Focusing On Some Of The Market’s Excess
Some housing bubble news from Wall Street and Washington. “Agents with the U.S. Securities and Exchange Commission spent Friday monitoring the last day of business at the Irvine offices of Brookstreet Securities, which closed to retail customers this month after failing to meet margin calls on complex mortgage-based investments.”
“Several Brookstreet clients told the Orange County Register this week that they did not understand the risks involved in the investments that led to the company’s collapse.”
“30 Brookstreet Collateralized Mortgage Obligations (CMOs) reviewed by the Register were more complex than most CMOs. Most are ‘interest-only strips,’ which pay investors the interest stream but no principal from mortgages.”
“Stanley Brooks, Brookstreet’s founder and president, said the accounts collapsed because the clearing firm…used what are called ‘notional values’ to price the CMOs. Those values plummeted as confidence plunged in mortgage-backed securities to subprime home loans.”
“‘We never had a performance issue,’ Brooks said of the CMOs. ‘We had a notional pricing disparity.’”
National Mortgage News. “A hedge fund whose identity we know is having subprime-related problems similar to Bear Stearns, one veteran investment banking source told us. We are not releasing the name of the fund until we can confirm more information about the fund and its problems.”
“Meanwhile, several sources tell us that the CDO (collateralized debt obligations) market is in serious trouble. CDOs that invested in subprime assets are being hammered. ‘Most of these are held by insurance companies and foreign accounts,’ said one banker, requesting anonymity.”
The Street.com. “Bond funds may have a reputation for being boring, but anybody who attended Morningstar’s annual mutual fund conference in Chicago last week might have the impression that the fixed-income market is the most dangerous part of the U.S. financial system right now.”
“‘People thought they had triple-A bonds with low risk,’ (said) Jeffrey Gundlach, chief investment officer at TCW Group. ‘They didn’t think that they had high-risk resecuritizations. Most of these bonds shouldn’t have a triple-A rating.’”
“‘What happens to subprime going forward is a debate between bad and horrible,’ said Keith Anderson, chief investment officer of fixed income at BlackRock.”
“He plants the blame for the subprime mortgage mess firmly at the feet of the bond rating agencies, saying, ‘they are a huge concern.’”
“‘These ratings are artificial because they have been relying on recent historical prices in a rising market,’ the fund manager said. He added, ‘You will find the investors in these instruments are either hedge funds or leveraged accounts, but the vast majority is overseas.’”
“Robert Rodriquez, chief executive officer of First Pacific Advisors, was even more blunt. ‘We haven’t seen much of a problem in the subprime area [but only] because the pricing is a fraud; the ratings are bullshit,’ said the two-time recipient of Morningstar’s Fund Manager of the Year.”
“‘I don’t buy these prices, but as long as someone can provide capital to keep the finger in the dyke, the charade will go on,’ Rodriquez said.”
“‘It is estimated that U.S. banks have invested 10% of their assets in collateralized debt obligations,’ he said. ‘And 40% of the CDOs are in subprime mortgages. I’m trying to get details on the components and I can’t get any. This is setting up the next catastrophe?’”
From Bloomberg. “Treasury investors can thank Bear Stearns Cos. for smothering the bear market. ‘It’s a story of yields and risk premiums working their way back to fair value,’ said Colin Lundgren, who manages $40 billion for RiverSource Institutional Advisors. ‘The story has shifted from economic data to the subprime mess and how investors are positioned.’”
“‘I’m personally very cautious about the risky side of the fixed-income market,’ said Daniel Fuss, a vice chairman at Loomis Sayles & Co. whose Loomis Sayles Bond Fund has been the best performer among its peers the last decade. While the losses from Long-Term Capital were contained by the securities firms and banks that traded and loaned money to the hedge fund, ‘this one has certainly fed into the broader economy via the mortgage market,’ he said.”
The Wall Street Journal. “Lehman Brothers Holdings Inc. is a prime example of how Wall Street’s money and expertise have helped transform subprime lending into a major force in the U.S. financial markets.”
“Now, however, that business is in deep trouble, and some consumer advocates and policymakers are pointing the finger at Wall Street.”
“Before the mid-1990s, mortgage-backed securities consisted mostly of loans to borrowers with good credit and cash to make ample down payments. Then investment banks found they could do the same with riskier loans to borrowers with modest incomes and flawed credit.”
“Pooling the loans created a cushion against defaults by diversifying the risk. The high interest rates on the loans made for bonds with high yields that investors savored.”
“At the sector’s peak in 2005, with the housing market booming, loan defaults remained low. Wall Street pooled a record $508 billion in subprime mortgages in bonds, up from $56 billion in 2000, according to trade publication Inside Mortgage Finance. Lehman topped other Wall Street firms over the last two years, packaging more than $50 billion in subprime-mortgage-backed securities in both 2005 and 2006.”
“Twenty-five former employees said in interviews that front-line workers and managers exaggerated borrowers’ creditworthiness by falsifying tax forms, pay stubs and other information, or by ignoring inaccurate data submitted by independent mortgage brokers. In some instances, several ex-employees said, brokers or in-house employees altered documents with the help of scissors, tape and Wite-Out.”
“‘Anything to make the deal work,’ said Coleen Columbo, a former mortgage underwriter in California for Lehman’s BNC unit. She and five other ex-employees are pursuing a lawsuit in state court in Sacramento that claims BNC’s management retaliated against workers who complained about fraud.”
