1. It is “golly” near impossible to tell who actually owns a single mortgage since it is divided into into credit Traunch and then splintered into a million different CDOs.

That’s not true for every mortgage. The mortgages on both my houses are held by local credit unions, and they don’t sell their mortgages.

Credit unions have always been the best deal in town, since they’re oriented toward their members’ benefit rather than “shareholder value” (i.e., picking your pocket to pay the shareholders). There’s a story in the Times today about how credit unions are not at all shaken in the current financial turmoil.

My only quibble with the above article is that credit unions “can’t compete on rates”. BS. When I have shopped for mortgages, the only institution that reliably had better rates was WaMu (and look where that got them)–I’ve written elsewhere about WaMu’s bungling of my first mortgage which meant we wouldn’t give them further business. Anyhow, CU morgage rates have definitely been competetive in the past several years–the loans on our 2 houses are fixed at 5.75 (15 year) and 5.0 (30 year)–though CUs were regarded as having stricter lending practices, which now seems to have been rather prudent. As far as other interest rates (saving, checking, CDs) they’re always better than banks’. And they don’t have sneaky policies intended to rip you off.

Check credit unions out–and then move your checking account from Wamu to Boeing Employees, Watermark, or Verity. Memberships at these CUs is open to anyone who lives or works in Washington state. And because most if not all Credit Unions are in the CU Network you can make deposits and withdrawals at a branch of pretty much any CU, not just the one that you belong to specifically. (You can also make free atm withdrawals at an 7-11 store.)

TJ_98370: WM is up another 42%. You had better jump under the bandwagon before the train leaves the station!

Look at the chart. Nothing but sellers since the opening bell. The buyers were the market makers.

It’s hard to say. Are Costco and Wal-Mart overpriced now, from other people concluding the same thing earlier? I’m not the best person to ask, since I’m more of a risk avoider. I got out of housing and the stock market when losses looked inevitable. Houses prices are falling at about 1% per month; that’s good enough for me for now. I don’t want to chance not having the money to buy again when the housing bottom hits. At the bottom, buying a house can be a good investment as an inflation hedge, including currency devaluations (a la Argentina). If it comes down to gold, guns & food, most of us won’t last long anyway.

Ok, What about Costco and Wallmart. Whatever happens it is going to kill the consumer and people are going to need a cheap way to buy food.

Michael: Good Point. What about gold. I heard a very interesting theory on gold. Since gold really doesn’t do anything its value is a measure of insecurity. What do you think?

I’m too chicken to play with gold as an investment. It’s so volatile (big price swings), and I’m not convinced it’s the be-all hedge against a depression. I may regret my stance though. Peter Schiff, who called a lot of the current mess a couple years ago, thinks gold must skyrocket before the dust settles.

Michael: One word: Treasury Inflation-Protected Securities (TIPS).

or GOLD, GUNS and FOOD.

I doubt TIPS are better than CDs now. Inflation is underreported by the gov’t now, just like gov’t trumps science now. My bet is that the dam will break and CD rates will increase to truly cover inflation and then some. 3-month CDs hit 16% in the 1980s.

1. It is "golly" near impossible to tell who actually owns a single mortgage since it is divided into into credit Traunch and then splintered into a million different CDOs. So unwinding this is going to be impossible. In other words the mortgage backed securities act like counterfit money. As long as you can buy something with it then it has a value but as soon as somone tries to verify the value the value drops to zero. Mortgage backed secruities have no value because the value can not be verified.

2. It is equally difficult to find the swaps on the CDO since they are bought sold and then subdivided. The swaps seem to be more than the original asset (the CDO) as indicated by the size of the derivatives market. It appears to me that more people bet on how credit worthy a CDO was than actually bought the CDO.

3. The CDOs DO NOT appear on the balance sheets of the banks. At least the really toxic stuff does not. The worst debt is sitting in the “virtual banks” – structured investment vehicles. The banks have been lobbying congress to change accounting rules so they are not required to use mark to market accounting principles with these assets. Bush has managed to push off these changes until the next administration.

What the Fed is about to discover is that they don’t have the money to bail us out. The Fed will continue printing money at an expanding rate and devalue the dollar at a record rate as soon as they figure this out. We avoided a severe recession now to buy a depression later.

One word: Treasury Inflation-Protected Securities (TIPS).
or GOLD, GUNS and FOOD.

The fed went and changed the game. Essentially, the banks have been getting margin calls on all of their loans… they are required to have reserves to cover at all times. Everyone was worried that the assets they had were not valuable enough to cover those reserve requirements. These assets were loaned out at 20:1 or higher… that means the fed really only has to guarantee 1/20th or less of the $1Trillion. They don’t actually have to have $1Trillion… they just need to have adequate reserves to back up those loans. The fed basically has now guaranteed that the banks will have adequate reserves.

