I thought we could use a thread to discuss the insanity that reigns in the financial world today. You all already know the news. IndyMac taken over by the FDIC in the third-largest bank failure in US history. The bailouts of Fannie & Freddie have begun.
Here’s another take on the weekend news:
Now here’s the problem – while Fannie and Freddie are claimed to be all 80/20 full-doc loans this is in fact a lie.
In fact, a huge percentage of the loans they took on or guaranteed in the last five years were packed with fraud or serious deficiencies in underwriting in some form, whether it be appraisal fraud, claimed income fraud, LTVs as high as 100%, or all three!
So how bad could this get?
Very bad.
…
In reality I believe that Fannie and Freddie could suffer as much as $900 billion in losses as this all plays out. This assumes that 10% of their portfolio turns out to be essentially worthless and 20% is impaired by at least 10%, with the rest being 100% “money good.”Frankly, I think that’s a bit optimistic…
…
See, there are reportedly 75 (or more) banks on the “troubled” list. The FDIC doesn’t publish that list. Gee, I wonder why, especially after Friday, when IndyMac went under.Not that this should have been a surprise to anyone, given that it was trading at well under a buck for about a week. Do ‘ya think that’s a good stock price?
No, the real 900lb Gorilla is that IndyMac was not on the FDIC’s “troubled bank list”!
So here’s a thread to talk about the banks. Was the IndyMac failure the worst of it, or have we just seen the tip of the iceberg?
P.S. (RE: the title of the post – original comment (#10) / ongoing conversation / Sorry Ardell, I just couldn’t resist.)
david losh » Jul 14, 2008 at 8:54 am
The question is liquidity. If we put money in a mattress it all stops. That’s the reasoning here. The problem is that paper trading on the internet left sound business practices behind. Our economy is based on what the balance sheet looks like.
Back in the day a company analysis was based on seeing the plant, talking to the workers, and looking at what business was available. Today, like in Real Estate, a bunch of people look at a computer screen, with charts, then make a decision to invest. Loan underwriting went the same way.
It’s whacky and we, the tax payers, are paying for it.
The solution is independent thinking. Own your own business, pay off your house, and keep your micro economic business plan under your own control. In that way what the banks do makes little difference.
Ray Pepper » Jul 14, 2008 at 9:00 am
National City down 35% today, WA MU down 33%, Wachovia down another 10%, and Bank of America down another 7%. Ouch!! LEH and Citigroup tanking as well. Are these the greatest BUYS in banking history or will people continue to walk from their homes when they realize they are buried in it?
I say many will continue to walk, file, and restart their lives. They sure have in Nevada. Scoop gems in the coming years. There will be enough for us all.
I always like to look at the cost to build approach in these times of investing. You know when you analyze a property its a GEM if you were to tear it down and rebuild, the cost of materials will cost more then you are paying for the home. Forget the tax assessed values as a target to buy under. Those #’s are in the past. Try the cost to rebuild approach and value the lot at 50%. In addition watch those rental rates. If you can’t rent it for 1000 amonth you better not be paying more then 150k for the home!
Ray Pepper
http://www.500Realty.net
vboring » Jul 14, 2008 at 9:02 am
tip of the iceburg. when Chrysler announces their inevitable bankruptcy due to their financing problems and the financing problems of their owner, we’ll be half way done.
more importantly when considering a house purchase,
will the GSE situation lead to higher RE loan interest rates, higher price inflation, tighter lending standards, or more rapidly declining house prices?
Ray Pepper » Jul 14, 2008 at 9:03 am
NCC halted!!! They state all is OK! They have the cash!! Lets watch if the mkt believes them when they reopen trading!
Chuck Ponzi » Jul 14, 2008 at 9:15 am
vboring.
How about (d) all of the above?
vboring » Jul 14, 2008 at 9:29 am
Chuck,
i think you may be right. the gov’t will probably print money to pay for the GSE debts, but also force them into tighter lending standards.
the increase in dollar supply will lead to further dollar devaluation and price inflation.
price inflation will lead to higher RE loan interest rates.
if we believe this, does it mean we should be looking at buying today? if you have liquid cash, absolutely not. wait for the GEMS. but if you want to buy with 3% down and expect to have an income that will keep up with CPI, then maybe it makes sense.
the Fed could be forced to push interest rates into the double digits to restrain price inflation.
NoMoreWork » Jul 14, 2008 at 9:47 am
http://finance.google.com/finance?q=wamu&hl=en
WaMu is getting pummeled today!! Down ~30% at the time of this post. IMHO, it’s about time for another round of cuts. I don’t wish this on the employees on WaMu but it looks unavoidable at this point.
How will the papers be able to spin this into positive “buy now!!!” headlines?
David McManus » Jul 14, 2008 at 10:16 am
Not a word about this on the Times or PI website.
Sniglet » Jul 14, 2008 at 10:17 am
Unfortunately, financial stocks are going to continue to take a beating until real-estate prices begin to appreciate again. No one has confidence in the values lending institutions are placing on their real-estate loans. How can investors believe the worst is over when the banks keep making even more write-downs quarter after quarter?
If banks really were certain they had fully written off sufficient value of their holdings then why not restore investor confidence by just selling the real-estate portfolios they hold and be done with it? This is the nub of the issue. The banks themselves even acknowledge they haven’t fully valued assets at market prices and start complaining about the “lack of a market” or “firesale” prices that they would have to accept to sell.
Well, if the bank is unwilling to sell something because they don’t want to accept a “firesale” price, then there is no way it is properly valued on their books.
Anyway, my earlier point still stands: the only thing that will turn things around for financials is to see real-estate prices begin to appreciate again.
Lake Hills Renter » Jul 14, 2008 at 10:18 am
I hope my landlord doesn’t get laid off from WaMu. I may have to move if he decides to offload the house or move back in. =(
Demersus » Jul 14, 2008 at 10:19 am
What do you think will happend to WaMu? I also wonder if this might be a good time to gamble with a few hundred shares…
NoMoreWork » Jul 14, 2008 at 10:22 am
Sniglet said,
Well, if the bank is unwilling to sell something because they don’t want to accept a “firesale” price, then there is no way it is properly valued on their books.
……………
Sounds like Banks and Seattle area homeowners are cut from the same cloth!!
B&W Nikes » Jul 14, 2008 at 10:30 am
Interesting Financial Times article from across the pond calling spades shovels. I’m still wondering what the mid-term outcome could be. What happens as the financial sector implodes while many other industries continue to do better or even good in their own very relative terms? There’s not that great a decline in the quality and efficiency of goods and services across the board, if anything there’s more attention toward efficiency and cost effectiveness. Scarce supply often leads to innovation as much as it does competition.
Lake Hills Renter » Jul 14, 2008 at 10:33 am
Maybe I’m financially naive. Dropping from 5.0 to 3.5 is a big percentage drop, but that doesn’t really seem that much in actual dollars, particularly since WM was at almot 50 a year ago.
Sniglet » Jul 14, 2008 at 10:35 am
Is your EastSide home still worth $800,000 if the best offer you can get is $500,000? It’s only when you actually HAVE to sell your home that you discover what the real price is.
My Bellevue neighbour had an offer on their home a few weeks ago (it’s been listed for 3 months now), and was “insulted” at the price being some 15% lower than list. I wonder how he will feel about that offer when the next offer is for 20% off? But the REAL value is what Zillow says, not what these low-ball offers are postulating…
NoMoreWork » Jul 14, 2008 at 10:58 am
Lake Hills Renter said,
Maybe I’m financially naive. Dropping from 5.0 to 3.5 is a big percentage drop, but that doesn’t really seem that much in actual dollars, particularly since WM was at almot 50 a year ago.
…………..
It is a big drop percentage wise and that has a huge impact on the dollar in ones invesment account!! So it could be looked at as a large dollar drop too.
If you bought WaMu on Friday you’d lose 30% of your investment in one day! Course if you bought WaMu at $50 a year ago you be left with only 7% of your equity. Anyway you slice it, it’s a horrible investment.
RE:Sniglet
Also, major banks have been shorting each others stocks to recoop loses. Theese guys might have gotten in the situation but they’re smart enough to at very least lessen the blow and diversify. Same can’t be said for homeowners. Most of them are having a hard enough time making the morgage payments and dealing with the inflated price home equity line to have any money to invest in a Short Real Estate fund/ETF.
Lowering the price of their for sale home just isn’t an option if they want to stay above water. Sad to see, but they put themselves in the position I guess. Still, I’m the one offering them a way out at ~75% of what they’re asking…
TJ_98370 » Jul 14, 2008 at 11:20 am
vboring said:
tip of the iceburg….
……will the GSE situation lead to higher RE loan interest rates, higher price inflation, tighter lending standards, or more rapidly declining house prices?