From Reuters. “Mortgage finance companies Fannie Mae and Freddie Mac could face a multibillion dollar loss if subprime assets continue to mount, according to an analyst report.”
“‘Looking only at their non-AAA positions, a writedown of 15 percent to 30 percent would mean a $1.8 billion to $3.6 billion hit for Fannie and a $1.5 billion to $3 billion hit for Freddie,’ the report said.”
“Benchmark subprime mortgage ABX indexes fell to fresh record lows in nervous trading on Monday, as concerns mounted over the rapid deterioration of subprime loans made last year, traders said.”
“‘It’s another big selling wave. There’s really no new information. The repricing in the index is more sentiment driven,’ said one ABX trader.”
“June’s remittance reports, which provide a snapshot of subprime loan performance over the last 30 days in outstanding pools of ABS securities, showed delinquencies were increasing.”
“‘Forced sales represent a looming and relatively new technical risk to ABS CDO valuations, given hedge funds’ mark-to-market sensitivity and leverage. Price volatility is expected to rise as dealers reduce liquidity and willingness to finance these trades,’ said Christopher Flanagan, JP Morgan analyst.”
The Financial Times. “The near collapse of two hedge funds run by Bear sparked fears of a rout in debt markets and of a sudden end to the buy-out bonanza. The doomsday predictions were cut short by Bear’s offer of $3.2bn to bail out the less leveraged of the funds.”
“Without the intervention, the received wisdom goes, credit markets would have been roiled by a “fire sale” of the collateral, slices of subprime loans, held by the creditors (aka other investment banks).”
“By helping its hedge fund, Bear could have changed the future rules of the game. Consider this. Bear, and other banks, treat their hedge funds as arm’s length entities, independent of the parent company. The classification enables financial institutions to keep hedge funds, and their liabilities, off balance sheet, thus avoiding the need for provisioning and other costly regulatory requirements.”
“Even if regulators fail to notice the double standards, capital markets ought to spot a glaring pricing mismatch. Banks are reaping high-risk rewards for not so risky work with funds implicitly backed by other houses, a situation that could encourage excessive lending.”
“I do sympathise with creditors asking for a parent company’s help in sorting out a financial mess. But neither party can have it both ways: if the funds are independent they should be left to fail. If they are not, Bear and the creditors should shoulder higher regulatory and financial burdens.”
The Associated Press. “No doubt investors have been rattled by the unraveling of other risky debt, namely the near-col lapse of two Bear Stearns hedge funds that had big holdings in subprime mortgages. That came as interest rates here and abroad have been rising, thereby increasing the cheap borrowing cost.”
“The tide has definitely turned. Investors have begun to balk at taking on risky debt. ‘The buyers of debt are saying that things have just gone too far,’ said Kingman Penniman, who heads the bond research firm KDP Investment Advisors.”
“Still, none of what has been going on is necessarily bad news. ‘This wake-up call allows us to focus on some of the market’s excess,’ U.S Treasury Secretary Henry Paulson said this week.”
“Stanley Brooks, Brookstreet’s founder and president, said the accounts collapsed because the clearing firm…used what are called ‘notional values’ to price the CMOs. Those values plummeted as confidence plunged in mortgage-backed securities to subprime home loans.”
I also have had a few ‘Notions’ in my day. I once had a notion to purchase a horse err, house - but my confidence plunged. Then I read a quote by a realtor who said that ‘It was a great time to buy.’
HHHAAH LMAO, gotta love this shit.
“‘We never had a performance issue,’ Brooks said of the CMOs. ‘We had a notional pricing disparity.’”
Your clients investment going to zero isn’t a performance issue?!?!?!?! wtf!!!
Did someone say something about a horse, yup this guy is a horses ass.
It is going to be very amusing to see all the BS wind exiting these whiz-bang banking propeller heads in this collapse. They read like a fricking three stodges script.
“more comples than other CMOs”, yup…you can scamble some numbers up pretty good in modern PC.
That may actually make a geek thread, has the advent of the PC in business enabled these CMOs, MBSs, etc.. to proliferate as opposed to the past. Has the computer become the weapon of choice for the moneychangers much like the tommy gun for the prohibition era gangsters?
complex, not comples
“‘We never had a performance issue. . . we had a notional pricing disparity.’”
That’s what you tell a hooker when you drank too much to engage, but she still wants to get paid.
thank you, iwas confused…
who is iwas?
“Robert Rodriquez, chief executive officer of First Pacific Advisors, was even more blunt. ‘We haven’t seen much of a problem in the subprime area [but only] because the pricing is a fraud; the ratings are bullshit,’ said the two-time recipient of Morningstar’s Fund Manager of the Year.”
Wow, that’s one heck of a statement by a respected manager.
Someone must not have received their hush money this month
He’s definitely a cool dude.
Ummm….
Wow… there isn’t any wiggle room in that statement.
And yet the stock market is up over 100 points… cest la vie.
Got popcorn?
Neil
Rock on dude!!!
Where the mortgage money is going next?
http://www.nytimes.com/2007/07/01/realestate/01cov.html
Disturbing article about the high end of the NYC real estate market adopting high LTV mortgages in recent years. Some because older really rich people think they have better things to do with their money. Some because they are the young titans who have huge salaries and no real accumulated wealth yet.
