I think this is the beginnings of an economy based on perpetual growth and fossil fuel energy running headlong into geological energy constraints. Basically I see an undulatory downward path for the rest of my life. From here out, I think any rallies in our economic condition are going to be met with spiking commodity prices that knock us right back down.
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: 3970 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: 764 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: 2251 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: 1185 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: 709 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: 5928 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.
Posted: Fri Jul 25, 2008 10:34 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
This is the beginning of a deflationary spiral. Yes, we've had high inflation, but back away and see what is happening :
Captial, cash, has suddenly become precious. Difficult to find, and those with it demand a high return. Money is a commodity, and like all commodities is subject to supply and demand forces...
The Fed only pumps money out by making loans. In order to make a loan, you have to have someone who is willing to pay it back. It's called pushing on a string. _________________ Welcome to the Kondratieff Winter
Posted: Fri Jul 25, 2008 10:40 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
DantesPeak wrote:
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.
That was yesterday. It's at 17.5% now.
"Credit default swap spreads on WaMu's debt traded at 17.5% upfront. That's up from roughly 14% upfront late Thursday, according to Phoenix Partners Group. "
Posted: Fri Jul 25, 2008 10:43 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
seahorse wrote:
The analogy still stands, as it appears that Europe and the west will be hardest hit.
Club Med and the UK for sure. Financial services and construction were arguably the most important parts of the British and Spanish economies in recent years, and the government as an employer - very important in Europe - is closely coupled to that. With few exceptions it only spends what it collects in taxes or obtains through financing. The credit crunch is a double-whammy.
The UK will get it three times over, due to its status as one of the world's premier financial centres. As a nation, we milked it on the way up and pissed it away as quickly, so there is no use pretending our exposure will not work as well in reverse on the way down. There is no hanging in mid-air now that we have placed the City at the centre of our economy. The much-vaunted UK plc is a bank. We earn much of our wealth by managing a disproportionate share of other people's money and levying fees. We tax other people's economic activity. We need transactions. We contrive domestic and international legislation and regulation in such a way that the City always receives a role and gets its cut. Our enthusiasm for Byzantine carbon trading schemes and renewable obligations instead of the blunt instrument of straight subsidies more often implemented across the Channel is one energy-related example. The taxes paid on income from fees earned for advising on some foreign M&A deal buys us continued health cover. So if people all over the world batten down the hatches, park their money and sit, we are going to lose a valuable source of income and employment.
By the way, what I said last year about stamp duty and inheritance tax revenue drying up is coming to pass. No link, but a week or two ago I read in the Guardian or Observer that the government is losing hundreds of millions of pounds in funding due to falling estate valuations. Note that in the bubble years it gave them billions of pounds of real cash directly earned from higher personal indebtedness.
DantesPeak wrote:
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.
If that does not defuse quickly, there might be a move this weekend or the next. Unlike BSC or LEH, allowing a retail outfit to drift powerless at the mercy of news flow carries a risk of contagion. An anxious public is less easily calmed than institutions - you cannot just arrange a conference call.
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.
That cat may be out of the bag, but it will take a while because regulators are now coordinating policy. Witness the FSA's role as a whip in the A&L takeover and underwriting of B&B's rights issue, and Lloyd's TSB's participation in the latter. By all accounts they remained boring and their subprime holdings negligible, yet there they are being forced to prop up a self-cert and BTL lender. They probably could have marked their bad paper all the way to zero months ago, but that would not be helpful as befits a team player, would it? _________________ Volatility. When life isn't exciting enough.
Last edited by Twilight on Fri Jul 25, 2008 11:00 am; edited 1 time in total
Posted: Fri Jul 25, 2008 10:56 am Post subject: Re: Housing & Economic Collapse - In Progress - #2
shady28 wrote:
DantesPeak wrote:
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.
That was yesterday. It's at 17.5% now.
Scary quotes, I wonder what the volume is like. Do CDS insure against seizure as well as default, or is that a knife-catching move if it comes to be perceived as likely?
By the way shady, good to see a rare mention of credit deflation around here. The problem with printing into a vacuum is assuming the vacuum, or so it seems to me. _________________ Volatility. When life isn't exciting enough.
Joined: Oct 23, 2004 Posts: 5928 Location: New Jersey
Posted: Fri Jul 25, 2008 12:34 pm Post subject: Re: Housing & Economic Collapse - In Progress - #2
Twilight wrote:
shady28 wrote:
DantesPeak wrote:
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.
That was yesterday. It's at 17.5% now.
Scary quotes, I wonder what the volume is like. Do CDS insure against seizure as well as default, or is that a knife-catching move if it comes to be perceived as likely?
By the way shady, good to see a rare mention of credit deflation around here. The problem with printing into a vacuum is assuming the vacuum, or so it seems to me.
I believe the CDS are necessary because WaMu has a lot of unsecured debt, which I mentioned previously would not be covered by a FDIC takeover - or possibly even by a takeover by a larger bank.
I also believe that a government seizure would have much the same effect as a default for the CDS. The US government is not going to bail out bondholders here. BTW - shareholders and subordinated debt holders of Fannie/Freddie are also in for a surprise if they think the bailout bill before Congress is going to save them.
WaMu put out a statement as to "liquidity". I am not sure how they define liquidity here.
Quote:
MidnightTrader
July 25, 2008
Washington Mutual Swats at Liquidity Rumors; Shares Regain Some Ground
Boston, Jul 25, 2008 (MidnightTrader via COMTEX News Network) -- Washington Mutual (WM) is down almost 3% as it struggles to weather rumors that it could be facing liquidity problems, which battered its stock yesterday.
In an effort to swat down the rumors, the nation's largest thrift said in a mid-day statement that it had increased available liquidity to more than $50 billion, up $10 billion over its previously announced figure.
Shares have fallen more than 30% this week, with most of the decline coming yesterday. This morning shares fell to a session low of $3.48 at the bell, but have been recovering for most of the morning.
[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?
