Posted on 11/05/2007 6:17:03 AM PST by Diana in Wisconsin
That’s not just catching a falling knife, that’s jumping if front of a spear.
It’s easier to sell unsecured notes backed by borrowers with good credit ratings right now than to sell asset-backed-securities (e.g. mortgages that can foreclose on actual properties like houses and office complexes)...which is a pretty good indication that we are in the final flushing-out stage (which involves heavy liquidations).
By the end of next year real estate will be stable or rising, however.
Please add me to your ping list.
Now it looks like the banks took all their extra money and turned around and bought parts of all the loans that they were supposedly selling to others.
So in what universe did they decide they were somehow limiting their risk?
Why didn't they just keep the loans they made and collect the interest directly?
Maybe it wasn't such a good idea to let every type of financial institution perform every type of financial transaction. There seem to be so many conflicts of interest that rather than freeing up the market to encourage efficiencies and lower prices, all we did was encourage bribery, corruption, and theft.
Paper losses are REAL losses ,, I used to be a stockbroker ,,, my brother-in-law started working at HoneDepot back in the early 1980’s and had accumulated 15,500 shares by the late 90’s , mostly through splits ,, he had a NAV of $1.2M and now after over 20 years he is still just a lot boy and loader,, when I went into the local HD in 3Q 98 or 99 (don’t remember) and saw they were throwing a 10% off everything in the store sale for the first time ever I screamed at him to sell everything in his 401K and go into anything else... the idiot refused citing loyalty to the company ,, as if that has any bearing on the direction they take.. of course HD crashed after that as the sale was a warning that they were going to miss BIG on their numbers , knocked him down to about 450-550K ,, then 09/11/01 happened and killed whatever appreciation he had between 99 and 09/2001 ,,, after a few more mistakes he is at about 300K...
Paper losses are real BELIEVE IT ,, he could have quit , sold his HD and invested the 1.2m at 7% and had a nice income while he sucked down pina coladas on a beach,, instead he is still pushing carts back into the store and loading heavy bags of cement into customers pickup trucks.
If you insist on reiterating that paper losses are somehow less real then I suggest you load up on PMI RDN C MTG WM UBS MER and GS , after all they are way down due to “paper losses” and in your world not realizing or acknowledging a loss makes it all A-OK ,, I’m sure some of them will avoid bankruptcy.
P.S. Your too late ,, I threw that 100 at a waitress after taking the family out to dinner just now.
Uh, increases in the valuation of our homes has never been a part of our GDP, which is a measurement of the goods and services PRODUCED by us.
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Not Quite Right....
If you were to back out economic activity supported by Home Equity withdrawals the US GDP would have been FLAT over the last 5 years or so ... with home values retreating that piggy bank has run dry and people are having to shell out more for everything with fuel prices ,, the doubling of credit card minimums and (in my case ) the state is demanding more and more in property taxes to make up for slowdowns in other collected taxes ... People are being squeezed 9 ways to Sunday.. now although that “economic activity” is part of the GDP ,, it isn’t that people WANT to spend more ,, they are going to have less for non-essentials and margins on all consumer items will tighten,, near luxury goods should be hardest hit, true luxury items will be ok,, commodity items (sacks of rice ,, etc. etc.) will be hit a small amount.
I’m not being negative ,, I’ve always found that being honest makes for the least problems in life ,, fooling yourself doesn’t change reality... I just bought 4 pieces of rental property in a country whose economy is “primitive/agricultural” (lots of european retirees with fat retirement checks in euro’s and aussie dollars) and isn’t greatly affected by energy prices, their currency similarly is unaffected by downturns in the world economy ,, I expect my rental income to increase nicely as the dollar slides.
AMBAC and MBIA primarly in the biz of insuring municipal bonds. Apparently though, they forgot what their M’s stood for, got in the business of insuring some of this ass paper. Look at the ticker symbols of ABK and MBI. Cratering....
Worse yet, those are the two dominant players of municipal insurance, and their stocks and debt are falling like a rock. If munis trade without the implied insurance backing of these two, then the muni market could take a big hit, run into some panic sell downs. You realize how much money they are supposed to be insuring??? I’m sure it is well over a trillion dollars or more, and their collective mkt caps now are about 5b, down from 20-30b just a few months ago.
Done
Merrill and Citigroup’s senior debt now is trading at junk pricing. Between the two, they have a whopping 1.5t, yes TRILLION, worth of debt, that is in the hands of bondholders. Many of those bondholders are not allowed to own junk debt, or are only allowed to hold junk in certain percentages. Pension funds, insurance companies, mutual funds, etc, will be forced to sell off this debt, and do so at eye popping discounts to what they paid for the stuff! This scenario I’m describing is a good reason why the stock market of 2002 was so bad, so scary.
Something that makes these write downs a bit easier to underdstand, I hope.
On a ledger, you must put down how much an asset is worth, in order for your books to be accurate. So, with debt instruments there are 3 ways to calculate fair marekt value. There are far more bond issues than stocks, and while more money trades in the bond market daily, that many issues, many go untraded for long periods of time.
A normal valuation method is based upon last trade, but than only covers large issues that are traded often. That is type one asset.
Type two asset is based upon consistent criteria that can be applied with a model. For example, credit rating, industry, coupon, maturity, etc.... SO a computer model can reasonably price the asset.
The third asset valuation method is the troublesome one. Possibly the holder of the issue, is the only holder, basically a loan instrument. Unless it defaults, the holder carries it as par value on the books if they feel like it. So, one day it is worth 100% of value, the next it is zero, with nothing in between.
The last paragraph will be overlooked by many, but in the not too distant future, we’ll all be experts of what level three pricing means.
You mean, this is a "DON'T WORRY, BE HAPPY" site?
The third asset valuation method is the troublesome one. Possibly the holder of the issue, is the only holder, basically a loan instrument. Unless it defaults, the holder carries it as par value on the books if they feel like it. So, one day it is worth 100% of value, the next it is zero, with nothing in between.
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Ding!Ding!Ding!
We have a winner ,,, by the way this was the very most popular way that S&L’s cheated prior to the S&L crisis ,, by loaning money reciprocally with other troubled institutions ,, knowing full well that the loans in both directions were worthless and carrying them at par ,,, several famous S&L crashes in Arizona come immediately to mind. It works well ,, REALLY WELL , if the regulators look the other way until ANY of the partners crashes and burns ,, then you’ve got a huge mess and a perp walk coming..
Did you read what I posted? Post #1? Or are you just reacting to the article?
As for me and my house; we’ll be fine. We don’t live beyond our means. :) I’ll be scooping up cheap real estate in the future.
My greatest fear is that the Government will “fix” this.
Sounds like the “C” word. Contagion.
Dang, interesting. Thanks for the S/L information.
The central banks will be forced to temporarily buy it (as they have been doing since August) otherwise we could have a self-reinforcing 'bank run'. As in the early 30s, the bank must put its cash in the 'front window' to assure everybody who may want their money, that it is there.
That's what the Fed is for - the buyer of last resort, to restore confidence when everybody else is in full panic mode.
BUMP
The firm I work for, only lets us sell A/A rated bonds. If they fall below that, we can’t buy them for clients. Problem is, a new issue A/A, is just tomorrow’s BBB, BB, B....
So, I can originate the sale at the worst price, but not take advantage of it later, at the lower price. Duh...
Ask John McCain about that ,, he was involved in local AZ S&L’s shenanigans as 1 of the Keating 5... Funny how politicians never seem to get jail time...
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