Evidently co-ops still reqire 20% downpayments, so the NYC market has been shifting to condos.
What happens when the hedge funds collapse?
Haahaha. Every time Gretchen Morgenson strikes a blow in the biz section, the real estate section reels and grasps at any lame reason they can to help the brokers/bankers encourage more greater fools — or in this case, we should call these buyers “the greatest fools”
this is my fav hedgie-mentality bit:
“Mr. Strause said these buyers were generally not concerned that there is a ceiling of $1.1 million on the amount of mortgage interest that is deductible on federal income taxes each year.
He said these borrowers plan to plow the money they might put into a house or apartment into the stock market, where they hope to earn 20 percent returns.
“They buy the biggest property they can afford, they leverage to the max, and they assume that their careers are on track,” he said. “A lot of these people tend to think that they are smarter than the banks and they have a better use for the money than put it into real estate.”
So if you all were wondering who’s going to throw themselves off of high buildings if this thing explodes, depression-style, these are your men…
“So if you all were wondering who’s going to throw themselves off of high buildings if this thing explodes, depression-style, these are your men…”
and just as with the prior depression, no loss there
Ruins a lot of perfectly good concrete if they hit head first
duh… PRESSURE WASHER… don’t be so dramatic..
“A lot of these people tend to think that they are smarter than the banks and they have a better use for the money than put it into real estate.”
Wait a minnit. They DID put their money into real estate!
Aren’t they now levered to both the stock market and the real estate market?
And isn’t their career levered to the stock market? Or the bond market—which is correlated with real estate.
These people are nuts. If I were making gazillions of simoleons from investment banking or a hedge fund— I think I’d avoid anything too much riskier than t-bills. Otherwise it’s like Enron employees taking salary in stock options.
when endowments are buying up CDO’s
systemis risk is NON-EXISTANT
“Robert Rodriquez, chief executive officer of First Pacific Advisors, was even more blunt. ‘We haven’t seen much of a problem in the subprime area [but only] because the pricing is a fraud; the ratings are bullshit,’ said the two-time recipient of Morningstar’s Fund Manager of the Year.”
Just like Enron. Got downgraded a couple days before they collapsed.
Buyer beware anything related to the Wall Street Gangsters.
Market is still up 100 points today….dollar is getting hammered to point of $2.01 for sterling….things are just peachy on Wall Street…but is dying on Main Street and RE Housing.
Only 1 place out of 40 has sold in the 4-5 blocks around me this Spring (that one by owner).
When these CDO’s totally blow up, there is not going to be enough paper on the planet to print the helicoptered “Ben” Franklins in to cover this mess.
I see and talk to people everyday and 90% of them I think are in total denial…..when this worm finally turns, watch out…..
“I see and talk to people everyday and 90% of them I think are in total denial…..when this worm finally turns, watch out…..”
I am tired of the denial. I am horrified at what is happening in the financial world and I see the whole infrastructure backing the mortgage industry crumbling….but, I still get incessantly asked why I haven’t bought a house yet. I am ready for something big enough crack to penetrate the hard candy brain shell of J6P. I am tired of either lying or saying what I really think and getting stared at like I am wearing a tin foil hat. How much longer can these corrupt a$$hats paper this debacle over?
I’m in the same camp. It’s like there is a category 5 hurricane coming on shore and people think it is an afternoon thunder shower. Wait until those wind gust start topping 60, 70, 80 MPH and beyond. I can only say be patient, we are getting into the fireworks starting right about now. By this time next year J6P will know where you are coming from. The last bulls for HB’s on Wall Street are finally capitulating, Citigroup finally downgraded the home builder stocks. These guys were in “the worst is over” camp. That “worst is over” meme will now be lost on main street. Reality happens. The housing bill has come due and it doesn’t appear there is enough money to cover the loans.
When it breaks down it will break down very hard and fast. There won’t be time for the mindless masses to do a damn thing to save themselves. You, on the other hand, will be talked about by your grandchildren as the wealthy man who survived the Greater Depression in style and comfort.
Gotta love it. The dollar hit a 21 YEAR low against the pound, oil went over $71 today, and the market rockets. Obvious rigging is the order of the day.
Bond investors are getting out of high risk, and heading to treasury bonds. Treasuries dropping means dollar weakens and oil drops as money heads overseas. Stocks up because inflation is suposidly down based on manufacturing index.
Oh, gas up $.06. But that isn’t inflationary since we exclude energy.
energy is the next bubble,
you make it water, oil, gas, and food….dont forget the sun.
when oil goes to 80 and 70 seems reasonable…. its too late.
“Twenty-five former employees said in interviews that front-line workers and managers exaggerated borrowers’ creditworthiness by falsifying tax forms, pay stubs and other information, or by ignoring inaccurate data submitted by independent mortgage brokers. In some instances, several ex-employees said, brokers or in-house employees altered documents with the help of scissors, tape and Wite-Out.”
No regulation needed here. Nope.
Criminals don’t follow regulations.
That’s why you need strong enforcement to go with those regulations. Or we can just say criminals don’t follow regulations so why bother with them.
Sure.
Fraud is already illegal. Did that slow these people down?
A law that is never enforced is basically the same as no law at all. Scratch that –actually, it’s worse than no law. It undermines people’s respect and trust in law and government, as they watch criminals going unpunished and profiting from law-breaking.