It is the tip of the iceberg. We will see higher loan interest rates, tighter lending standards, and continued declining house prices. Inflation, maybe not. From what I am understanding, alot of big banks are undergoing recapitalization to increase their reserves to cover defaulted real estate loans. This will result in a decrease of money supply, which is the basic definition of deflation, right?
matthew » Jul 14, 2008 at 11:28 am
Like I’ve been stating for the last year or so, WaMu is toast. Stick a fork in them. Just a matter of time…..
Buceri » Jul 14, 2008 at 11:35 am
In line to get savings out of Indymac…
http://biz.yahoo.com/ap/080714/indymac_customers.html
rose-colored-coolaid » Jul 14, 2008 at 11:37 am
Lot going on here so far. Sniglet is right that values are wrong if the banks can’t see for anything like book value. It’s conceivable that in a panic, the firesale prices could be low, but only to an extent. I don’t have anything to back this up, but my hunch is something like 10% might be the premium buyers get in a firesale.
Regarding banks…this is getting a lot scarier real fast. Bill Fleckstein’s insider source was quoted as saying most of the bad news isn’t out there yet, and we’re only in the second inning here.
It almost seems like it was a bad idea to bailout a smaller stock market bubble with a much larger real estate one. I mean, I’m no Federal Reserve chairman here, but I am getting this impression.
I think the only good news from all of this is that perhaps it will lower the general social standing of banks in America. When people notice that society still seems to function even when we aren’t all bending over backwards to take on as much debt as possible…well, it might turn out to be a good thing. That’s my hope at least.
rose-colored-coolaid » Jul 14, 2008 at 11:40 am
One last thing. We (society) seem to have forgotten what banks really are. They are the grease in the economic engine. People usually say that to imply that without banks your engine will seize up. But there’s another side to the analogy. A typical engine is about 99.998% other stuff and 0.002% grease. Maybe we’re in trouble today because we tried to make an engine that was 20% grease and 80% hardware.
B&W Nikes » Jul 14, 2008 at 11:45 am
RCC …or 80% grease and 20% hardware!
David McManus » Jul 14, 2008 at 11:49 am
If my neighbor will buy a cardboard box from me for 500K, does that mean that it’s really worth 500K?
NoMoreWork » Jul 14, 2008 at 11:57 am
David McManus wrote,
If my neighbor will buy a cardboard box from me for 500K, does that mean that it’s really worth 500K?
……………
Maybe, where is it located?
David McManus » Jul 14, 2008 at 12:00 pm
Anywhere you want it to be. It’s mobile. ;-)
SeattleMoose » Jul 14, 2008 at 12:01 pm
Gee, and I thought in capitalism poorly run businesses that go onto the rocks are allowed to fail. Instead, what I see is a socialistic system that allows incompetance to be rewarded/bailed out…..USING OUR TAX DOLLARS!!!
Confusa » Jul 14, 2008 at 12:42 pm
WaMu is in trouble. Lehman is saying they will likely see another 26 billion in losses. Their market cap today is 3.4 billion. Where do you think that leaves them?!?!
Buceri » Jul 14, 2008 at 12:47 pm
Yeah. And the Lehman bank expert was reporting from a park bench. They are next.
Ira Sacharoff » Jul 14, 2008 at 12:52 pm
“If my neighbor will buy a cardboard box from me for 500K, does that mean that it’s really worth 500K?”
If it’s in Ballard, it’ll be described as a “charming cottage just waiting for your loving touches” , and if it’s made out of recycled cardboard….dude! there might just be a bidding war.
Ira Sacharoff » Jul 14, 2008 at 12:57 pm
‘What do you think will happend to WaMu?’
I think WAMU is toast. Done.
matthew » Jul 14, 2008 at 12:58 pm
WaMu and LEH are both toast. Guaranteed. There is no doubt in my mind. The Fed and Treasury can’t bail all of these entities out, they are going to focus on the GSE’s and let everyone else crash and burn from here on out. They don’t have enough backing to bail out all of their Wall Street crony friends.
Jimmythev » Jul 14, 2008 at 1:22 pm
Wamu is done… I feel bad for the employee’s… the job market in Seattle isn’t what it used to be even a few months ago. Now we’re going to have 10,000 unemployed former WaMu’ers looking for jobs so they can pay their Option A mortgage.
LeftOverpricedSeattle » Jul 14, 2008 at 1:27 pm
WaMu is going to go bust, as is National City. The people who bought my home in the Tacoma area did it with an 80/20 first and second, both through National City. National City, I believe (after talking with some NCC employees on the front lines), will break before WaMu, but WaMu’s turn is coming.
NotaBull » Jul 14, 2008 at 1:31 pm
“WaMu is in trouble. Lehman is saying they will likely see another 26 billion in losses. Their market cap today is 3.4 billion. Where do you think that leaves them?!?!”
These are not comparable numbers. What are WAMU’s assets? What % of their loans/HELOCs are performing? What is the value of those loans? What is their deposit base that they are lending against? They’re not lending against their market cap, but that does significantly affect their future ability to raise capital *should they need to*.
I’m not saying they’re not in trouble, or that they will or will not “go under”, just that you can’t compare those numbers and then decide that they’re toast.
NotaBull » Jul 14, 2008 at 1:40 pm
I’ll also add that I withdrew half of my WAMU checking account just an hour ago. Unlike others, I don’t have any certainty that they *will* go under, or that they *will not*.
I think you have to be pretty paranoid to spend hours in line outside of a bank waiting to withdraw money. But in this day and age, the internet allows me to hedge my bets in 30 seconds with a bank to bank transfer, so why the hell not? Only mild paranoia is required, and that’s where I’m at right now.
Others out there, why not set up an online savings account with someone. Maybe HSBC, maybe someone else. I think you need $1 to open it. You might use it, you might not, but why not have it? Just don’t put all your eggs in one basket, ok?
matthew » Jul 14, 2008 at 1:45 pm
If memory serves me correctly, WAMU is the 5th largest holder of subprime loans. They have slashed their dividend 72% (15 cents a share), fired thousands of employees, sold 4 billion in common stock to stay afloat, and are still struggling to maintain their capital reserves.
Their ratio of non-performing assets to risk-based capital is 21.8%, CFC was 29.2%, and only a handful of institutions saw a ratio of over 20%.
You don’t have to compare them to LEH, THEY ARE TOAST!!!
vboring » Jul 14, 2008 at 1:51 pm
@TJ
i said price inflation, not inflation.
inflation is increasing money supply. price inflation is increasing prices. CPI, which many people’s salaries are tied to, measures price inflation. the M3 is a measure of inflation.
whether we have inflation or deflation, it is likely we will continue to have price inflation as long as we continue to have a weak dollar policy, since so much of our consumption is of imported goods whose prices depend on the value of the dollar.
vboring » Jul 14, 2008 at 1:58 pm
even if WaMu does go under, there is no guarantee that the 10k local jobs will disappear.
more likely, the bank will be run by the FDIC for a while, then sold in bits and pieces. it could take years for all of the jobs to be eliminated or moved out of the area or they could even stay here.
matthew » Jul 14, 2008 at 2:03 pm
In the last wave of layoffs they had (1,200 total) 260 came from Seattle. They are planning another round of layoffs in September (they haven’t said how many) but it will be interesting to see how many are being laid off from the Seattle area now that all their home loan centers around the U.S. have already been closed. I would think that the percentage of employees laid off in the Seattle area will be greater from here on out.
matthew » Jul 14, 2008 at 2:05 pm
Just for a point of reference WaMu employees roughly 45k employees, and 6.5k in Washington state, 4.4k of those in downtown Seattle.
jon » Jul 14, 2008 at 2:12 pm
vboring, “inflation is increasing money supply. price inflation is increasing prices. CPI, which many people’s salaries are tied to, measures price inflation. the M3 is a measure of inflation.”
According to wiki, your definition of inflation is not the most common usage (see Related_definitions). Most people just say inflation to mean rising prices (eg BLS also).
Ira Sacharoff » Jul 14, 2008 at 2:16 pm
vboring,
So if the Fed made it a priority to raise interest rates, wouldn’t that work to strengthen the dollar?
RammaLammaDingDong » Jul 14, 2008 at 2:26 pm
I don’t think WaMu is toast. They are very large bank, they have a large customer base, they have established branches in multiple regional markets, and they have diversified positive cash flows. The problem with WaMu is they have a ton of crap on their balance sheet, and they’ll be writing this stuff off for a few years now.
Worst-case scenario is the depositors get scared and do a bank-run. If this starts, another bank will buy them up cheap, pump in some cash to shore up the balance sheet, and then make a killing. Most likely suitor is JPMorganChase. Dimon has had his eye on WaMu for years now, and I’ll bet today’s sell-off got him so hot and bothered his pants are being dropped at the dry cleaners right now.
matthew » Jul 14, 2008 at 2:42 pm
Jon,
vboring is using the classical definition of inflation which is not used in the mainstream media, but is the most useful definition when describing the money supply.
deejayoh » Jul 14, 2008 at 2:44 pm
I think you might want to cut back on the CNBC watching…
TJ_98370 » Jul 14, 2008 at 2:46 pm
vboring:
.
