However, forewarned is forearmed. :)
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There’s a thing called “kitchen sinking” that was mentioned here on FR the other day.
These banks are writing off ALL subprime debt...even though most of these notes will be paid satisfactorily and will not be losses. There are several reasons for this...but what it means is that later on...when this does shake out they will show larger profits at that time than they otherwise would have.
To put things in perspective - the ENTIRE S&L cost was 150 billion dollars (in 1988 or $256 billion in 2006). And this, IMHO, this is still the tip of the iceberg for losses...
$200 billion when averaged into the an economy the size of the US's, won't cause the great depression.
2,000,000 homes averaging even a whopping $250,000 in debt each and overvalued and underwater by 25% is still only $125 billion - a fly speck in the big picture - but what the heck - reports like this sell newspapers..........
Sounds like 2,000,000 NEW homeowners are going to get a good buy on a home at the expense of 2,000,000 that made mistakes.
Sucks donit.....
In this article you will fail to find the words “illegal” or “immigrant”. The 800 pound gorilla again goes unnoticed.
Here is a reposting from last March. It is still unrefuted and unreported. Can’t upset the conventional wisdom, can we?
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To: Freedumb
Gotta hand it to the MSM, the WSJ, the Chamber of Commerce, the Fed, the banks, the White House, the Congress, Fortune, Kudlow, and all the rest of the usual suspects.
These subprime mortgages go to someone. They have a mailing address. By artful writing and punditry, the picture has been painted that the people who got these subprime loans are poor folks or dumb boomers who re-financed to buy their new Volvo and swimming pool. Wrong!
Those cases are few. Those subprime mortgages issued in the last several years that are now facing foreclosure have gone to illegal aliens, landlords who rent to illegal aliens, and minorities who have lost jobs to illegal aliens, especially African-Americans in the trades and services industries. The common thread - illegal aliens. Spend 10 minutes on Google and you can see the aggressive marketing of subprimes to illegals (you may have to translate).
The distribution of subprimes going into foreclosure closely matches the concentrations of illegal aliens - California, the southwest border states, the southeast states, metro areas like Denver and in the Rust Belt. Many of these mortgages were granted to buyers with no SS number or a stolen number or just a taxpayer ID number (ITIN). Who is that group? Not blacks; not boomers. Not even speculators. Who’s left? You figure.
Some common scenarios: An illegal, actively recruited by banks or mortgage lenders, buys a house, often an expensive house ($600,000). If he can’t qualify, he gets other illegals added to the mortgage until they qualify. Or a profiteering landlord buys a house with the intent of setting up a dorm house for illegals. With 10-20 illegals crowded in at $300-400 rent, he makes a tidy profit even with a big mortgage payment.
Like Ponzi, it was great for everybody. The banks made big profits on the high interest. So did the REIT and funds managers. The landlods did well also on rents and house appreciation.
Then the housing bubble burst. The illegal renters started losing work and were evicted. The landlords couldn’t service the mortgage and/or with lowering values the mortgages went upside down so it was easy to walk away and foreclose.
But that’s not the big story. It’s how effective the cabal of power brokers from the White House, the Chamber of Commerce, the MSM, the Congress, the banks, the CEOs, and the unions have covered up this causality so that they can get amnesty and open borders rammed through to guarantee an unending supply of cheap alien labor.
They know that if the connection between illegal alien hordes and the subprime collapse and the damage to the economy worse than the Savings & Loan scandal of the 1980’s, the people will be outraged and demand we close the borders.
Can’t have that. Let’s keep the sheeple in the dark. They’ll be the suckers paying for it in the end with lost jobs and higher taxes. The real villians have already made their fortunes.
8 posted on 03/23/2007 9:11:29 AM PDT by oldbill
Mike
The selling has started a downward spiral and nobody knows when it will end. The Fed can't stop people from selling a failing investment. All they can do is hyperinflate to try to save the banks.
BUMP
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.
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.