Testify, HARM! It is interesting to note that lying, fraud, and assorted criminal negligence is not limited to Wall Street, but extends to Washington, into communities, etc. More and more laws are called for (illegal immigration comes to mind), but no enforcement, or selective enforcement occurs at best. So what good are more laws, if existing laws aren’t even enforced?
Look no further than the DOJ, which is in an awful shambles. That’s why white collar criminal mobs are not too worried.
“Look no further than the DOJ, which is in an awful shambles. That’s why white collar criminal mobs are not too worried.”
As one of my favorite posters would say, “Testify, brotha”. Also, in the too big to fail dept…if you’re well-connected, who cares about being convicted…just get your insider pals to have your sentence commuted. No worries for the Big Boys, they own the game.
double bingo
need chain gangs and hard time = free roads for everyone
“‘Anything to make the deal work,’ said Coleen Columbo, a former mortgage underwriter in California for Lehman’s BNC unit. She and five other ex-employees are pursuing a lawsuit in state court in Sacramento that claims BNC’s management retaliated against workers who complained about fraud.”
**********
And in the end, the winners are…?
The lawyers - of course.
Woohoo! Yay lawyers!
And Paul Krugman is starting to talk about the CDO market in the New York Times. You have to pay to read this, so I won’t post the whole thing. Don’t want to get Ben in trouble. But I little judicious quoting should be OK:
Just Say AAA
PAUL KRUGMAN
What do you get when you cross a Mafia don with a bond salesman? A dealer in collateralized debt obligations (C.D.O.’s) — someone who makes you an offer you don’t understand.
Seriously, it’s starting to look as if C.D.O.’s were to this decade’s housing bubble what Enron-style accounting was to the stock bubble of the 1990s. Both made investors think they were getting a much better deal than they really were. And the new scandal raises two obvious questions: Why were the bond-rating agencies taken in (again), and where were the regulators?
….
S.& P., Moody’s and Fitch, the bond-rating agencies, have gone along with the premise, telling investors that the synthetic assets created by C.D.O.’s are equivalent to high-quality corporate bonds. And investors have, in the words of a recent Bloomberg story, ‘’snapped up” these securities ”because they typically yield more than bonds with the same credit ratings.”
……
Now, you might have thought that S. & P. and Moody’s, which gave Thailand an investment-grade rating until five months after the start of the Asian financial crisis, and gave Enron an investment-grade rating until days before it went bankrupt, would by now have learned to be a bit suspicious. And you would think that the regulators, in particular the Federal Reserve, would have learned from the stock bubble and the wave of corporate malfeasance that went with it to keep a watchful eye on overheated markets.
But apparently not. And the housing bubble, like the stock bubble before it, is claiming a growing number of innocent victims.
The rating agencies are on the take. They are paid to look the other way.
Our financial system is a fleecing machine.
That is why responsiblity is ultimately with the buyer. ‘If God did not want them sheared he would not have made them sheep.’
Capitalism puts itself in danger when it forgets the old adage to: “…shear the sheep, not fleece them.”
does collusion take 2 or 3?
Paul Krugman is spot on, as usual.
How are the buyers ‘innocent victims’? I keep reading about people who bought toxic waste CDOs in the riskiest trances expecting a 20% return.
innocent victims?
For Krugman, a left-wing ideologue masquerading as an economist, anyone who has to participate in a capitalist market system is an innocent victim.
LOL!
Exactly.
he’s a prof- nough said
hates the sucessful
“For Krugman, a left-wing ideologue masquerading as an economist”
for an economist, he’s been pretty spot-on about the housing bubble, no? right-wing economists are even worse, they’re the apologists for the housing bubble, the trade deficits, the budget deficits and our economy in general. think larry kudlow and etc. I’d take Krugman over any of the rigthies ANY day of the week.
I knew someone would respond and support Krugman by bashing someone else. Still, Krugman is a far left-wing ideologue masquerading as an economist. He has a visceral hatred of capitalism and success and considers (until he actually moves there) Cuba and Venezuela superior societies to the United States.
Kudlow is a former economist turned TV program host.
Economists are generally “right-wing” whether they are bearish or bullish: it is the nature of the profession. Right-wingers are happy to be called that rather than “conservative” since conservative (Kudlow, Bush, Hannity, e.g.) implies certain social/religious ideology.
Do you have any quotes to back this up? Of course not, you just can’t stand anyone who isn’t a neocon apologist being right, as Krugman so often is.
If you actually read anything he wrote, you would know that he considers Marxism to be absolute BS, along with other set-piece ideologies like neocon.
And one parting shot - can you name me one of your favorite “economists” who correctly called the top of the housing bubble in 2005, like Krugman did? Isn’t the definition of an economist someone who actually knows what is going on?
Look at how the neocons attacked Krugman when he CORRECTLY called the bubble top in August 2005!
Wish I had followed his advice before the 2000 Nasdaq crash.
“And investors have, in the words of a recent Bloomberg story, ‘’snapped up’’ these securities ‘’because they typically yield more than bonds with the same credit ratings.’’”
If it sounds too good to be true, it probably is. Their greed got the best of them. No sympathy.
i dunno if greed’s the word
For whatever reason, they wanted higher returns.. and accepted higher risk.
gamble onoly with money you can afford to lose.