I respectfully propose that there is no practical distinction between the terms “inflation” and “price inflation”. The definitions provided by the Merriam Webster’s on-line Dictionary for both inflation and deflation refer to changes in “price” or “price level” as a major component of meaning for these two words.
.
Merriam Webster’s definition of Inflation
.
2: a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services
.
Merriam Webster’s definition of Deflation
.
2: a contraction in the volume of available money or credit that results in a general decline in prices
.
It’s difficult to have a coherent discussion unless everyone at least agrees to the meanings of terms. :)
matthew » Jul 14, 2008 at 2:51 pm
RammaLamma,
You don’t think JPM has bitten off more than it can chew already with the buyout of BSC? How much toxic crap do you think they want to consume before they get sick to their stomachs? The JPM to buy out WaMu rumors have ceased for a long time now, I think they have enough on their plates. With WaMu stock at 3 bucks, Dimon could easily put a bid in for WaMu if he wanted, but he won’t have a B-52 Bernanke backstop this time around. I think JPM will be standing pat.
The bottom line is that WaMu has a a TON of crap on their balance sheets, probably more than any other financial institution still left standing. The housing market is going to continue to deteriorate, and the crap is going to continue to eat them alive. Wait until the problems start appearing in Prime, Alt-A, and option-ARMs. We are still in the second inning of this thing.
RammaLammaDingDong » Jul 14, 2008 at 2:53 pm
deejayoh said: I think you might want to cut back on the CNBC watching…
Not sure I understand your comment. Is this the sentiment expressed on CNBC?
matthew » Jul 14, 2008 at 2:57 pm
TJ,
Here is the problem with that definition. There can be a condition in which you have a decreased money supply but yet higher prices in some asset classes. Your definition assumes that a decrease in the money supply will cause a decrease in prices, which is not what we are seeing. It is possible to see some prices move higher (commodities), while some prices move lower (housing).
didn't just fall off the turnip truck » Jul 14, 2008 at 2:58 pm
Ira,
Perhaps, but I’d be willing to guess it would crush the economy and likely force even more financial institutions over the edge. Lastly the Fed chairman made his reputation arguing (among other things) that one of the great errors of the depression was raising interest rates it seems inconceivable, to me at least, that staring down that same abyss he’d make that same choice. Then again I’m just a guy with an opinion.
vboring » Jul 14, 2008 at 2:59 pm
Ira,
i think that RE loan interest rates will increase because of the troubles in the RE market and worsening funding situations at the GSEs. this has little impact on the value of the dollar.
the Fed reserve rate does have a strong impact on the dollar and nobody has any idea what direction it will go.
TJ,
you’re right, the commonly used definitions for inflation are pretty silly. within economics, my impression is that inflation refers to money supply, price inflation refers to changing prices of goods.
these two things used to be closely related to each other, back when our economy could be treated as a distinct entity separate from the rest of the world. nowadays, with a large portion of our consumables being produced in areas using different currencies, the exchange rate is a more important factor than money supply inflation for predicting price inflation.
an example of this is japan. people borrow yen at low interest rates then invest it elsewhere for a higher return. this causes inflation of the yen supply, but doesn’t lead to price inflation because those yen aren’t being used to buy consumables
TJ_98370 » Jul 14, 2008 at 3:05 pm
matthew-
I agree. In fact I believe it almost meaningless to talk about the overall economy as being inflationary or deflationary because, as you point out, different segments of the economy are behaving independently and even inversely from one another.
RammaLammaDingDong » Jul 14, 2008 at 3:23 pm
matthew –
I think that JPM will, for the right price, buy WM, even with BSC liabilities on their books and distractions on their plate. I read somewhere the other day (sorry, can’t cite it now ) that WaMu “recently” turned down a JPM offer. I think “recently” means before the BSC buyout, but nonetheless, WM fits into JPM’s strategic plan, and has for a while.
The good thing about the ton of crap on WM’s balance sheet is that they are mostly bad loans. They will not require additional cash outflows, as the money has already been lent out. The primary risk is that as the loans’ “market value” deteriorates, it forces WM to “whore themselves” to keep their capital ratios in line.
Again, I think that WM has a diversified enough cash flow, customer base & branch base, that they will be able to raise capital in the event they need to. Even with 20-30 billion in write-downs over the next 1-2 years, they’ll come out the other end of this well-positioned in some form. Maybe they’ll be known by another name, but, they would… smell as sweet. .
patient » Jul 14, 2008 at 3:28 pm
There’s a lot of talk of lists of banks in trouble coupled with talk about the faith of our local giant WM. Anyone know any names on the other side of the spectrum? I.e solid, solvent banks with minimum exposure to mortgage posion where a person can peacefully keep his cash if I don’t want to go the treasuries route?
I do have a bit of money at WM (just below the FDIC limit ) and as NotaBull I would like to hedge with at least one other institution.
RammaLammaDingDong » Jul 14, 2008 at 3:33 pm
Patient said Anyone know any names on the other side of the spectrum?
Patient –
If you don’t need liquidity, my strategy has been to build a ladder of CDs from a variety of institutions. If you have a Fidelity account, they make it pretty easy to buy CDs from different banks around the country. Some of these are banks I’ve never heard of before, but I like to live on the edge, and I figure if 50% of these banks fail, I can tolerate the hassle incurred with getting my money back from the FDIC.
patient » Jul 14, 2008 at 3:34 pm
I wonder how popular the re-lobbyist are nationally and locally these days? When the decision makers noticed that the actions they were pursuaided to take have been proven to be the equivalent of trying to put out a fire with dollar bills. Real money that someone will be missing, investor or tax payer. You don’t hear much from the NAR these days…
patient » Jul 14, 2008 at 3:36 pm
Thanks for the tip RammaLammaDingDong. That sounds like a good option.
Though is it so bad that none of the bigger names are in decently good shape?
jon » Jul 14, 2008 at 3:36 pm
“They will not require additional cash outflows, as the money has already been lent out.”
That would be true of another kind of business, but WaMu is a bank and so it susceptible to a bank run, which is a major cash outflow. All it needs is a Senator to publish a letter calling into question its solvency and it is the next IndyMac. True, the employees would be not too much worse off, but the current stockholders would be zeroed out.
John » Jul 14, 2008 at 3:41 pm
patient, Warren Buffett likes Wells Fargo. If even banks like that fail, you can say goodbye to America.
matthew » Jul 14, 2008 at 3:43 pm
Ramma,
How do you think that WaMu is going to raise more capital? Their stock is already as diluted as it can get, and it doesn’t appear that there is much interest right now from any sovereign wealth funds. Outside of a buyout, they are in deep trouble. The supposed offer from JPM was back in April, and that was only a rumor.
Patient,
Before BofA’s purchase of CFC I would have suggested them, but now its hard to say. I would definitely avoid Wachovia, they appear to be having some difficulties. Chitigroup should also be avoided.
TJ_98370 » Jul 14, 2008 at 3:51 pm
vboring-
I hadn’t considered varying exchange rates as being a factor for increasing / decreasing prices. I guess “price inflation” is a good term for commodities in which prices are increasing due to the falling dollar.
Moving on – given recent events, how do you figure there could be “price inflation” relative to local real estate? I don’t see it.
.
RammaLammaDingDong » Jul 14, 2008 at 3:54 pm
jon – you’re conflating two distinct things – bad loans on the books and a bank run.
matthew – there is a lot of saudi & chinese cash floating around looking for a places to go. If WM has to raise more cash, it will be from an increasingly desperate position (think Kerry Killinger hustling twinks on a seedy corner). But that doesn’t mean that bank won’t come out of this alive.
deejayoh » Jul 14, 2008 at 4:02 pm
Yes, they are generally the source of rumors to the bullish side – though they usually involve Warren Buffet or a cut in the discount rate – not JPM. Not meaning to knock you, there have been a stream of posters over the months painting positive outcomes for WaMu. And yet every piece of news that comes out is worse than the last.
I’m really not sure what JPM would want with an undercapitalized savings and loan with a customer base that primarily responds to the value proposition known as “free checking”. How exactly does that fit their business model? If you said WFC I might find it a more believable rumor – but I doubt they could afford the potential liability.
Rob Jellinghaus » Jul 14, 2008 at 4:02 pm
What about Wells Fargo? What little I’ve read indicates they’re one of the less exposed banks. Which is a relief, because our money market and checking accounts are with them. (Our IRAs are managed by them, but are invested in a diversified way, so not under their roof per se.)
