How stupid DO they think we are? Part 2

It would appear that the 3rd, yes there have been three, Secretary of the Treasury has awakened from a long stupor and has come to the realization that there is a little problem with the economy, or more exactly with the ability of the financial markets to maintain the credit market circle jerk they have been orchestrating for the last 4 years. You know the one where they loaned money to people that had never successfully repaid a loan in their entire adult life and then were shocked, shocked to find out that these loans were defaulting by the hundreds of thousands and eventually perhaps 2 million or so. In just a few short years these money changers have managed to bring the US economy to the brink of disaster. But keep in mind that they made billions of dollars in fees doing it.

Now the latest apparition to appear as the Secretary of the Treasury, Henry Paulson has risen to the challenge of repairing the damage that was allowed to be done to this economy on his and Bush's watch. He has been touched by the spirit, he has found the faith...praise the Lord...we must save these poor wretches from the ravages of the resetting adjustable rate mortgage. Yes, that very same "mortgage mutt" that he and the rest of the financial "watchdogs" should have sent to the pound years ago. The ARM that will cause these deluded borrowers to see their monthly notes soar from $1000 to $1500 dollars in the worst case scenario.

With the colossal gall and temerity that has been the keystone of this Republican administration, they are now suggesting that the very same financial midgets that brought you this unmitigated disaster should be allowed to decide who of the unfortunate ones who bought into this scam should be allowed to suffer a little longer before the blade drops. "Freeze the Teaser Rates" as some wag on the Street suggested the bailout plan should be called tells you all you need to know about the quality of the "NINA" no income, no assets loans and the Liars loans,"make up any income figure you want cause we won't check."

One has to ask, why should they care now when they didn't give a wit a year or so ago. The whole industry knew that these loans were being pushed and sold to people who had no business being allowed to take on any mortgage much less one that would, in some cases, double in a year or two.
The legacy of this dysfunctional administration is on the line. If something is not done soon they will be flushed down the sewer line of history. Destined to disappear as perhaps the worst bunch of elected officials ever assembled to lead the Republic.

The sorry truth about this supposed bailout for troubled homeowners is that the actual result will be to buy time for a housing market that could hardly stand to have an additional 500,000 homes dropped into the already glutted market. In other words if they can continue to keep these over extended homeowners sending in their payments for a few more years then when these poor souls do start defaulting, and you can bet the farm that they will, the theory is that by then the market will have recovered and be able to absorb these new foreclosures.

You have to ask the question...Do you really believe this administration and the Wall Street crowd gives a bloody wit about the strapped home buyers or are they trying to salvage what they can of their own reputations and save what they can of this mortally wounded credit market. Make no mistake about it, this crowd would sell their grandmothers if it would turn a lousy profit. Nice work if you can get it.

How stupid do they think we are? Let's ask!

Here we are on Wall Street surrounded by the imposing skyscrapers that house America's finest minds when it comes to finances. What better place to find out how these very well paid money changers feel about our ability to figure out what they do to earn 8 figure salaries. We won't mention any names but the newest hire just started at(rhymes with "feral finch")for 50 million dollars a year. "feral finch" just ran off its last CEO after admitting to an 8 billion dollar write down. Lucky fellow got 150 million dollars to go quietly. But we digress.
Let's stop this well dressed fellow coming out of the building that houses America's largest bank.
"Excuse me sir, but can we ask how you would rate the average American's intelligence about Wall Street finance?" "Is this a trick question?" "No" "OK you mean like on a scale of 1 to 10,with 1 being being real dumb and 10 being pretty smart?" "Right, that works." "Hmmmm, you're not with CNN or MSNBC are you?" "Nope, just curious." "Well let me put it this way, can my answer be a fraction?" "You mean less than 1???" "Just kidding, but seriously our latest scam, oops, scheme, errrr, plan is to repackage the same crappy paper we have been pushing for the last few years..." "Excuse me for interrupting but do you mean the same stuff that caused all the trouble before?" "Yeah, yeah that's right but here's where the fraction bit comes in. This time, unlike last time, we plan to say right up front that these new offerings are crap." "What!!!" "I know, it sounds really bold but we are confident in America's stupidity level, trust me there's one born every second. Are you sure you're not with the news media?" "Right"
"Then you're gonna love this. We got two more of the biggest investment banks on the Street and a slew of the smaller guys to sign on to this scheme, ummm plan with us. It's gonna work, I mean .5 or maybe .25, how can we miss?" "One last question, please." "Gotta run so make it short." "OK, so surely we can find a different opinion of America's intelligence level somewhere on Wall Street?" "You haven't been paying attention have you point two five? So long."

The gift that keeps on giving...

Good news on the sub prime mortgage front. We are about to be rescued by "old Europe" you do remember "old Europe"? That was the crowd that Rummy denigrated for not choosing to follow us headlong into glorious conflict in Iraq. They lost their chance to be showered with flowers by the grateful Iraqi people. But it seems that they are about to make amends for that failure in post WWII gratitude by descending on our floundering housing market lugging large sacks of euros and overcome with a desire to become first time home owners in the US.

The theory goes that these well off European home purchasers will stimulate the current comatose first home market thereby allowing American sellers to move on to bigger and better homes. If we assume that this idea didn't originate with the aluminum foil hat wearing crowd, and that's a big assumption, is it possible that an influx of euros being used to buy homes in America by well off Europeans could actually affect this market to any appreciable extent?