Krugman may be a democrat, but he is right on. The lawlessness of this adminstration has permeated EVERYTHING! Crime goes unpunished in white collar land, scams go on unabated just like in Cheney’s office. This administration disgusts me and I am no die hard liberal. Just one totally dissatisfied American.
Speaking of crime going unpunished, this just in on CNBC:
Bush commutes Scooter Libby’s 2 1/2-year prison sentence
– Judge Smales
“You’ll get nothing and like it!”
“Crime goes unpunished in white collar land”….and those crimes would be?
“….and those crimes would be?”
If you don’t realize that Wall Street’s fleecing of the public (with the authorities complicit approval by looking the other way) is going on than I cannot help you.
“..and those crimes would be? ”
seems like a legitimate question to me..
I’m sure a sheep has many opportunities to run away and avoid being fleeced .. just as market players do.
Innocent people do get hurt. That’s a fact. But it doesn’t follow that someone must have committed a crime.
If you don’t realize that Wall Street’s fleecing of the public (with the authorities complicit approval by looking the other way) is going on than I cannot help you.
In other words, I don’t know of any.
Amen…another dissatisfied American here too
Traders who cut their holdings of U.S. government debt just a few weeks ago as retail sales increased and job growth accelerated are now snapping up Treasuries”
Brilliant! Now not only do you get the yield below inflation, you also enjoy the resumed USD slide. Oh, and ‘genius’ Bill Gross says he is looking for a cut in interest rates this year, still. This after he recently called a bull market in bonds. Sounds like bond traders don’t know what to do, so they just jump back and forth losing money on both ends.
Sorry should be BEAR market in bonds.
looks like war on savers, part II.
We’ll likely see another inverted curve, with yields on Short Term treasuries, savings accounts and cd’s etc dropping like a stone. Thus, as usual we savers take it in the zonkers… but it may theoretically help our overleveraged specuvestor FB’s… that is if their wage can increase despite global wage arbitrage.
The problem though: more and more investors are looking OUT of the US to invest. (I know I am). I’m tired of Greenspan’s war on savers.
the other problem: this increased liquidity will not necessarily flow back to housing, it will likely flow elsewhere, for our third bubble. I’m guessing the next bubble will be in
-gold
-uranium (already happening)
-various commodities
-and perhaps another stock bubble.
the gazillion dollar question: can the fed inflate faster than credit markets are deflating? can they do it without hyperinflating?
Spot on post
I’m looking at “energy”
renewables
House Inspector,
I think things are going to act so fast and swift around the planet that a monthly or quarterly meeting of the FOMC could not stem it. Whether the PPT team exists or not, I think events are going to soon outstrip anything that could be thought up to paper it over.
….a crash in China’s markets….
….a start of a new mideast war….
….attack on an oil depot causing price spike jitters….
….homemade a-bomb going off someplace…..
….collapse of a major bank unbeknownst beforehand….
Any one of these or permutations of them could start the ball rolling….liquidity dries up INSTANTLY.
agreed.
I’ve stated this a few times, but it is my thought that the President’s Working Group on Financial Markets (”PPT”) is already working behind the scenes to help with the Bear Stearns situation, as this is a potential “systemic risk” trigger.
there has been considerable EXCELLENT dialoge about whether or not the Fed et al can overcome credit destruction (due to mortgage defaults, auto loan defaults, commercial defaults etc)… this mainly occurs on the financial blogs/sites (such as Mish’s site and also iTulip.com). so i will not try to steal Ben’s site with it.
Overall, however, the big question is whether we will see massive credit destruction and hence deflation (meaning decrease in money supply-often leading to recession/depresssion)… or will we see massive money/credit formation by the govt to combat this credit destruction leading to hyperinflation, THEN deflation since the Fed isn’t strong enough.
overall I tend to think we will eventually have price inflation and maybe price hyperinflation in things we need (food, RENTAL shelter, etc) and price deflation in things we want (ipods, owning a home, SUV’s, etc)
Think an Argentine like situation followed by the “Brazilification” of the US.
If that really happens, I am moving to Brazil………
It is very frustrating to see the Fed helping to shore up institutions without it also working to make sure that price-fixing is eliminated. I think there is widespread agreement in financial institutes to keep RE prices (and bonds based on them) high.
somethings gotta give…
crime….terrorism…..energy…..the DOWS&PNASDQ
its not gonna be a flight to quality, its gonna be a flight to cash….Euro, Dollar, Pound Sterling….
somebody wants the money.
quote:
“There is no fu-#ing money”
“Give us zee money Leboski, or we cut off your johnson.”
Fantastic stock performance is easy when measured as they are S&P 500, DOW.. etc..
It amazes me that more folks don’t understand what utter bullshit these guages are. The throw out the failed crap stocks (enron, tyco, buggy whips inc., etc.) and replace them with viable growing companies continually and then point out how the averages have grown. I sure wish I could throw out all my loser stocks over the years and erase the losses from them, if I only counted my winners I would be the richest guy I know!
CDOs that invested in subprime assets are being hammered. ‘Most of these are held by insurance companies and foreign accounts,’ said one banker, requesting anonymity.”
This is just another permutation of the “subprime is contained” argument. Now it’s “subprime losses are contained to overseas investors”.
I suspect otherwise. How many hedge funds do all of their business in Manhattan or Connecticut, but are theoretically headquartered in the Bahamas (hence they are overseas technically). Then American pension funds and public trusts invest in these “overseas” hedge funds.
