Joined: Oct 23, 2004 Posts: 5504 Location: New Jersey
Posted: Thu Jul 24, 2008 6:13 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Twilight wrote:
That is only a scenario for what might happen, but I think if FDIC cannot handle something so large, then a way will be contrived to make it conveniently unnecessary. There may not necessarily be a seizure in the way you have seen before.
You may be right about this, after all the Fannie & Freddie bailout essentially involves unlimited assumption of all F & F liabilities, and the Fed doesn't seem to have a problem issuing new Federal Reserve notes in exchange for collateral that includes derivatives.
None the less such a US government takeover may still see a Northern Rock style bank run. Most people probably won't be convinced by the CNBC pundits that this is an action that "must be taken" by the US government "to avoid (ironically?) panic". Those probably being the same CNBC pundits that tell us every day that they want to see the "free markets work". Talk about cognitive dissonance. _________________ It's already over, now it's just a matter of adjusting.
Joined: Oct 23, 2004 Posts: 5504 Location: New Jersey
Posted: Thu Jul 24, 2008 6:51 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Twilight wrote:
Let's see, so if you have $10m of WaMu debt, it would cost you $100k up front and $800k per year to insure it for 5 years. Or, $4.1m and enough lost opportunity cost in interest to buy a McMansion. Swift searching reveals this is where Bear Stearns was before its bailout...
By the end of this day it's even worse than that. Apparently no large bank was ever thought as likely to default on debts as WaMu is being considered now.
Quote:
Upfront
Credit default swap spreads on WaMu's debt widened dramatically on Thursday. Contracts are now trading "upfront," which means investors seeking protection against a default by the thrift must pay fees immediately. These contracts usually require only annual payments.
But when concerns reach extreme levels, sellers of protection demand money upfront too.
CDS on WaMu are currently trading roughly 13% upfront. That means investors seeking protection on $100 million of debt would need to pay $13 million up front and $5 million a year.
Such spreads imply a roughly 50% chance of default in five years or a 24% chance in one year, according to Credit Derivatives Research.
"The market is starting to say when these guys will default rather than if. It's a much more negative stance," Tim Backshall, chief credit strategist at Credit Derivatives Research, said in an interview. "This is the first major, well-known financial name that's gone upfront."
Market Watch _________________ It's already over, now it's just a matter of adjusting.
Joined: Oct 15, 2004 Posts: 2089 Location: Arkansas
Posted: Thu Jul 24, 2008 7:11 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Again, for those who don't know, I'm a lawyer in Arkansas dealing with foreclosures etc in my area.
A couple of years ago, I gave my definition of a worse case scenario. My definition of a worse case scenario was that the housing bust would not be a builders/developers problem, but would become a banking problem. By that definition, we clearly have a worse case scenario. For example, we have witnessed the ANB and IndyMac failures.
Though people on the MSM have long suggested the worse may be over, we hear less of this "confidence" from the talking heads anymore, simply bc its not true. For example, if the worse was over, the Govt wouldn't be trying to bailout Freddie and Fannie. The worse is far from over.
In fact, the proposal to bailout F&F shows we're still early in this crisis. In this bailout of F&F, we are witnessing something feared since their creation more than 30 years ago - what happens if the US has to take them over? That risk was always viewed as a worse case scenario for our nation, so dire that no one could really contemplate the consequences, but viewed as so remote that it was deemed implausible. Unfortunately, the unthinkable is happening as we speak. The US is getting ready to take over F&F.
This isn't good news. This is the worse news possible. No one can possible fathom what that means and where it will all end. I will venture to guess that one day we will all look back and see this day as the beginnig of the end, the end of American hedgemony in the world, the beginning of the end of America's superpower status, which ultimately hinges on the strength of its economy.
The US is desperately trying to save these two financial behomoths. Why? Because their financial demise will literally bring down the US economy, gov't, and most likely many gov'ts of the world who have invested so much of their own resources in these two failed institutions and the US economy which depends upon them. In desparation, the US is trying to shore up their balance sheets by artificially adding value to their stock. They are forbidding naked short selling of their stock and are going to have the US buy stock in the companies and basically give them a blank check to do what they can to salvage their own problems and, buy all the bad mortgages on the market. It can't work. The problem is far too big. There's not enough money. They will simply bankrupt the US.
In my own neck of the woods, I always knew we weren't even close to the end bc the banks here were unwilling to foreclose on any of the big developers. So, for over a year now, the banks have allowed these large unfinished developments sit there without doing anything. The banks didn't want to acknowledge the problem. They stuck there head in the sand and hoped that somehow these properties would sale.