According to one broker, he has already received 5 to 10 times as many requests for information about homes from interested Europeans as he did last year. Could this mean that there are at least 20 or 30 rich Europeans looking to invest in American property? Even if it were a few hundred buyers it seems unlikely that salvation is imminent.

The American banking and financial industry started this fiasco with the full consent of the current administration and congress and we are going to have to work through the results of this greed driven mess that has resulted from a confluence of Wall Street money grubbing and idiotic economic decisions.

Blame it on the New York Times!

Since last adding to this blog and while wading through the swamp of bad financial news on the web, the following bit of wisdom jumped out from amongst all the angst, rending of clothes and general flagellation taking place in the inner sanctums of Citigroup, Wachovia, Merrill Lynch, Bear Stearns, BofA, Morgan Stanley and numerous of other big time money changers. The CEO of Toll Brothers, possibly the largest of the high end home builders in the US, has come to the conclusion that the problems of the housing market could all be ended immediately if the news media would just stop reporting all the bad news.(Floyd Norris, NYTimes, Nov.9)

Robert I. Toll , the chief executive of Toll Brothers apparently is of the mind that his business model would best be served by the reporting of only good news, particularly as it involves the luxury home building industry. The audacity of this remark is matched only by its relevance to the general mind set that seems to be the norm among our financial industry titans, namely, reality should exist only as how they define it. Down is up, bad is good, poor is rich, less is more...is it just this blogger or does this not sound suspiciously like the same operating principles guiding the current administration?

But we digress. What is truly astounding is this fool no doubt received a round of applause from his peers in the industry. At last count, and this is far from accurate, the nine largest investment banks in this country have written down around 50 billion dollars in bad bets in the mortgage market. Keep in mind this is only what they have owned up to. It could well be twice this amount since they all have a well documented history of lying about the true extent of their recent poor risk management.

So what is one to do when Gisele Bundchen, the super model demands payment in euros rather than dollars while working in this country? Thankfully she didn't demand loonies, at least not yet. With the dollar in free fall and the head of the Fed, Bernanke suggesting that the economy will "slow noticeably" into next year it just might be time to dig a hole in the back yard, convert to gold, drop it in and hope for the best.

The good mortgage fairy crashes and burns.

It just gets better and better. The industry that brought you SIV's, CDO's, LBO's, ARM's, GUDD's, ROE's and last but not least, OPM's has seen the light. It has finally dawned on these financial geniuses that loaning money to people with no apparent, much less real means of ever repaying these loans was probably not such a hot idea.

In the begining it seemed like a slam dunk. The country was full of folks that had never owned a home (guess why). No one had ever offered them a mortgage(guess why).
No matter... we'll just make them an offer they can't refuse. Don't make enough income to cover the note, not to worry...we will make the note so artificially low that now, even you can afford it. And then when you get rich in a couple of years(doesn't everybody in America), and the note doubles, you will still be able to pay it.

WOW, this is so easy let's not just make thousands of these magical loans let's make millions of them. Of course we will collect lots of fees along the way and since we are so clever we will mix these timebombs in with all the real AAA rated paper and foster them off to unsuspecting investors far and wide.

And so they did just that. And the good mortgage fairy was kept busy night and day slicing and dicing and packaging these wonderous instruments and mixing them in with the good stuff and selling it to hedge funds, and retirement funds, and mutual funds and money market funds. Any of these sound like your funds? No?...lucky you.

Unfortunately, not all of these folks got rich on schedule. In fact very few did. Some even got poorer, imagine that. Well all the financial geniuses, the ones with CEO, or COO, or CFO after their names, those very same ones making tens of millions of dollars in yearly salaries, they started to fret, some even stopped golfing or playing bridge to come in to the office to check on the condition of their SIV's, CDO's and how the ROE on the OPM was doing. Not too hot, was the answer.

So it was that the folks that had never owned a home before, and had never had a mortgage before, and had never payed their bills before... still didn't.

Not quite sure about the alphabet soup?
SIV- structured investment vehicle,
CDO-collateralized debt obligation,
LBO-leveraged buy out,
ARM-adjustable rate mortgage,
GUDD-gold up dollar down,
ROE-return on equity, and last but not least,
OPM-other people's money!

Repent...the end is near..

Looks like reality bites comes to Wall St. Also looks like the Fed wasted a rate cut on this fool's quest. Mark my words, these short term injections of whoopie into this market are doomed in the long run.
These bankers, these money changers have been lying to each other for so long they have actually started to believe their own bullshit. Much like the Bush administration's run up to the war.
The damage is done and the results are playing out in the subprime mortgage market and the debt fiasco. What we really need to watch for next is the deterioration in the securitization of credit card debt. Since the home equity ATM has dried up, early figures are showing a marked increase in the use of credit cards to carry monthly debt.
There are signs of an increase in Americans paying their mortgages with credit cards, which is suicidal. Americans are carrying $907 billion dollars on their CC's and should this amount start to go bad in any appreciable percent it could make the subprime mess look like a cakewalk.
Unlike mortgages which have some collateral, even if it is an over valued home, CC's are unsecured, so any default is a total loss. Guess which banks are the most exposed in this market...the same ones that are shucking and jiving about their exposure to the subprime wreck
Oil at $100 or $125 a barrel...coming right up this week or next. The Chinese own us, and what they don't own is owned by Arabs, the Saudis, Kuwaits, anybody with oil. Hold on to your hats boys and girls.