I’m most concerned now about our cash. We sold our California house after one week on the market — we had to drop the price 10% in six days, but it was the best move we ever made. Now we have about $90K in cash sitting in our Wells Fargo money market. If Wells Fargo starts getting into FDIC trouble territory it will make us start losing sleep. Anyone have any indication that Wells Fargo is going to get slammed to the point of becoming insolvent?
jon » Jul 14, 2008 at 4:06 pm
If people think that WaMu loans are bad, then they will fear that the cash flowing into WaMu will not be sufficient to repay their deposits. So they move their money to other banks to get it under $100,000 per account, as seen in the comments in this thread. That cash outflow can cause the bank to fail its reserve requirement, so whatever regulatory agency will come in and zero out the stockholders.
Other banks would not want to buy WaMu, because they are worried about the downside eating up their own equity. Other buyers are probably holding back waiting for a failure, and then they will buy it from the government after everything has been written down.
Adam J. » Jul 14, 2008 at 5:14 pm
You better make sure your not over the FDIC limit on WAMU!! WAMU will go under, it’s not a question of IF but when. Although the FDIC only closes banks on Friday’s so you atleast have until the end of the week. Don’t be like the idiots @ indymac who are lining up AFTER the fact to get there money. If your gonna make a run on the bank you do it BEFORE it’s shut down not after. Too many banks that are run well to stay with a crappy one. Although, EVERY bank is technically crappy because we run on fractional reserve banking. Regardless get out of WaMu if your over the FDIC limit!!!!!!!
david losh » Jul 14, 2008 at 5:16 pm
Washington Mutual bought H.F. Ahmanson & Co. in 1998. Ahmanson was used by many investors to buy high risk property. That was the stake through the heart of WaMu and the appreciation up until now was the only life support.
Garth » Jul 14, 2008 at 5:20 pm
If you want a conservative / safe bank, Washington Fed would be one option. credit unions are also generally more conservative as they work for all members instead of being profit driven.
It does seem like IndyMac was a very very risky S&L with its Alt-A loans to big to sell to freddie and fannie and may not be a great yardstick for other banks. There are certainly more banks out there with problems, but it is hard to imagine another bank having a worse business model than having almost exclusively no doc jumbos concentrated in California.
It should also be noted that thus far, taxpayers have not paid a dime to bail out IndyMac the FDIC reserves are from fees charged to the banks by the FDIC and and stand at over 50 billion. The IndyMac is going to reduce those reserves by 4-8 billion dollars, but it is not taxpayer money.
From what I have been able to read about the Fannie/Freddie situation today so far it is more of a backstop than a bailout with more credit being made available to both firms. Paulson did ask congress for permission to purchase stock in both, but seems to be trying very hard to avoid a bailout.
mikal » Jul 14, 2008 at 5:27 pm
I’m having my own panic. Inbev bought Anheuser Busch and I’m scared that they might change the secret formula of Bud Light. Who cares about the stock prices. THE HORROR.
Michael Long » Jul 14, 2008 at 6:33 pm
Wow, thank god the FDIC has an entire 50 billion to bail out the banks. What a joke. Let’s put this in perspective.
1. Fannie and Freddie have 5.4 TRILLION IN ASSETS
2. The US GDP is 13.4 TRILLION
3. The FDIC has to insure 1.5% of deposit holdings. The market dropped 81% in 1929 so obviously they are more than ready to bail us out.
4. Glass Stiegel is GONE!!!!!!!! The depression era laws have been repealed.
5. The banks have all losses in Structure Investment Vehicles so everything is gone. Why is CITI (the guys who repealed Glass Steigel) hiding in that 1 Trillion dollar off book mess.
If you think that 50 billion is going to save anyone then I have a beautiful Belltown condo that is a great investment. I’d love to show it to you.
AndyMiami » Jul 14, 2008 at 6:48 pm
How many people have deposits greater than $100K in WAMU…many did at IndyMac..the run on banks is just beginning…Over leveraging and deflating assets are a toxic mix…it’s a bit scary and most have no idea that we are in a heap of trouble…I used to think of a 20% correction in Seattle…closer to 40%…and maybe more…SELL ALL…
TJ_98370 » Jul 14, 2008 at 7:08 pm
mikal said:
I’m having my own panic. Inbev bought Anheuser Busch and I’m scared that they might change the secret formula of Bud Light. Who cares about the stock prices. THE HORROR.
I was wondering when someone would mention this obvious THREAT TO THE AMERICAN WAY OF LIFE! THIS IS A TRAGEDY! FORGET THE TERRORISTS, PEOPLE! ARE WE GOING TO HAVE TO LEARN THE BELGION LANGUAGE IN ORDER TO BUY OUR FAVORITE BREW!?! ARE THE CLYDESDALES GOING TO ANIMAL SHELTERS!?! PEOPLE, GET YOUR PRIORITIES STRAIGHT!
.InBev Buys Anheuser-Busch for $49.91B,
….The board of Anheuser-Busch (BUD: 66.87, +0.37, +0.55%) on Sunday agreed to sell itself to Belgian-beer giant InBev NV for $70 a share, for a total value of $49.91 billion. The combined company will be named Anheuser-Busch InBev and Anheuser will get two seats on the board…..
matthew » Jul 14, 2008 at 7:57 pm
AndyMiami,
I believe if I remember right, WaMu has about 18 billion in deposits over the FDIC limits, but I could be wrong.
TJ_98370 » Jul 14, 2008 at 8:29 pm
AndyMiami said:
How many people have deposits greater than $100K in WAMU…..
.
I have that exact situation with the rather hostile elderly mother of my significant other…..
.
Oh-oh, I got caught writing this stuff. I have to take the garbage out….
.
AndyMiami » Jul 14, 2008 at 8:30 pm
matthew // Jul 14, 2008 at 7:57 pm
AndyMiami,
I believe if I remember right, WaMu has about 18 billion in deposits over the FDIC limits, but I could be wrong.
The key question is what % of their total deposit base is the 18 billion…that’s the part that will potentially create a run and that is what the market signaled today.
There will be a run on WAMU and they WILL be taken over by the FDIC in the next few days..
That will really help SEATTLE house prices..NOT..even though most of their junk exposure is in CA and FL….but there is domino effect..just in the last few days I have seen a significant increase in homes listed for sale in Mercer Island..
PEOPLE HAVE LOST CONFIDENCE……..pictures of ordinary folks lining up to get their money from IndyMac scare the living …..out of me…
Really really…we are in a deep insolvency crises created by many years of over spending both private and government sectors…the pain will be long..
I do not enjoy stating this…but it’s inevitable…there will be a significant decrease in the American Dream..
CAPITALISM IN CRISIS…be a vulture, be in cash, and then go for the dead bodies…how exciting…and bloody
Good night and Good Luck..
mukoh » Jul 14, 2008 at 8:38 pm
Whoever wrote that article that this blog uses as a factual matter is either uninformed or simply another one with no knowledge other then Martha Stewart or Fox News.
Both of those institutions are bailed out for reasons that their portfolios of loans are stronger then those of banks that have failed.
QUOTE
Now here’s the problem – while Fannie and Freddie are claimed to be all 80/20 full-doc loans this is in fact a lie.
END QUOTE
That statement has no factual data behind it and is a lie in itself.
Jonny » Jul 14, 2008 at 8:40 pm
For a while, I think this is going to be more like the American nightmare.
And Seattle may be last in line for trouble, but I’m starting to see evidence in my daily life of problems. A couple small examples: during a normal commute time, highway 99 was completely open, a couple of my favorite restaurants where seating used to be difficult to find are now wide open even during rush times, the local yuppie grocery up here on Phinney Ridge is reducing hours and has bare shelves in some places. Now why would people with million-dollar homes be sensitive to food prices? Is Seattle really going to be more resilient than any other part of the country in a full-fledged financial crisis? I have my doubts.
mikal » Jul 14, 2008 at 8:47 pm
Andy Miami, While I don’t always agree with Matthew and find him to be an even bigger a$$hole than myself, he actually comes up with some good stuff and usually has some data behind it. You, however, are completely full of "chocolate".
AndyMiami » Jul 14, 2008 at 8:52 pm
Jonny // Jul 14, 2008 at 8:40 pm
For a while, I think this is going to be more like the American nightmare.
And Seattle may be last in line for trouble, but I’m starting to see evidence in my daily life of problems. A couple small examples: during a normal commute time, highway 99 was completely open, a couple of my favorite restaurants where seating used to be difficult to find are now wide open even during rush times, the local yuppie grocery up here on Phinney Ridge is reducing hours and has bare shelves in some places. Now why would people with million-dollar homes be sensitive to food prices? Is Seattle really going to be more resilient than any other part of the country in a full-fledged financial crisis? I have my doubts.
Totally agree..nothing is immune from a GIANT solvency crisis across all types of debt, from mortgages to credit card, from commercial real estate to LBOs…
Be all in cash and the opportunities in a couple of years will yield handsome profits, much higher then the local house FLIPPERS could have ever dreamed of…
Bloody, that’s the only way to describe it…but again, take advantage of the financially challenged knowledge that most Americans including SEATTLE have today.
david losh » Jul 14, 2008 at 8:58 pm
I came back tonight looking for Renters Are Losers, any one?