I will be unsurprised if we find that a lot of these “overseas” investors are actually American-based American-run Hedge funds managing American investor money, but who use the Bahamas and other places as cover to avoid taxation, and are thus thought of as “overseas”
What happens when the insurance companies lose the money? Presumably they are either holding those investments as part of an annuity fund, or else as loss reserves.
I particularly liked the quote, “What happens to subprime going forward is a debate between bad and horrible.” Too bad that one doesn’t make any major rag’s front page.
What happens when the insurance companies lose the money?
Depending on circumstances - they either eat the losses, or raise the premiums. After the dotcom bust and the lowering of the yields, they did the latter. This time, they probably won’t be able to do it again, since the premiums are already high.
It’s sad to see insurance companies holding their funds in such risky assets.
Clouseau : You raise a very good point. “Investors” pah. Sheep more like it: Can be killed once but fleeced many times.
Where’s the customer’s yachts?
We already had:
“I don’t want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year,”
–D.R. Horton CEO Donald J. Tomnitz
“I am not a forecaster of the future; I’m a historian. And history says this will blow up. It always has. And there will be some blood on the street.”
–Wells Fargo CEO Richard Kovacevich
and now we get to add:
‘We haven’t seen much of a problem in the subprime area [but only] because the pricing is a fraud; the ratings are bullshit,’
– First Pacific Advisors CEO Robert Rodriguez
Interestingly, I decided to find out more about Mr Rodriguez and stumbled on this excellent article. Here’s a snip:
“My associate, Julian Mann, has been studying the area of sub-prime and rating agency involvement. He recently showed me a very garden variety Libor sub-prime floating rate security. The Standard & Poor’s pricing service valued this bond at par while on March 19, 2007, Moody’s rated this bond A3. To affirm the accuracy of this bond’s pricing valuation, Julian went to two brokerage firms that traffic in this type of security and requested what might their bid be, if we were to request a bid. One responded that it would likely be in the $7 area. This does not mean 70% of par but 7% of par, a differential of nearly 93% between what the Standard & Poor’s pricing service indicated and what might occur in the actual market. The other firm declined to indicate a bid but did say that the 7% of par bid was probably the correct one. Julian is continuing to investigate this area to determine whether this is an isolated occurrence or whether this may be the tip of something even larger. It does raise a serious question in our minds.”
Good find, ajas - below is another Rodriguez quote.
What were the “assumptions” (!?) …given that some of the Pig Men and their enablers (including credit raters) now have “broken models”:
“My associates and I wondered, how might a house price decline affect the models that rating agencies use in determining the credit rating of a mortgage-backed ABS? On a conference call with Fitch on March 22, Fitch presented its assessment of the sub-prime ABS market. During the question-and-answer period, my associate, Tom Atteberry, asked the question, ‘What are the key drivers in your credit rating model?’ Fitch responded that it would be the FICO score along with the assumption that home price appreciation (HPA) of low- to mid-single digit would continue, as it has for the last fifty years. Tom then asked, ‘What would happen to your model if HPA were flat?’ They responded that the model would start to break down. If HPA were a negative 1% or 2%, the model would completely breakdown. Thus, if forecasts of 10% to 20% declines in home prices were to occur over a ten year period rather than one or two, the model that Fitch uses would breakdown and various securitizations with credit ratings of AA or even AAA would experience considerable difficulty. This aspect of risk is not factored into the market today.”
The B.D. part of that is the reference to the last fifty years. Who invests on a fifty year timeline, first off. When you put your money in as in investor, you probably expect to get it out sooner than 50 years. Of course over 50 years things average out, but its the dips, canyons, craters that screw you. If you need to pull your cash out int he next 36 to 60 months or so, it could get ugly. But if one was not paying attention when Fitch was giving the presentation, it would seem as if the rating model was sound. But once one does further research into the assumptions, it becomes clear that it is all b.s.
It would be interesting to see if any lawsuits are brought against the rating agencies by stakeholders in such things as say retirement funds like CalPERS, etc. One could argue that the rating agencies have/had a fiduciary duty to use “realistic” assumptions in their models.
sorry for the grammar errors…
WOW, not much suprises me nowadays, but this is some stinky shit… WOW
What an awesome article. Pretty much spells it all out.
Good post, Ben.
These CDO holders….I don’t feel sorry for them. Fools chasing liars for money. Still, I’d expect there’ll be tons of lawsuits related to these transactions.
Wall Street…..the more I think about that place, the more I think it needs to be burnt to the ground. Den of thieves, with their enablers in D.C.
“Wall Street…..the more I think about that place, the more I think it needs to be burnt to the ground. Den of thieves, with their enablers in D.C.”
Amen! I hope this CDO debacle takes out more than a few of them.
Exactly. There are no ‘innocent victims’ only casino gamblers who got burned. No bailouts!
Well, the credit slide is about to accelerate.
I think it is very interesting to note that a small hedge fund like Brookstreet gets crushed but the Bear Sterns first line lender gets a massive cash infusion to save itself.
The empire of debt is crumbling
Brookstreet assests listed at 120M. Bear Sterns is close to too big too fail, Brookstreet isn’t. The question remains…how many Brookstreet’s are there, and is anyone listening?
Brookstreet had 100 employees. With that staffing they should have had at least $3 billion in assets.