Even if housing values continue to fall (until they hit historically reasonable levels) it doesn’t matter as much now… the bank’s assets are not tied to this anymore. They don’t need to raise capital to compensate for these losses.

I agree that the whole leveraged banking setup is a giant house of cards, but its a house of cards that will continue standing because thats what the fed wants.

If that is what the fed wants (and they can change the rules at anytime to make sure they win the game) I wouldn’t bet against that.

The world’s central banks pumped $180 billion of liquidity into the world financial system last night. Will this mark the bottom in the stock market?

In the short-term, possibly. In 1929 and other financial crises, massive liquidity injections often turned short-term sentiment. But when the fundamentals are bad enough–as they are today–the market usually quickly returns to trend.

This was just what we can expect when the foxes are in the hen house. Big shareholders who didn’t get out yet sell into the rally, soaking up a lot of that $180 billion in just minutes. WM is down 20% from the opening bell.

Actually….HOW are WE going to pay for this?

650 mill shares in 10 min ……..

God Bless the FED!

I must find a Bernanke Poster and place it in the office.

Correct me if I’m wrong, but if a borrower cannot (or will not) pay off a loan that he aggreed to pay off, then the loan and the property return to the lender. The lender loses a ton of money in this process, and if this happens enough times (as is now happening), these big lenders fall into insolvency.

OK, I get it. Blame the lender. But I just can’t get past allowing a borrower to get a small dent in their credit rating, and just walk away, with maybe massive funds left over in retirement savings (IRAs & 401Ks and the like).

Why wouldn’t we be better off holding these irresponsible borrowers accountable for their commitments? I don’t think we as a nation should let them file bankruptcy and walk away from their obligated debts and retain their cushy retirement wealth. This just leaves lenders (and now tax payers) holding the bag.

As Charles Dickens wrote in David Copeprfield, “Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pound ought and six, result misery.”

I say let these irresponsible borrowers be miserable. Better them than me.

So tell me if my numbers are wrong?

Current amount of outstanding Credit Default Swaps – 48 TRILLION. (I guess Hedge Funds providing insurance is a great idea.)

Current amount of capital backing credit default swaps – (approx) 1 TRILLION.

Current amount of FDIC insurance fund 50 billion.
Size of largest off book SIV at Citigroup – 1 TRILLION. (Maybe that is why they have been lobbying congress to change accounting rules. Bush is all for it!)

US Consumer and Government debt – 65 TRILLION.
US GDP $13.13 TRILLION. (2006 est)

Derivatives market larger than the stock market.

Did anyone notice the swaps on T-Bills are starting to look a little off? What happens if treasuries lose that AAA credit rating?

Something tells me that time is on my side.

http://online.wsj.com/article/SB122178234612954617.html

Oh no.
This can’t be good news for the stock market.”

Oh come on. Planned economies have worked so well everywhere else they’ve been tried.

Ira Sacharoff: It doesn’t strike me that banning short selling is going to do any good. Just as often as a short seller making money are the cases where the company outperforms expectations and the investor has to cover the short, and, as it were, take it in the shorts.
So who is this really going to protect?

It’s like Vegas. If a player can predict the outcome, they are kicked out of the casino. Only the house is allowed to know the outcome and profit from that. The market’s fall is a foregone conclusion, so no short selling until it reaches equilibrium.

It’s amazing what’s happening. Will voters really have to face starvation before they realize that there are serious consequences to supporting unlimited borrowing, esp. just to make the rich richer?

I doubt these bailouts will prop up house prices. The intention is certainly not to save homeowners, or even the economy per se. This is about maximizing ill-gotten profit for the rich, period. Bank CEOs will be protected from home price decreases, not homeowners, who can eat cake.

Nor will these bailouts protect us from Great Depression II. It might delay it for a year or so, but then it will be worse. Part of the plan, no doubt.

It’s becoming increasingly clear that the govt. is convinced we are headed toward a full-blown depression. So they are pulling out every trick in the book in an attempt to artificially inflate house prices so we don’t end up with a national bank run.

The executives should have known that the option arm loans were a bad idea for the everyday borrower.

http://online.wsj.com/article/SB122178234612954617.html

Oh no.
This can’t be good news for the stock market.

So far the PTB have:
Provided a $160 Billion dollar stimulus package.

Engineered the takeover of BSC at $10 per share by JPM with the JPM taking the first billion dollar hit and the Fed backstoping $29 Billion of potential losses.

Raised the jumbo loan amounts for FRE & FNM from $417K to $730K.

Congress passed and Bush signed the housing bailout bill this past July. That piece of legislation also authorized the issuance of 1 bazooka and 1 round of ammo to Henry Paulson to use as he saw fit.

Less than 2 weeks ago Henry Paulson used said bazooka and his 1 round of ammo on FRE & FNM.