I know the banks worry about taking on these bad mortgages. Once the loans go bad, they have to increase their reserves and it also reduces how much they can loan. As I watched ANB fail, it seems like once the loans start collapsing, there's a point of no return where there's a cascade of trouble that comes pouring in. I sense that in my area several other banks are getting close to that point. Within the last month, several of the banks have had to foreclose on the properties on one of the bigger developers here. I'm sure he owes well over $100 million on various properties now being foreclosed on. This is a problem. Keep in mind that the bailout of Freddie and Fannie will do nothing to finish out undeveloped subdivisions. That is a real problem.
It is going to get worse, much worse. Notice how the stock market has barely moved up in response to this bailout. Today, even, it went down. This bailout is the beginning of the end. It is analogous to the infamous burning of Rome by the barbarians - except this time we are being sacked by carpet baggers with computers, not axe wielding nomads. The Roman empire survived a long time after Rome was sacked, but it never again attained its previous glory. In fact, the fall of Rome marked the beginning of the dark ages. Let's hope that our own "burning of Rome" does not mark the return of a new dark age.
Last edited by seahorse on Fri Jul 25, 2008 6:24 am; edited 2 times in total
Posted: Thu Jul 24, 2008 9:06 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
seahorse wrote:
It is going to get worse, much worse. Notice how the stock market has barely moved up in response to this bailout. Today, even, it went down. This bailout is the beginning of the end. It is analogous to the infamous buring of Rome. The Roman empire survived a long time after Rome was sacked, but it never attained again its previous glory. In fact, the fall of Rome marked the beginning of the dark ages. Let's hope that our "burning of Rome" does not mark the return of a new dark age.
Phew! Well said and simply frightening. I think I'm having a panic attack as I type this.
Posted: Thu Jul 24, 2008 9:24 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Great post Seahorse! _________________ "I was born in a deep forest
I wish I could live here all my life
I am made from stones and roots
My home, these woods and roads
All my life I loved this sound
Of the woods all around
Eagles fly where the winds blow free" -Korpiklaani
Posted: Thu Jul 24, 2008 11:10 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Ben Stein was on TV a couple of days ago saying that F & F were fine and that only about 1% of their mortgages were failing.
So I went to Fannie Mae's website and opened up their 2008 Q1 report. Usually I find financial reports very difficult to read, but this one is beautiful with lots of graphs and easy to understand language. And it clearly shows they are in big trouble and they freely admit that the Q1 loss would have been bigger but they had changed accounting practices.
EPS increased $1.23 from ($3.80) in 2007 Q4 to ($2.57) in 2008 Q1.
��
Capital in excess of the OFHEO mandated 20% surplus increased to$5.1 billion in 2008 Q1 versus $3.9 billion in 2007 Q4 primarily due to the reduction of the surplus requirement from 30% to 20%.
–
Progress with regulator on reducing excess capital levels.
��
Fannie Mae announced plans to raise $6 billion in new capital.
–
Public offerings of common stock, non-cumulative mandatory convertible preferred stock and, in the very near future, non- cumulative, non-convertible preferred stock.
–
New capital will enable us to maintain a strong conservative balance sheet, enhance long-term shareholder value, and provide stability to the secondary mortgage market.
��
Credit remains a top focus of the company.
–
Management continues to tighten eligibility standards and actively mitigate credit losses.
��
Addressing market-related volatility impact on capital
–
Eliminated losses on certain guaranty contracts as a result of adopting new accounting standard, SFAS 157.
–
On January 1, 2008, in connection with a new accounting standard SFAS 159, we re-designated $18.1 billion of agency securities as trading which we expect will have the effect of reducing the impact of changing interest rates on our derivatives marked-to- market.,
–
In mid-April, we implemented hedge accounting which we expect will have the effect of decreasing the impact of derivative mark to market changes.
–
Implemented HomeSaver AdvanceTM initiative which we expect will allow homeowners to stay in their homes and also will mitigate losses on loans purchased from MBS trusts.
I read that as saying it would have been worse if we hadn't cooked the books.
Check out page 17. It shows that Fannie Mae has been buying 10's of thousands of "Seriously Delinquent Loans" every quarter from Mortgage Backed Security Trusts. The peak was about 16,000 loans purchased during 2007 Q3. They bought over 10,000 in 2008 Q1.
Why would they do that? Fannie Mae has always been known to only buy "conforming loans" of well qualified buyers and properties. Someone must have twisted their arms big time to buy total junk.
The graph also shows that the value of these loans went from 94% in 2007 Q1, to 62% in 2008 Q1.
