern Europe to the Pacific and from the Indian Ocean to the Arctic that were living under socialism or communism, where it was not possible to trade and not possible for entrepreneurs to get rich -- and they have been transformed. [And two,] there has been a total collapse in the cost of communication and computation.


The logic says subprime goes down so consumer spending goes down [...] therefore consumption is going to go down or slow down, and it is going to affect the rest of the world. That's wrong. The U.S. is as most 25% of the global economy. The housing area at the peak was about 6% of U.S. gross domestic product. It can drop by half. It is insignificant in terms of the global growth of the economy.
Grab a copy from your local library and read the whole thing. Bottom line: the U.S. consumer is screwed, but the global economy doesn't depend on the U.S. as much as it did in the past. Buy global stocks and commodities.

Jerry Day 2007

The sun didn't make its promised appearance this afternoon; it remained gray and misty at the Jerry Garcia Amphitheatre in McLaren Park (Not familiar with it? That's because it's in the Excelsior district, where you'd never go unless you lived there).

Melvin Seals was awesome as expected. Here he accepts a Red Bull from a young fan:

But the real surprise was this guy, Stu Allen from Kentucky, who not only plays like Jerry, but has Jerry's voice, too:

Allen's other band, Workingman's Ed, played the Dead reportoire before Melvin & JGB came on, and they were amazing. Close your eyes and you'll think you were transported back 15 years and at a Dead show.

I'm having trouble with my videos due to YouTube file size restrictions, but here's a short one of Melvin.



Thanks to the miracle of really stupid lending, Countrywide Financial is rapidly morphing from a mortgage lender to a residential real estate investment trust.

CFC now has $2.1 billion in foreclosed houses for sale. That's getting up there near the nation's largest home builders, whose business is to sell houses. They each carry $5 - $10 billion in inventory.

Will CFC surpass the home builders to become the nation's largest residential real estate owner? Time will tell -- if CFC can stay liquid that long.

Time to let the twins out, ladies

Sunshine helps in the fight against breast cancer

Jerry Day tomorrow

See you there! Melvin Seals rocks.

Must have been a jumbo loan

A mortgage default in the U.S. affects Canadian markets

Your Black Muslim Child-Molesting Store-Vandalizing Journalist-Murdering Bakery

Your Black Muslim Bakery, a long-time Bay Area institution, is now connected to the murder of a journalist who was investigating the bakery:
When police raided Your Black Muslim Bakery and three homes, and arrested seven people Friday on suspected involvement in three homicides, including Thursday's slaying of Oakland Post Editor Chauncey Bailey, it was the latest chapter in a history of violence and arrests that have been linked to the longtime Oakland group. ...

Your Black Muslim Bakery - well-known in the Bay Area for its peach pies, carrot cakes and ginger-snap cookies - was founded in 1968 by Yusuf Bey, who was arrested in 2002 and charged with forcing an underage girl to have sex in the mid-1970s. At the time of his death from cancer in 2003, Bey was facing trial in that case and allegations from other women who said Bey had abused them for years when they were girls.

Since Bey's death, his successors at the bakery have been charged with a series of crimes. In 2005, a group of men from Your Black Muslim Bakery, including Yusuf Bey IV, a son of the founder, was arrested on suspicion of vandalizing two Oakland liquor stores and threatening the owners for selling alcohol to African Americans. In 2006, the younger Bey, who by then had become a leader of Your Black Muslim Bakery, was arrested and accused of running over a bouncer with his car in San Francisco.

I never went in there. The place always seemed to have an angry vibe. But I was more worried about the old loogie-in-the-pastrie trick than murder.


Where's CalPERS?

In June I noted that CalPERS was stupidly buying the riskiest tranches of asset-backed investments, so-called "toxic waste" CDOs. The idiots at CalPERS were swindled by banks like Bear Stearns and Citigroup, which wanted to get the toxic waste off their own books as quickly as possible.

With even the highest tranches now taking huge losses, the CalPERS toxic waste is probably nearly, if not totally, worthless.

So where is CalPERS spokesman Clark McKinley? No apologies to the employees whose retirement funds were squandered? No plans to sue the pants off of the banks? Step up, McKinley.


On the day when Wells Fargo raised mortgage rates to 8%, as mortgage lenders are collapsing left and right, and ahead of millions of mortgage rate resets, OMB Director Rob Portman just said that housing "does appear to have bottomed out now."

Heckuva job, Portie!

Blood in the streets

You've gotta watch this video of Cramer freaking out. He says if the Fed doesn't cut, it's the end of the world. He starts screaming about 2 minutes in.


Iran is awesome

The glorious nation of Iran recently unveiled the world's biggest carpet, and, surprisingly enough, it wasn't on the back of a large Iranian woman.

Beat that stock like it owes you money

Huge premiums in out-of-the-money August puts on CFC today. Big volumes too. Somebody thinks something bad is going to happen. Aug 20s were going for $1.90 at one point, meaning somebody's betting the stock will be below 18 within two weeks! I got 2.30 for Aug 22.50s and then bought them back a half hour later for 1.45. The stock had moved less than the way-out-of-the-money options, a very unusual circumstance.


Trouble ahead, lady in red

The mortgage thing continues to get uglier. Mortgage lenders blow up left and right. Hedge funds are imploding with increasing frequency. Jim Cramer advises homeowners to default on their mortgages (as I've said they would/should do again and again and again).

Two of the smartest people I know have sold all stocks (ahead of the recent downturn) and are sitting entirely in cash.

Consumer confidence is still strong. The consumer doesn't see the train wreck all around him.

This will hit the consumer. As I've said before, we're in the greatest asset bubble in the history of the world, and the bursting won't be painless.

Why am I still long stocks? Maybe the Fed will turn on the fire hose. Foreign and domestic stocks and gold will be where you want to be then, not in bonds and cash. Alternatively, maybe the Fed does its job, breaks the back of inflation, and we have a nasty recession. Another 10% or 20% downside is possible, but I'll take my chances. And foreign stocks could hold up relatively well even in an ugly US economy, at least in dollar terms.

I could be wrong. It's happened before. For an alternative view of the likely outcome, see Market Ticker.

Happy Super Tuesday!