And yes Budweiser being sold to Europeans is devastating. I’m packing.
mikal » Jul 14, 2008 at 8:58 pm
If inflation does hit that cash will be worthless.
AndyMiami » Jul 14, 2008 at 9:22 pm
mikal // Jul 14, 2008 at 8:58 pm
If inflation does hit that cash will be worthless.
Actually we are about to experience the greatest DEFLATIONARY period since the depression and having cash will be KING…not sure what currency will win, but my bet is the dollar, after the mess is cleaned up..oil and other commodities will fall due to many factors from DEMAND DESTRUCTION to over leveraged hedge funds selling to make gains to cover losses…derivatives will accelerate and deepen the deflationary spiral…
mukoh » Jul 14, 2008 at 9:27 pm
AndyMiami
QUOTE
Be all in cash and the opportunities in a couple of years will yield handsome profits, much higher then the local house FLIPPERS could have ever dreamed of…
END QUOTE
People with lots of cash right now are really doing clean up unlike I have seen in a while. 10-20 homes $50-$60k i.e. 15-20% below current loan amounts in package from banks REO books at 3% 5 Year financing. Homes were listed for $380k each. Same bank new loan new owner.
AndyMiami » Jul 14, 2008 at 9:32 pm
mukoh // Jul 14, 2008 at 9:27 pm
AndyMiami
QUOTE
Be all in cash and the opportunities in a couple of years will yield handsome profits, much higher then the local house FLIPPERS could have ever dreamed of…
END QUOTE
People with lots of cash right now are really doing clean up unlike I have seen in a while. 10-20 homes $50-$60k i.e. 15-20% below current loan amounts in package from banks REO books at 3% 5 Year financing. Homes were listed for $380k each. Same bank new loan new owner.
Interesting..where, which banks, where listed…I would buy given those discounts
mikal » Jul 14, 2008 at 9:35 pm
Cash can’t be king. We owe too much money. When the depression hit the country wasn’t in debt like now. The US was KING then. No more. There are other countries with economies that may be better structurally than ours. They make things. We don’t. Are we going to buy our way to prosperity. I think not. This country will have worthless currency until the government gets it’s finances in order. Are you enjoying that worthless rebate? Lets spend more money we don’t have.
mikal » Jul 14, 2008 at 9:56 pm
Our countries current economy can be put directly on the shoulders of George Bush. His tax cuts have made the dollar worthless. Sure, we have all saved a couple hundred here and there. The truly rich saved thousands. When I fill up in six month I will have used the money I saved from my tax cuts from increased fuel cost. The only problem is that gas isn’t going to drop then. There is never a free lunch and that is the payment. Bush has also caused the housing bubble by deregulating the banks. The worst president ever and truly THE STUPIDEST PERSON ALIVE. Quite a mess he will have left us.
rent for now » Jul 14, 2008 at 10:04 pm
WaMu got a private equity infusion of $2 billion at $8.75. That’s not looking too good for those folks. They are in no position to raise more capital. WaMu CDS closed at around 720. For comparison, the CDS for Nat City closed around 560 I think. WaMu preferred dropped to $5.90. This thing is toast.
mukoh » Jul 14, 2008 at 10:09 pm
AndyMiami
Homes were listed as new construction at $380k+ some were $410k recently before this they were $465k by the builder. They were never listed as REOs nor do transactions like this hit the MLS for obvious reasons like future appraisals.
The bank let the builder go, and moved them to this entity currently using funds for these properties as long term holdings. 4 of the homes got rented this weekend.
Ira Sacharoff » Jul 14, 2008 at 10:11 pm
Mikal,
I’ll agree that GW Bush has been the worst President in the last 75 years, at least, but I don’t think he’s quite as dumb as he looks and sounds. Frat Boy Alcoholic Executioner, sure, but I think he’s probably of average intelligence, but sure sounds like a moron.
b » Jul 14, 2008 at 11:46 pm
Bush isn’t stupid at all, he is very smart. He and his cronies have achieved nearly everything they wanted to (except Iran, but we have a few months for that) in the last 8 years. The problem is that what they wanted to accomplish is completely opposed to what is good for the country about 99.9% of the time.
harbored » Jul 15, 2008 at 2:32 am
I believe we are right now staring into the abyss, today this house of cards topples. Freddie and Fannie are basically frozen. It’s over. I’m serious. Leveraged out = crapped out. You gambled, you lost. You don’t get another roll of the dice. The house isn’t going to offer you another marker. The market for all speculative mortgages has evaporated. It no longer exists. Next we are going to cycle into credit choke hold in all other forms of consumer debt. And just think, mortgages are the grade A prime of consumer debt, at least they are backed by (inflated) assets. By Christmas we are going to see historic levels of defaults on autos, and credit cards. The credit tap is turned off folks. No rescues, no refi’s, no consolidation, no bailouts, at least for a quarter or 2. This is really going to suck.
Buceri » Jul 15, 2008 at 3:55 am
I have no idea what you people are talking about. I watched Fox Business and Fox News and they say the economy is doing great.
Oh; this just in…
“Mich. cities say hundreds of manhole covers stolen”
Mon Jul 14, 7:00 PM ET
Officials in Flint, Mich., say they’ve had to replace hundreds of manhole covers and grates that were probably stolen and sold for scrap.
The Flint Journal reported Monday that nearly 400 cast iron covers and grates have been taken from streets in the past year. A cover can fetch $20 from a scrap yard but can cost the city more than $200 to replace.
Officials in neighboring Burton say they’ve lost about 200 covers and grates during the same period. Utilities supervisor Mike Holzer says it leaves behind holes up to 35 feet deep.
Genesee County officials say they’ve been able to reduce thefts of county-owned covers by outfitting them with a bolt that is turned by a wrench only they have.
This is also happening in Caracas these days.
Richie » Jul 15, 2008 at 6:23 am
Buceri:
The stolen manhole covers cannot be sold as scrape metal anywhere in US. Morelikely, they were shipped to foregin countries.
Buceri » Jul 15, 2008 at 6:32 am
Richie –
You never know, my friend, you never know.
matthew » Jul 15, 2008 at 7:05 am
I’m sure B-52 will have it all figured out when he addresses CONgress today.
The market no likey today. Apparently reality is sinking in on Wall Street. More articles today about how Wachovia is in deep. Bill Ackman just announced that he is shorting Freddie and Fannie, little late to the party Bill?
KaBOOM!
John » Jul 15, 2008 at 7:21 am
Maybe eleua’s worst case scenario is coming true after all. I think we are either near capitulation or another great depression. Common sense tells me this mess is far from over. But if the system is going to survive, there has to be stocks that are bargains right now.
mark » Jul 15, 2008 at 7:22 am
I too came looking for RAL. His SSO is getting smoked this morning!
I think Big Ben is wiping the tears away from RAL’s eyes as well as the snot from his nose and assuring him that all will be taken care of!
matthew » Jul 15, 2008 at 7:27 am
Maybe RAL was an IndyMac employee….
Sniglet » Jul 15, 2008 at 7:39 am
I am definitely in the Eleua camp, expecting to see 80% plus price drops (on average) in Puget Sound area real-estate by the time we hit bottom.
That said, I am NOT predicting a collapse of society or anything. Japan experienced an economic crash in the 1990s (90% drops in property values and a big whack to stop prices) but life didn’t come to an end. Likewise, I expect that life will still go on in the pleasant northwest (hey, I love this region) even after a major contraction in economic activity.
Heck, even the great depression wasn’t so bad. 80% of Americans were still gainfully employed during the recession. Listening to my grandparents tell stories it sounds as if they had a fulfilling, if frugal, childhood growing up in the ’30s. Frankly, I am looking forward to a re-allignment of social values so that there isn’t the same peer-pressure to be so materialistic. I want my children (ages 3 and 5) to grow up in a saner society where it isn’t just EXPECTED that we go out and buy whatever we feel like.
I already feel a little heartened by the fact that fewer of our friends, family, and acquaintances are giving my wife and I a hard time about not buying another home (after we sold our previous one). It was just so stressful dealing with in-laws who had contempt for me due to their belief my financial ideas were woefully mis-guided (i.e. which did NOT include buying a house that would appreciate).
Even at work, I am looking forward to a return to reality. So many of my colleagues are still stary-eyed about the consumer society, thinking that we should structure our business around the high-end (with its attractive high profit margins). Everything will change when it becomes apparent that customers are really going into survival mode, and really aren’t interested in “fluff” anymore.
vboring » Jul 15, 2008 at 7:41 am
@TJ
i don’t think we’ll have house prices actually rising anytime soon, but if price inflation is big enough, maybe the real house price declines will happen mostly through inflation rather than seeing nominal price declines.
this would look like stagnating (or slowly falling) housing prices while everything else rapidly gets more expensive and incomes (well, some incomes) rise at the same rate as everything else.
basically what we’ve seen for the last year, but to a greater extent and with higher RE loan interest rates.
