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September 24, 2008

Notes while drinking (or, In Which I'm Correct)

1) Everyone talks about the 'worthless' and 'toxic' securities being spun to the government. Once more, the overall picture is FAR from grim. Here's how this works...

2.75% of mortgages in the US are now in foreclosure. Even if that goes to 6%, it's still within past historical peaks and completely manageable. A good price for a CDO that represented this pool at face would be 94 cents on the dollar. Treasury should be able to pick up these assets for 30-60 cents on the dollar which will keep banks stable.

Merrill Lynch recently sold $30 bn in face value subprime CDO's to Lone Star Funds of Dallas. For around $6 bn. Even if 50% of the portfolio is not paying, they've just made an instant profit of 28 cents on the dollar.

And then there is loss mitigation. By the time they sell off the houses representing the other 50%, they will recoup half again. Bringing the final total to 75%. Why the hell shouldn't the government get a deal like that, especially when the free market is too stupid to get the value proposition. Of course, that's just recovery of principle. They'll still be earning interest on the 50% that pays. Now you know why debt collectors make so much money.

2) Even Barron's, not known as a bastion of intelligent thought, thinks this is a good idea. Stirling Newberry does not. That's because Stirling thinks this is all about the oil economy and oil for paper and it's all a house of cards and we should all start rationing now and wait patiently for the world to become like the nightmare depicted in Mad Max. Needless to say, I'm not going to worry about this.

3) Consumers need some help. This is a good start but you guys, once we rid of you some more Republicans, have got to do more. And you CAN do it.

4) McCain suspends his campaign in some kind of ridiculous publicity stunt. Barney Frank and Chris Dodd can't figure out why since over the last five days they have pretty much got the details ironed out and are ready to roll on a plan that will succeed. And they did it all without McCain. Meanwhile, now they have to put up with the stupid old man who doesn't get the economy and Bush. Tomorrow morning when they could be working.

5) Thankfully, Obama is pressing ahead. And this poll shows him way ahead of McCain.

Maybe the assholes deserve a Depression. This one certainly does. Don't get me wrong, I know you all want to lash out and just let the whole thing go down the drain. What you don't realize is that the third world AIN'T a real comfortable place to live.

Posted by mcblogger at September 24, 2008 11:49 PM

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Comments

While your market analysis may well be spot on, your political reading of the current situation is somewhat off.

It is not that most people probably think we are heading into a depression as much as the fact that this whole situation has really taken the shine off of our country. This coupled with other recent events.

But as you pointed only 2.75% of mortgages are in foreclosure. Therein lies the problem, a rather small amount of foreclosures has thrown everything out of whack.

Some will argue it was the government jawboning lenders into giving loans to people who otherwise would not qualify, others will say it was the lack of regulation and transparency, others will blame certain accounting practices, and others will argue it was greed.

Regardless of what you think caused the problem, there is, perhaps not among a few investors, a confidence and trust problem in our system. Their reasoning for that lack of confidence may or may not be sound. Nevertheless, it is still a problem.

Posted by: YouKnowYouHeartDallas at September 25, 2008 08:18 AM

Gotta problem...

>>>Some will argue it was the government jawboning lenders into giving loans to people who otherwise would not qualify, others will say it was the lack of regulation and transparency, others will blame certain accounting practices, and others will argue it was greed.

Yeah, and some would be wrong. You can blame the Home Possible and My Community products from the Agencies on CRA. However, 80/20 stated income down to a 580 can't be tied to CRA. And those are the loans causing most of the problems. Rush Limbaugh wouldn't be able to tell you that because he knows dickall about structured finance and lending. If I want advice from him, it'll be on a very narrow subject

>>>Regardless of what you think caused the problem, there is, perhaps not among a few investors, a confidence and trust problem in our system. Their reasoning for that lack of confidence may or may not be sound. Nevertheless, it is still a problem.

Absolutely. And this is what kicks them back into irrational thought. The reality is than none of the issues are going to be worth less than 50% because that's average recovery value if NO ONE pays and you end up having to foreclose.

There has always been a problem with investors... some bitch and whine about not having enough information. In different times, these same people will commit $5 bn on a whim.

Posted by: mcblogger at September 25, 2008 09:03 AM

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