The bottom of the graph says:
Quote:
��
Despite a reduction in the number of seriously delinquent loans purchased from MBS trusts, SOP 03-3 losses increased in
2008 Q1 as the average fair value of loans purchased fell from 70% in Q4 2007 to 62% in Q1 2008.
��
Going forward, we expect that HomeSaver AdvanceTM, initiated in March 2008, will reduce the number of loans
that we otherwise would have purchased out of MBS trusts in 2008.
Joined: Jun 18, 2005 Posts: 3766 Location: In a van down by the river
Posted: Thu Jul 24, 2008 11:48 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Florida they bought all those bad loans because the Gov. knew how bad things were getting at the end of 2007.
In August the words subprime really began to raise its ugly head.
For the same reason the GOV expanded their ability to do jumbos, this despite the fact that their balance sheet was fubar.
Seahorse nice right up.
Have long thought we are witnessing the fall of Rome. Interestingly before Rome fell they attempted to devalue their currency. The Gov. actually reduce the amount of gold in the currency to try and pay for all the expenses they were facing.
Posted: Fri Jul 25, 2008 3:40 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
seahorse wrote:
This bailout is the beginning of the end. It is analogous to the infamous buring of Rome. The Roman empire survived a long time after Rome was sacked, but it never attained again its previous glory. In fact, the fall of Rome marked the beginning of the dark ages. Let's hope that our "burning of Rome" does not mark the return of a new dark age.
(Edite not intended as a criticism of seahorses post)
The most famous burning of Rome was during the reign of Nero (73-68') with the fire being in the year 64AD. After this fire, militarily Rome continued expanding its Empire including the conquest of Albion (England). The first sacking of Rome was by Alaric I 410, by then the Empire had been devided and the Eastern empire with its capital in Constantinople was vastly more powerfull and wealthier (it fell to the Turks in 1453). By the time it was sacked the capital of the west had moved first to Milan then due to its better defendability to Ravenna where the empror 'cowered'. Study of the collapse of the (western) Roman Empire is very very important to enlightening on peak oil as the economic collapse and the loss of food production are major contributors. However the dark age only affected Europe, China, India, Byzantium and other places in the world continued to be civilised and grow.
Perhaps another interesting example would be the collapse of the Spanish Empire which came into unbelieveable wealth from its conquests in the new world, and used it to try to turn the Dutch and English into good catholics, eventualy bankrupting it and it was eclipsed by first the Dutch then the English who instead of being so focused on plunder and conquest established trading companies (Dutch East India Company and the English Hounrable East India Company) whos empires provided profit by trade and developed by acceptance of science and rejection of church doctrine.
Dark ages can be local, empires fail and others fill there place. As senator Proxmire might have said "a few trillion to bail out the mortgage market and another few trillion to occupy Iraq and pretty soon your talking about unreal money"
Joined: Sep 08, 2005 Posts: 604 Location: Atlanta, GA
Posted: Fri Jul 25, 2008 4:24 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
seahorse wrote:
----
It is going to get worse, much worse. Notice how the stock market has barely moved up in response to this bailout. Today, even, it went down. This bailout is the beginning of the end. It is analogous to the infamous buring of Rome. The Roman empire survived a long time after Rome was sacked, but it never attained again its previous glory. In fact, the fall of Rome marked the beginning of the dark ages. Let's hope that our "burning of Rome" does not mark the return of a new dark age.
That is the scariest post I've read in a long time. What kind of timetable are you talking about here...days, weeks, a month or two? Or is it possible that they can just B.S. their way through this for another couple years or so?
And exactly what happens in a total financial meltdown? Perhaps everything just stops, with nothing functioning whatsoever, as if we were in a pandemic emergency? Guess it's time to load up on some more preps... _________________ Nowhere to run, nowhere to hide...
...and the meek shall inherit the Earth!
Joined: Oct 15, 2004 Posts: 2089 Location: Arkansas
Posted: Fri Jul 25, 2008 7:36 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
Quote:
Why would they do that? Fannie Mae has always been known to only buy "conforming loans" of well qualified buyers and properties. Someone must have twisted their arms big time to buy total junk.
We are being pillaged? Do you not see that? At least the barbarians gave the Roman people the opportunity to fight back. This is the worse kind of pillaging, by people wearing suits carrying brief cases.
Quote:
However the dark age only affected Europe, China, India, Byzantium and other places in the world continued to be civilised and grow.
The analogy still stands, as it appears that Europe and the west will be hardest hit. In fact, some like Jim Rogers would argue Asia will not be affected and will continue to grow. Don't forget Brazil. I see them continuing to grow as well, and that's why I've advocated buying the Brazilean currency as a hedge against a falling dollar.