Might explain why they went into investments that should never have been sold retail.
Yes, but BSC decided to hand a whole bunch of money to their own leverage fund.
They also told investors that they couldn’t sell their stake in the fund.
All strange interactions that make me think its on the fringe of being criminal.
Since Bear is a first line lender when the FED dumps money Bear is where it ends up. Don’t know how you bail them out or if its possible and how badly taxpayers (via FDIC et al) get bruised.
Not being paranoid but sometimes the big criminals get away.
So to recap: Everyone on Wallstreet now knows these CDO’s are worth somewhere between 7% and 30% of Par.
Every blogger on ANY financial news blog, to include RE blogs, knows that CDO’s are worth 7% to 30% of Par.
Anyone reading the major newspaper publications (wallstreet journal, NY times, etc) knows that CDO’s are worth 7% to 30% of Par.
So the question becomes when do these get marked to market because this cat is WAY out of the bag?
I would think that EVERY hedge fund investor is calling up the head trading honcho for their respective funds and asking WTF is in their portfolio that even closely resembles this crap? I would expect record ATTEMPTED redemptions starting last week. We should start hearing about various funds barring the exit doors any day now.
This ought to get interesting real fast. A financial ass-pounding this way comes!
Auger, please explain something for my simple mind: Do you mean that these CDOs are only worth between 7% and 30% of their asking price?
Generally, I think this is 7% to 30% of what they paid, not their ask. So, if they leveraged 50% or more to buy these CDOs, not only is their equity wiped out, but the bank that lent them the money is underwater.
So, if par is, say, 30 bucks and I’ve paid 100 bucks, then I’ve got a problem, right?
Par would be $100, which you paid, and they’re worth $30.
If you didn’t lever the investment, you can hold on and hope that the $30 valuation is overly pessimistic and the CDO will actually pay as expected. In that case, you’ll get your $100 back plus interest (but you’ll need to wait for it).
If you levered your investment, you better hope that your lender doesn’t feel like their collateral is “impaired”, or they might force you to liquidate your CDOs at the current value of $30. Then you’re hosed. So is the bank at that level unless you leveraged with less than 30%…
There are many different kinds of CDOs — and CDO tranches.
Here’s the problem in a nutshell:
You take a bunch of junk debt — subprime, Alt-A mortgages — and stick them in a basket. This basket is then trached out so that the junior tranches take all the losses while the senior tranches are protected, at least until losses mount to the point where the juniors are wiped out.
Now, remember, this is mortgage debt and it is collateralized. Let’s say a whopping 30% of mortgages go into foreclosure, and of those foreclosures the average loss is a whopping 30% (foreclosure sale price 30% below mortgage value). That’s a total loss of 9% for the basket of loans.
OK, not so bad. This is known as ABS. So, you see, it really is tough to blow up the senior tranches, which is why they have gotten an AAA rating.
Now, the packagers of this ABS typically get left with the “meat byproducts” after they have sold off all the tasty AAA sirloin. These junior tranches (meat byproducts), typically rated BBB or so, get put into another basket, called a CDO, which is itself tranched out. The senior tranches of the CDO bear an AAA rating much like the senior tranches of the ABS. However, there’s a difference. In the ABS, in the event of our hypothetical 9% loss, the senior AAA tranches are pretty safe even if the BBB goes to zero. However, in the CDO, since it is made of the BBB tranches of many ABS, it is possible for the entire thing to go to zero! In the event of a systemic decline in which BBB ABS tranches are getting blown up, the CDO paper can be completely vaporized. Why this stuff was getting an AAA rating I don’t know, except that the “models” they were based on were built on a rising housing market (where there are typically no foreclosure losses).
This AAA senior CDO tranche stuff was paying a little better than other “real” AAA paper like US Treasuries — but not much. So, to create a meaningful return, funds would lever up typically about 10:1. This is normal for a bank, so that in itself is not so surprising. However, banks don’t lever up this exploding-cigar AAA CDO crap. If the funds take a 5% hit on their CDO portfolio (and they have taken more like a 70% hit), then their capital is 50% gone, and the leverage goes to 20:1! At that point everyone calls in their loans/capital, and the fund blows up.
A couple of posts above is the first reference: …. “To affirm the accuracy of this bond’s pricing valuation, Julian went to two brokerage firms that traffic in this type of security and requested what might their bid be, if we were to request a bid. One responded that it would likely be in the $7 area. This does not mean 70% of par but 7% of par, a differential of nearly 93% between what the Standard & Poor’s pricing service indicated and what might occur in the actual market. The other firm declined to indicate a bid but did say that the 7% of par bid was probably the correct one. Julian is continuing to investigate this area to determine whether this is an isolated occurrence or whether this may be the tip of something even larger. It does raise a serious question in our minds”
That explains my reference to 7%.
The reference to 30% comes from the well covered Bear Stearns sale where it is widely reported that they pulled the auction when bids hit 30% of Par. BTW, the auction was only selling the 800 Million of highest rated bonds.
My understanding is that Hedge funds are carrying these bonds at par on their books when they are only worth what someone would pay for them which in this specific example indicates is about 7 cents on the dollar. I’m sure someone else on this blog (Hoz or GS) would be much more knowledgeable in this regard.
I think you missed a bit in the Bear Sterns high levereged fund. They started by selling the good stuff,and that fetched somewhere between 70-90% of par. Then they got to the questionable stuff, and that dropped under 50%.