Sniglet » Jul 15, 2008 at 7:48 am
Inflation? What inflation? If we were headed towards an inflationary period we should be seeing significant increases in real-estate and housing prices. Every case I know of, where a country experienced great inflation, saw asset prices rise.
And what about treasury yields? Why are T-bill rates so low if we are headed for inlation? A big rise in sovereign debt interest rates is another key pre-requesite for inflation. Let’s not even talk about wages (seen inflation there lately?)…
Sure, we are seeing commodities appreciate recently, but this is just the last gasp of the credit bubble. Once the global economy begins to conract there will be a collapse in demand (yes, even the Chinese will consume less crude oil when they start closing their export factories throwing many millions out of work).
No, I suspect we will see continued low interest rates AND collapsing asset prices for a long while to come. This is what happens in a credit crunch (i.e. the money supply shrinks, since credit is money).
Buceri » Jul 15, 2008 at 8:06 am
Sniglet wrote:
Frankly, I am looking forward to a re-allignment of social values so that there isn’t the same peer-pressure to be so materialistic. I want my children (ages 3 and 5) to grow up in a saner society where it isn’t just EXPECTED that we go out and buy whatever we feel like.
Wow, Sniglet – I thought I was the only one!!!! Thank you!!!
vboring » Jul 15, 2008 at 8:12 am
sniglet, that is a fair point.
if worldwide consumption is decreasing, price deflation will result.
the only way that we would continue to have price inflation in the US under these circumstances is if the dollar were devalued faster than worldwide prices could fall.
this could only happen if we had a Fed reserve board that believed we were headed for another depression and used all kinds of crazy monetary easing to prevent it from happening and turned our currency into confetti in the process.
mukoh » Jul 15, 2008 at 8:38 am
Sniglet // Jul 15, 2008 at 7:39 am
Maybe eleua’s worst case scenario is coming true after all. I think we are either near capitulation or another great depression.
I am definitely in the Eleua camp, expecting to see 80% plus price drops (on average) in Puget Sound area real-estate by the time we hit bottom.
END QUOTE
I agree sniglet, I see prices dropping actually more like 95%. And then we know for sure it is bottom. Unless it hits that then we never know.
rose-colored-coolaid » Jul 15, 2008 at 8:40 am
vboring, I think you are wrong here. It is conceivable that the dollar could more or less keep its value, the economy in general could be mediocre, and some commodities could continue to increase in cost.
This is the scenario where US consumerism drops due to credit unwinding, but international economies (with savings) continue to grow at low sustained rates. The large group of people going from dirt poor to just poor in these other places could increase total demand on commodities like oil and copper while not actually helping the US economy much.
Nobody seems to believe that it’s possible for world economies to grow unless the US is forcing it to happen, but they are absolutely wrong. We’ve been acting as a parasite on the global economy for about 15 years now, and if that stops due to a combination of lower consumerism and lower debt creation, people in other parts of the world will just get an opportunity to enjoy the fruits of their labor.
Captain Kirkland » Jul 15, 2008 at 8:58 am
Just wanted to point out the Freddie and Fannie don’t have 5 billion in debt. They insure 5 billion in debt. Huge difference.
WAMU has tons of capital. Great long term buy in the stock below 4.
Buceri » Jul 15, 2008 at 9:51 am
Interesting that inventory did not take the standard Monday early morning beating yesterday and held (actually kept increasing) strongly over 13000.
Sniglet » Jul 15, 2008 at 9:54 am
I agree with b, Bush is actually very smart. He’s about to become far far richer, when the payoffs from all his illicit doings begin on 1/21/09. I expect him to make at least $200K per hour from speaking fees from the oil industry.
The best thing people can do is shun their Republican neighbors. They are the real problem. They vote but largely don’t believe that Bush has anything to do with today’s economic woes. Bush is just their figurehead.
Markor » Jul 15, 2008 at 9:56 am
That last comment was not from Sniglet; it was from me. (Work caches the mail addresses enterprise-wide.)
matthew » Jul 15, 2008 at 9:58 am
People please, wrap this concept through your minds. We are not seeing wage inflation! Wages are stagnant. The only inflation we are seeing is in commodities!!!! You are not going to see any effect on housing values via inflation if we do not have wage inflation. PERIOD. That’s why these cookie cutter definitions are relatively worthless.
Prices in housing is dropping nationwide. This is deflationary. Prices will drop dramatically. It’s not like people are making more money right now to counteract the drop in values. If anything, price inflation with stagnant wages will drive house values down further.
Sniglet » Jul 15, 2008 at 10:17 am
I think we have an imposter “Sniglet” here. For the record, I never made the above post. I suppose that mimicry is the sincerest form of flattery, so I should feel elated. But someone I don’t…
Sniglet » Jul 15, 2008 at 10:18 am
I meant to say “somehow I don’t”…
Captain Kirkland » Jul 15, 2008 at 10:23 am
Stop blaming Bush…its tired and pathetic. Many people from both the left and right side of the aisle aided in the process.
Anyone know who mandated that subprime loans be issued to lower income people in masses?….Bill Clinton.
vboring » Jul 15, 2008 at 10:26 am
the incomes of many people who buy houses are tied to CPI.
wage inflation exists for people who are in demand and those who belong to a union.
Markor » Jul 15, 2008 at 10:39 am
Yeah, in 7.5 years Bush couldn’t possibly change anything Clinton did, if it wasn’t good for the country, even with his party firmly in control in Congress. It’s time to stop blaming Clinton, I say. Bush is at least 80% responsible for current economic woes. If he hadn’t borrowed $5 trillion (actual & inevitable), we’d be in way better shape today. The country has been all but bankrupted to make the rich richer, and we’re feeling the effects now. What’s Bush’s answer to the economy? Borrow more, of course. [/rant]
Sniglet, see my message after the imposter one. Our work sometimes caches the email addresses enterprise-wide, which I didn’t notice this time.
mukoh » Jul 15, 2008 at 11:05 am
There was no mandate to issue subprime loans in masses.
The secondary market kicked up from the surplus of funds available from hedge funds and private equity. Which in turn allowed a large number of people to get into originating loans under credit limits depending on volume then selling them on the second market asap. And of course most of them fudged numbers/appraisals/incomes and the such. Which a few are going to jail soon, most will stay out.
In the hay day of all this a brokerage in bellevue was originating 10-20 loans a day and selling them the next day on the open market for a point/point and a half, now thats good money at that time.
Subprime and exotic loans have always been there since the get go, in those times however brokers and lenders were competing to get the lion share of the business in order to make the most of the market, thus finding more buyers in that category to lend to. This led to guidelines being very loose as they had to compete against each other.
I mean who the hell came up with programs like 80/20 Stated, Bankruptcy 6 months ago, as well as a 40 year amortization? Same people that needed to originate that loan package it and sell it for profit.
Michael Long » Jul 15, 2008 at 11:13 am
Anyone know who mandated that subprime loans be issued to lower income people in masses?….Bill Clinton.?
Anyone know how ordered the Fed to start suing the states for inforcing preditory lending law…. George Bush?
I am a Democrat but I like to point out to my democratic brothers and sisters that the dems are not that much better than the Republicans. The repeal of depression era protections happened under Clinton. I’m in no way saying that the Republicans are not complete and total idiots, who have done everything they can to deregulate mortgages, credit cards and student loans. However, I would like to point out that everyone has a hand in this mess. If and when we have a democratic president and house we need to take our people to task when they do sleazy things not just say “Well at least they are better than Republicans” While I agree the dems have more common sense than the Republicans. We have too many people like (Hedge Fund) Harry Reid and John Edwards. Or our two senators from Boeing – Cantwell and Murry who need to start practicing what they preach. It is not enough to say the Bush is an evil little prep school, supply side idiot. We need to make sure that our democratic senators don’t line their pockets while they condemn Bush.
Buceri » Jul 15, 2008 at 11:16 am
OK – this is when it gets ugly. Let’s leave the politics out.
WestSideBilly » Jul 15, 2008 at 11:17 am
Markor » Jul 15, 2008 at 11:32 am
Yep, let’s keep ignoring the root causes of the housing bubble and other economic woes. That’s okay, people doing that en masse is doing wonders for my net worth.
Jimmythev » Jul 15, 2008 at 11:42 am
Drove past a few Wamu’s today… lines before the bank opened… has the run started…
Markor » Jul 15, 2008 at 11:45 am
Pensions they’ll not see anyway, or they’ll see just 35 cents on the dollar after it’s been raided and the fed takes control of it.
Wait, union talk is political. Scratch that from the list of discussion topics too then.