Posted: Fri Jul 25, 2008 8:15 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
You guys saw that the Aussie bank NAB marked their CDOs to market and took a 90% or $900M loss, right? Once the American markets digest that, it will blow out the levees that the Fed and Treasury have been building for several months now.
Joined: Apr 12, 2007 Posts: 1162 Location: Central NC
Posted: Fri Jul 25, 2008 9:46 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
[quote="dorlomin"]
seahorse wrote:
However the dark age only affected Europe, China, India, Byzantium and other places in the world continued to be civilised and grow.
This time it looks fairly certain that it won't affect the other planets. _________________ "The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences…"
Sir Winston Churchill
Joined: Aug 23, 2004 Posts: 697 Location: Frost Free in New Zealand
Posted: Fri Jul 25, 2008 9:46 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
Jotapay wrote:
You guys saw that the Aussie bank NAB marked their CDOs to market and took a 90% or $900M loss, right? Once the American markets digest that, it will blow out the levees that the Fed and Treasury have been building for several months now.
NATIONAL Australia Bank has shocked investors by saying it may lose as much as 90% of the value of its US mortgage-backed investments - worth more than $1 billion - and warning that the battered US housing market is poised to deteriorate further.
In a horror day, the bank's shares closed down an extraordinary 13.5%; it confirmed its earnings would be hit by almost $600 million; and it faced criticism over conducting an $850 million bond issue the week before the announcement.
"We believe on the basis of detailed analysis that significant loss is now inevitable, and a worse-case provision necessary," NAB chief executive John Stewart said.
NAB made a provision for as much as 90% of the value of its portfolio of collateralised debt instruments (CDOs), most of which were derived from US mortgages and rated AAA. NAB had already flagged $181 million in losses, increasing this yesterday by $830 million to $1.011 billion.
NAB still holds a $4.5 billion debt portfolio of mostly European and US corporate loans. Mr Stewart said NAB's capital base remained sound, and its rural US subsidiary, Great Western, had only a small mortgage portfolio and was performing as expected.
NAB may be the first bank in the world to almost completely mark down the value of its US mortgage-backed CDOs. "I'm not aware of any major bank organisation in the world that has (made a provision for its) CDOs to 10%," said Peter Quinton, head of research at Bell Potter Securities. "This could have some ricochet globally."
Just $360 million of the CDOs were connected to subprime mortgages - demonstrating that US mortgage depression is spreading into the mainstream market...
_________________ Let us make him who shall nourish and sustain us. What shall we do to be invoked; to be remembered in the earth.
We have tried with our first creatures but we could not make them venerate us.
So let us try to make obedient respectful beings who shall
Joined: Oct 23, 2004 Posts: 5504 Location: New Jersey
Posted: Fri Jul 25, 2008 10:01 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
The perceived financial condition of WaMu continues to deteriorate, with credit default sellers now wanting 15% upfront payment on the amount of WaMu debt covered.
Quote:
09:09 AM ET Jul 25, 2008 13:06 CDS: Washington Mutual Trading Wider in Points Up Front Boston, July 25.
5yr CDS / Chg: 1-day 1-wk 1-mo Washington Mutual (WM) 14.5/15.5 Up Front +3pts or +123bp +415bp +527bp
Washington Mutual (WM) shares are down another 3.5% in pre-market trade, while credit default WaMu 5yr went to points up front at 12/13 late Thursday widening about +138bp in terms of yield spread, while out of the gate today quotes have vaulted up to 14.5/15.5 or about +125bp wider in spread terms. WaMu cash bonds are trading wider in the shorter relative to longer maturities, with its 4.10%/10s +232bp wider at T+2212bp vs. its 5.50%.13s which is +48bp wider at T+1121bp according to provided by TradeWeb.
The initial euphoria among financials in general over Treasury Secretary Paulson's GSE credit back stop and related housing legislation plan has run its course and the reality is sinking back in the housing sector is still in deep trouble.
Just today, RealtyTrac, the online market place for properties in foreclosure reported that foreclosure filings in the second quarter increased 14% from the previous quarter and have risen 121% from the second quarter of 2007 to 739,714 properties.
Financials to one degree or another are basically leveraged bets on real estate, which is why most financial credits have rebounded wider in credit default today. It would appear that Washington Mutual is simply on the cutting edge of that leveraged bet. Edward.Rombach@thomsonreuters.com / CDS data provided Moody's Credit Quotes
[no link] _________________ It's already over, now it's just a matter of adjusting.
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What kind of timetable are you talking about here...days, weeks, a month or two? Or is it possible that they can just B.S. their way through this for another couple years or so?