The markets have rallied each time one of these fixes has been attempted only to sink further with the passage of time. The latest rally occured less than two weeks ago. On monday, 9/8/08, following the takeover of FRE & FNM the DOW was up over 300 points only to give up all of its gains the following day. The following weekend LEH filed for bankruptcy and MER was taken over by BAC.

Which takes us to this week. On monday AIG plunged to single digits in the search for capital in an attempt to stay solvent. WB sunk back to the single digits after a spectaluar rally off of its july lows. WM plumbed new depths falling well below its recent lows of $3.03 per share to drop all the way to $1.50 per share at one point. All of this with the backdrop of the DOW falling 500 points on monday and an additional 450 points on Wednesday with a small rally of 140 points on tuesday. Today the Dow was up 410.

So the questions.

What will an RTC2 look like?
Will the banks be permited to just dump their bad papaer on the taxpayer?
Will the banks be required to pay for their mistakes?
Will this latest plan be any more successful than what has been tried already?
What will this do to fix the real estate market?
How will this make real estate affordable?

My guess is that the shareholders of the banks still have a fair amount of pain in their future based on what has happened in the past. The taxpayers are probably going to feels some pain also. This probably won’t do anything to get the real estate market moving again – it’s still an affordabilty issue.

http://www.ft.com/cms/s/0/8324772c-85af-11dd-a1ac-0000779fd18c.html

Another way, for us outsiders, is to watch for companies building shiny, new headquarters. The top management always seems to get distracted when designing their new offices.

The more important issue is the RTC that could be setup. Now banks can walk away from their bad debt too? Wish I could do that! I guess I could and my credit rating would plummet… hey, WaMu’s in that same boat! Already junk status.

I think that it’s more about saving the derivatives market than the housing market.

JMHO

Five banks have come forward to evaluate Washington Mutual’s financial records as part of an auction process run by WaMu’s adviser, people familiar with the matter said on Thursday.

WaMu shares rose 14 per cent on Thursday after news it had put itself up for sale. The five banks that have looked through the WaMu materials include JPMorgan Chase, Wells Fargo, Citigroup, HSBC and Banco Santander, the people familiar said. It was unclear whether any of them intended to make an offer for WaMu.

YAH, SHURE! That is what they told Benjamin Franklin Savings And Loan of Portland during the S&L crisis to get them to ‘acquire’ a troubled institution. They were subsequently closed because the regulators changed their mind about good will.

Never trust a desperate regulator.

I just posted this over at RCG:

Story earlier from the FT said there were no WaMu bidders. Now Bloomberg says there are multiple bidders. Hmmm.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a4qndSqG.5ts

http://www.ft.com/cms/s/0/8324772c-85af-11dd-a1ac-0000779fd18c.html?nclick_check=1

I have no idea what that means. Fitch must be making things up to prevent rating this from “Toxic Waste.”

Also, WM was shopping itself, and came back: “NO BID.”

Smart money says zero.
Idiot shareholders say $3

You can’t make this stuff up.

Its real Jay, from CBS market watch just now:

“…Top Stories: Dow Surges 400 on Report of Entity for Bad Debt- AP Wall Street has ended a volatile session sharply higher after a stunning late-session turnaround that sent the Dow Jones industrials up about 400 points. The big comeback followed a report that the federal government may create an entity that will take over banks’ bad debt….”

Now there is a proposal out there that threatens to make a mockery of the foolishness already in the market and multiply it a few times over:

“The action by the four banking agencies provides more favorable accounting treatment of so-called good will, an intangible asset that reflects the difference between the market value and selling price of a bank. The move is similar to a step taken in the midst of the savings-and-loan crisis that helped many institutions in the short run.

Over the longer term, that decision increased the overall costs of the bailout after the government took away the good will benefits. Under the proposal issued this week, the regulators would permit buyers of banks and thrifts to count some of the good will toward meeting their regulatory capital requirements.”

Let me decode this for you.

If I buy a bank for $30 billion but the “net” value is only $20 billion, then there is $10 billion of “Good will” on the balance sheet. That’s the difference between what I paid and what “fair value” is for that particular transaction.

What this proposal – which will be adopted after only 30 days of comment – will do, is encourage banks to overpay for other banks in deals, because they will be able to count this “phantom” value toward regulatory capital requirements!

This is blatant, out-and-out fiction – another word for it would be “fraud”.

An acquaintance of mine was a family member of a very high level executive at WaMu. He related that there were huge fights (about 5 years ago). The executive left about a year later.

One of the ways to predict a business’ future is to watch the movement at the top. Few want to be aboard when the ship is sinking.

I am not saying Seattle RE will go up from here, but it definitely will not crash tomorrow morning. US gov will do whatever it can do to make the RE soft landing, meaning: even if the RE is going down, it will be slowly. You may have to wait for years to see a real bottom. Do not dream you can find a bottom tomorrow! By the way, the people bought in the bottom are just by chance, not because they are smart like many people on the forum.

Wake up, Man!