B&W Nikes » Jul 15, 2008 at 12:19 pm
Police are restoring order with angry bank customers outside an IndyMac branch in Encino, interesting KTLA video on the latimes website. People are getting steamed on day 2.
http://www.latimes.com/business/la-fi-indymac16-2008jul16,1,2521386.story
matthew » Jul 15, 2008 at 12:19 pm
Markor,
Leave your political ideology off the bubble forum please. The root cause of the bubble lies squarely on the shoulder of the monetary policies of the federal reserve, both Clinton and Bush have exacerbated the problem, but the Fed is enemy #1.
You can’t join a single discussion on this website without bringing politics into the fray. You obviously have an axe to grind that would be better served on some left wing web forum.
Markor » Jul 15, 2008 at 12:44 pm
I said it’s okay if we ignore the root causes of the housing bubble and other economic woes. Monetary policy is political too–please don’t mention it again. You’re offending me. I want to be ignorant of anything underlying this housing bubble.
Sniglet » Jul 15, 2008 at 12:59 pm
I have to disagree. Bubbles are more the result of general sentiment, and generational patterns, than they are due to government policy. Sure, governments can exacerbate bubbles, but policymakers themselves are just representations of the cultural trends. When everyone is feeling bullish they will elect bullish leaders, who will appoint bullish bureaucrats.
Whenever you get far enough away from the last major economic downturn (the great depression, in this case), people start to feel invulnerable, and take unconscionable financial risks. No matter how strict a regulatory regime is put in place over the next few years I don’t think it will do much to prevent the next major bubble 80 years from now.
jon » Jul 15, 2008 at 1:04 pm
Since when is it the government’s job to prevent anything bad from ever happening? People lined up on their own to get in on the largest Ponzi scheme ever conceived, that of ever increasing housing prices. I for one do not want to have to get the government’s permission to borrow or lend because some lowlife in CA is handing out 500K mortgages to illegal immigrants.
Shane » Jul 15, 2008 at 1:04 pm
People who blame the Republicans for all the problems are half right.
B&W Nikes » Jul 15, 2008 at 1:07 pm
Major adjustments like this happen more than once every 80 years, and nearly every single one of them is driven on the upside and downside by policy.
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States
Captain Kirkland » Jul 15, 2008 at 1:11 pm
I don’t want to get political. In fact, most of our politicians are rhetoric filled baboons (on both sides of the aisle), so its pointless to take sides. I’m not saying Bill Clinton caused this mess. My point is that fingers can be pointed in a lot of directions, and pointing your finger solely at George Bush is ignorant.
If anyone should be blamed, its Angelo Mozilo. He and Countrywide popularized the exotic mortgages. That is at the heart of this mess. When a guy making 50k a year could walk in and get a 600k mortgage, it artificially increased prices…and now we’re paying the piper
Markor » Jul 15, 2008 at 1:17 pm
Since when should it not be the government’s job to prevent bad things from ever happening, that are in government’s control to prevent? Mercury poisoning of rivers, for example. Recessions are firmly in the government’s control to prevent.
Markor » Jul 15, 2008 at 1:20 pm
If we are to be unpolitical here, that should include as well comments suggesting that a party is not overly to blame.
Buceri » Jul 15, 2008 at 1:23 pm
Politicians won’t do anything. These days to ask for sacrifice (drive slower, contribute MONEY to the cause if you really support the troops) it’s un-American. True Americans don’t change their lifestyle, they continue buying crap left and right and then have garage sales to sell the same crap at 20cents to the dollar.
This has to be a classic:
http://www.youtube.com/watch?v=pKv6RcXa2UI
Let’s get back to inventory –
It’s been stuck at 13203 for a few hours now….
Lake Hills Renter » Jul 15, 2008 at 1:34 pm
I tend to agree with many of your political opinions, Markor, but I also think that political rancor is not helpful here and only serves to polarize people and disrupt discussion, so it’s better left out. And your attitude about being called on it is coming off as a bit childish.
jon » Jul 15, 2008 at 1:37 pm
Markor,
My preference is to live in a country where people are free to innovate, take risks, and enjoy the consequences thereof, positive or negative. I don’t mind a few rules about mercury, or some constraints on issuing federally guaranteed loans, but restrictions designed to insure strict monotonic growth in the a country of 300 million free individuals seem likely to prevent innovation and do more harm than good. If a few exceedingly poorly managed mortgage houses and highly overpaid stock brokers go under, so be it. Likewise for people who pay hundreds of thousands for a tiny patch of arid land hours from the nearest job. Aside from those people, there just isn’t a recession right now.
Shane » Jul 15, 2008 at 1:37 pm
Governments can not prevent recessions. Possibly delay them but ultimately corrections will occur. That foolishness is exactly the problem. Constantly wishing away malinvestment instead of letting the system properly flush itself. Too many people believe this, off all political strips, which is why I said blaming Republicans is only half right.
David McManus » Jul 15, 2008 at 2:01 pm
http://www.bloomberg.com/apps/news?pid=20601087&sid=a5P_x5HfhQA0&refer=worldwide
SWEET!!! MORE FREE MONEY!!!!
I knew Congress would save us!
matthew » Jul 15, 2008 at 2:08 pm
Markor with another wingnut political thread hijack. Nice work once again. Take your rants to moveon.org.
Maybe you should do a little research before pointing a finger at one side over the other. President Clinton signed the bill that repealed Glass-Steagall in 1999. Amazing what 200 million spent in lobbying (Citigroup) will get you. This allowed commercial banks and investments banks to merge and is one of the largest reasons for our current banking problems.
Both sides are equally to blame for the fall out. Barnie Frank, Nancy Pelosi, Chris Dodd, and plenty of other morons on the hill have been arguing for raising caps on Freddie and Fannie, bailing out homeowners, and throwing money at the problem. Chris Dodd in particular is OWNED by Wall Street. Take a look at his campaign donations, he is also a “friend of Mozillo” and saved 100k on financing on his house from CFC.
They are all corrupt. Don’t let your ideology blind you.
mark » Jul 15, 2008 at 2:52 pm
Here is a good story from the Washington Post on the subprime mess.
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html
“Since when is it the government’s job to prevent anything bad from ever happening? People lined up on their own to get in on the largest Ponzi scheme ever conceived, that of ever increasing housing prices. I for one do not want to have to get the government’s permission to borrow or lend because some lowlife in CA is handing out 500K mortgages to illegal immigrants.”
Jon, I tend to agree with you in principal, but these are the institutions that have now turned their grubby little faces to the government and are looking for a handout. If they want help from the public then they are going to have to put up with some regulation.
Markor » Jul 15, 2008 at 3:54 pm
The pot calling the kettle black. You just used me to make your own political statement. Also I only responded to others’ political posts above. Can’t we all just get along and ignore what caused this mess already? Folks, IndyMac not being on the FDIC’s “troubled bank list” has nothing to do with the rich getting richer. That they got richer from that omission was just a coincidence. Nothing to see here.
Markor » Jul 15, 2008 at 4:01 pm
That doesn’t work, and that’s been clear for a decade at least. The strategy for financial institutions now is to become “too big to fail”, by making gigantic bets with a relatively small amount of capital underlying those bets. Then the gov’t must step in, or else the economy is harmed more. It’s clear that further regulation is needed.
matthew » Jul 15, 2008 at 4:12 pm
Markor,
I wasn’t making a statement, just proving the point that both liberals and conservatives are to blame for the mess we are in. Both Clinton and Bush promoted the home owner/American Dream society. Both encouraged lending money to people that had no business receiving loans. Look at the campaign contributions for most candidates on both sides and you will see that their pockets are lined with Wall Street money.
The blame is on both sides of the aisle, but perhaps you are aligned too far with one side to see this.
Markor » Jul 15, 2008 at 4:19 pm
The system will not be allowed to properly flush itself. Isn’t that obvious? And if that can be prevented, then why not recessions too? The people who have been given the ball to do with as they please are manipulating the situation to their advantage, as usual. They profited on the way up, and they’ll profit on the way down, all by design. I think recessions are just as preventable as war. But then plenty of people think that war is inevitable too.
matthew » Jul 15, 2008 at 4:27 pm
Markor,
Attempting to prevent recession is exactly what caused this mess. Instead of a recession we got two gigantic bubbles.
Bailing people and institutions out causes moral hazard. Institutions should be allowed to fail. Why privatize the gains and socialize the losses? Golden parachutes should not be the norm and company stockholders should be given more power and influence over top level decision making.
I don’t follow your logic saying that war is analogous to an economic cycle. War is preventable, that much is true. But the economic cycle is inevitable.
Markor » Jul 15, 2008 at 4:43 pm
That is a political statement, no different tham blaming one group more than another. Something that happened 7.5 or more years ago is just an excuse in my book. Why not blame Lincoln while were at it?
The Tim asks, “So how bad could this get?”. Well, the prediction depends on who’s in power, and what they have done so far. Given what I have witnessed, things will get far worse then they need have. I do not buy the argument that the representatives have little control over the monetary policy. I think the goal is to squeeze the common person as much they can possibly be squeezed and still have them show up for work, so that the few can buy bigger yachts. If you believe that the party that has the stranglehold now creates recessions on purpose, then you may come to a different conclusion about how bad it can get.
matthew » Jul 15, 2008 at 4:58 pm
Uh, because Lincoln wasn’t in office when the first major economic bubble leading up to our current crisis was started. Duh.
Our representatives currently think it’s a good idea to bail out people that took out loans they can’t repay. The House and Senate are both controlled by Democrats and a Democrat (along with BofA) authored the bailout bill. One of the few decent decisions Bush has made is to threaten the veto of this bill. Do you really think things are going to be better if the Dems control the White House? If anything the divided government keeps things somewhat balanced.
Markor » Jul 15, 2008 at 5:14 pm
A bubble was to be expected, because profit & power was maximized that way. Had the recession not been prevented, who would be in power now? One group always takes the way out that benefits them and screw the rest & future generations. Now they will benefit from letting the postponed recession happen, be manipulated for maximum gain, and, most importantly, be blamed on the next group, so that power can be had again.
Yes. But they won’t be, not entirely, which goes to “So how bad could this get?”
Exactamundo! But wait, that’s too political for this forum! Stop that talk!
This could be a whole thread. You already pointed to one solution, which is don’t let the losses be socialized. For example, CEO bonuses based on quarterly results could be outlawed, in favor of bonuses based on the long term. Then it would be harder for them to dump losses on employees (e.g. vanished pension) and taxpayers (e.g. superfund cleanup site).
jon » Jul 15, 2008 at 5:30 pm
The problem with this theory of who is taking advantage of who in this recession is that there isn’t a recession happening:
“Today’s data on May international trade prompted several economists to boost their tracking estimates of second quarter GDP growth. Macroeconomic Advisers boosted its estimate to 3.3% (annual rate) from 3% as did HSBC. Morgan Stanley raised its estimate to 3.9% from 3.8%. GDP grew just 0.7% in the first quarter.”
http://blogs.wsj.com/economics/2007/07/12/trade-data-boosts-second-quarter-gdp-estimates/
Markor » Jul 15, 2008 at 5:38 pm
That’s a common sentiment, but it’s really more of a stalemate, since the Democrats don’t have enough control. To get anything done they have to do something palatable to the other side. Guess what’s palatable.
When “better” is changed to “better than if the Republicans retained control” then yes I think the odds of that are very high. Things may well be worse because the next party in power will have a monumentous disaster to deal with. One major party is mostly private servants, the dark side. The other major party are mostly public servants, the light side. Both groups pander to whomever will help get them in office, a necessary evil in the case of the light side, lest our democracy end.
I’d rather there be multiple light-side groups keeping one another balanced, which would require instant run-off voting or some other form of vote prioritization. We’re not there yet.
Markor » Jul 15, 2008 at 5:41 pm
Things are rosy in Cuba too! As always! If we’re not in a recession, then we need a new word to describe what the man in the street is definitely experiencing.
b » Jul 15, 2008 at 5:44 pm
Markor -
You have a very idealized view of the Democrats. The fact is that the Democrats will either 1) do what the Republicans want because its similar to what the large amount of Democrats with corporate masters want or 2) Won’t do what the Republicans do not want, because they are cowards and think Hannity might say something mean and they will lose re-election. Either way the Republicans win, at least when they controlled congress it was less frustrating getting screwed.
Markor » Jul 15, 2008 at 5:51 pm
I agree, if there’s no ulterior motive (like something unrelated he wants attached to the bill).
mikal » Jul 15, 2008 at 5:58 pm
I was the one that started the political talk sorry. It was the sale of Anheuser Busch. I must have looked like the picture that lake hills renter uses. They can’t change the secret recipe of Bud Light. My precious.
Markor » Jul 15, 2008 at 6:20 pm
Naughty mikal! Now I want beer.
matthew » Jul 15, 2008 at 6:33 pm
Public servants? By bailing out the people who took out exotic loans (few) and punishing the taxpayer (many) this is somehow a solution? This is about the only solution I hear from the Democrats right now, that and passing an additional stimulus package.
Great solutions, I have so much faith.
mark » Jul 15, 2008 at 7:42 pm
And Henry Paulson went before congress and explicitly asked for a blank check to keep Freddie and Fannie solvent. Any threat to veto that? No, he was sent by George Bush to make that request. Screw the homeowners that are in trouble, but bail out the financial institutions. Where’s the outrage?
shane » Jul 15, 2008 at 8:06 pm
Wow, I suppose I haven’t been paying attention in these threads enough. I didn’t realize how far gone Markor was in looney land. What is amusing to me is that we don’t disagree too much on some of these issues. However your romanticized view of the Democrats is terribly misplaced. Dodd and Frank are completely bought and paid for by the banksters, yet you think they are your savior. Good luck.
matthew » Jul 15, 2008 at 8:35 pm
Mark,
That’s the whole point. They have both sold out, and both sides of the isle. The system is headed for a massive reset and that is much needed. Everyone should brace themselves and position themselves accordingly.
Frank Rizzo » Jul 15, 2008 at 11:14 pm
So a friend of mine has some dough in a Wamu MM account.. should I tell her to get it out and put it in a ‘dependable’ bank ie; Wells Fargo or BoA?
Joel » Jul 16, 2008 at 1:31 am
Is it FDIC insured and under the limit? If it is there’s no real hurry to put your money elsewhere. However she may want to put some of the money in another bank anyway because when a bank fails it may be some time before you get your money back. My dad had a CD at a bank that failed in May and it took 4 weeks to get the money back. It was retirement money so he didn’t need it right away but if her account is her day to day use checking account it might be a problem if she suddenly didn’t have access to it for a month.
johnnybigspenda » Jul 16, 2008 at 8:42 am
banks are looking stronger today… eom
Frank Rizzo » Jul 16, 2008 at 9:31 am
Joel
140k of which 100k is insured…
I don’t want to tell her to do something stupid either. She was the one to originally ask me if she should bail out of Wamu. Heck I’m no expert, just a caring friend.
johnnybigspenda » Jul 16, 2008 at 12:10 pm
did anyone else pick up so UYG in the $14’s? I’m up 30% in two days… time to sell 1/2 and go long on the rest…
Markor » Jul 16, 2008 at 12:52 pm
I said mostly public servants. I said they also pander to lobbyists. I said they can now do nothing that is not palatable to the other side (which is nasty stuff only). Nowhere did I say they are saints, or the best deal for the public. If the voting public really wanted the best system, they’d demand vote prioritization, so we’d have more competition among parties in Congress, rather than just two parties that can easily collude with special interests.
It’s easy to believe that Congress will screw you no matter what; that’s the lazy perspective. Upon closer inspection one major party is obviously far better than the other major party, even if both are far from the best possible.
B&W Nikes » Jul 16, 2008 at 1:16 pm
Whether Ds or Rs, don’t forget the roles of the lobbyists that actually write the policies and legislation that the public servants sign and enforce. The government authors very little from its own hand anymore.
http://www.pbs.org/wgbh/pages/frontline/shows/wallstreet/weill/demise.html
ARDELL » Jul 16, 2008 at 11:13 pm
LOL! Tim! I picked this up on Technorati
P.S. (RE: the title of the post “Sorry Ardell, I just couldn’t resist.)”
It was my first comment to Eleua when the IndyMac news broke. YES…we all DO give a RA about banks this week.
johnnybigspenda » Jul 17, 2008 at 12:23 pm
banks are still on an upswing… the biggest underlying risk the the banking system was overall confidence (or should I say non-confidence that could cause a run on a bank)…. if this confidence continues, the systemic risk goes away and we only have to worry about the tactical issues of recapitalization, not defending against a complete meltdown of the system…
Eventually this confidence (if it can be sustained) will trickle back into lending practices which should give buyers a little more to work with.
Eleua » Jul 17, 2008 at 11:21 pm
Johnnybig,
If you think the biggest risk to the banking system is “confidence,” then you have been listening to Skeletor too much.
The banks biggest problem is their business practices over the past decade and their belief that they could make endless amounts of money on the FACT that real estate always goes up. They loaned money to idiots that could never pay it back, and then levered-up those mortgages into financial products that they sold around the world. They also kept enough for themselves that makes most of them insolvent.
The only thing between us and financial oblivion is all the banks, with the tacit approval of the US Treasury, keeping their mortgage assets marked to a ficticious value that has no relationship to the true market price. They are burning cash faster than is comprehensible and the FEDERAL RESERVE is almost to its limit in liquefying the banks to prevent price discovery of all their MBS assets.
Oh yeah, the ALT-A mortgages have not hit the market yet.
There is more to this than just confidence. This is a very real problem and the biggest news story of the past 12 months has been the intentional obfuscation of the true condition of the banks to create a false sense of confidence.