The $800 million was what was left of the original $5 billion in “managed assets” that couldn’t be sold for more than 30% of par.
I’m guessing the bond they floated around and asked what it was worth, was holding mostly piggyback loans. Those are getting wiped out!!!
Bonds are priced based on par value. Par value was the original loaned amount or face value of the bond. Typically the two things that change the price of a bond are changes in interest rates and declines in credit of the borrower.
“Typically the two things that change the price of a bond are changes in interest rates and declines in credit of the borrower. ”
And a third is that 3rd party guarantors could go into bankruptcy (or default on their obligations). This is a major reason for downgrading the MBSs.
I’m wondering why more lenders aren’t acting like Merrill Lynch with margin calls. Clearly their security is impaired.
The only answer is that the lenders will do better with orderly sales, or praying that the CDOs continue to perform than with forcing a sale of crap that no one wants. Every night the lenders go to bed praying that the default rate on loans begins to drop–so perhaps someone will buy the CDOs at a higher price. They might as well be asking for gravity to stop working.
I think we’re entering the “deer in headlights” stage.
IMHO, you are grossly underpricing these investments. The Bear Stearns debt was bid at 70% of par (and turned down). These have a real value backed by Real Estate and by P&I payments. If 40% of the loans go into default and the 40% become REO subsequently sold for 50% off, but the other 60% are good payers . The present value would be 80% of par.
That’s much too simple. These things are split into tranches, have interest only, principal only, equity & 20 other flavors, plus who knows what kind of servicing and other charges.
Some could be worth face & others less than 0 & be attached to the same loans. & this is the kind of stuff Brookstreet was selling to retireess…….
Exactly.
Absolutely true, but the CDO is senior tranche, it is asecured bond - the tranche sold against it…. Bear Stearns and others split, write options, and purchase other bonds against the CDOs. This is credit risk, this did in BS. The underlying CDO is however the lynch pin to the hedge operation.
Exactly. It is very difficult to know what a tranche is worth without it being very closely tracked by either the rating agency and/or the secondary market seller (as based on the servicer’s reporting). If neither party wants to give the true value, and or disclose how much is non-performing, than it is all just speculation. Which I believe is by design…by introducing tranches into the equation, it makes it harder for people on the sidelines (us) to determine what true market value is for this stuff. This can only lead one to conclude that it has little if any true value.
Keep in mind that further complicating things (and thus preventing the crash) is the fact that the servicer is in on the ponzi scheme as well. The servicer’s client is actually the secondary market seller/packager and not the ultimate end investors in the tranches (even though this is to whom the fiduciary duty is owed). So the servicer has a disinterest in revealing the true nature of the portfolio being serviced. If said portfolio is underperforming and servicer is unable to perform normal forebearance tricks like refi (due to no equity from falling prices) then the servicer doesn’t want to have to report this - as this would start the mark-to-market stuff and begin the real trouble for the banks, hedgefunds, brokerages and retirement funds.
None of the players want the truth to come out and none are looking out for the investors.
I’m also wondering if the changing of loan terms effects anything.
Seems like a lot of stuff could be messing this up
You’re forgetting that the return will go down now. At the beginning they paid $100(or more) for $100 worth of assets paying 10%($10 per year) return per year(just making a number up). Now, the assets are worth $50(if 50% is the going rate), and only paying $6 a year(60% of the original $10). Now, why would an investor pay $80 for assets valued at $50, and a $6 return per year? If they wanted 10% a year, they would pay $60, but then given the forclosure rate, they could lose even more.
“If 40% of the loans go into default and the 40% become REO subsequently sold for 50% off, but the other 60% are good payers . The present value would be 80% of par. ”
You are discussing the creditworthiness of mortgage pools. These are first tranched by a secuitizer as a REMIC, where the lower tranches have higher risk. Then THESE are purchased, pooled with other asset-backed bonds, tranched, and sold as a CDO. A CDO tranche could be the bottom of the barrel which had been filled with stuff from the bottoms of other barrels…
AHHH, but you ignore leverage my boy… Tak the leverage into account and it all burns to a crisp. Not to mention the these outfits have packaged and repackaged this crap, sold it to each other and leveraged some more. If you (could) follow this leverage to the only real money invested I bet that real money has been eaten up in fees long ago. My take is there is literally nothing but hot air and promises holding this crap up. In the end a large number of these “Investments” may cost money to complete the REO liquidations, here is where the bailout will come in. When the owners of this crap go belly up who will guide the underlying collateral (homes) through to liquidation? Will this be the job of fannie mae? Providing affordable housing to the masses from the burnt wreckage of the housing bubble.
Here in Stockton there is no shortage of property worth $120k that hold mortgages for $360k!!! If you consider that the home is really owned (after forclosure) by 15 different investors all over the world due to the CDO slicing and diceing how much money are the CDO holders willing to spend to see any return from this maybe future money. If things get like I forsee those $120k properties may be selling for ????? (60k?). Are the bag holders really going to hire people to see these things through or they going to walk just like the FB they lent to and let the local governments take them for taxes?
As cynical as we are (rightfully so) on this blog I don’t think the majority of us appreciate how complex these CDOs really are? This has gone on so long that I think the worst should be expected. To me the worse is that these “investments” have hit the wall and when all is said and done will all be worthless.
RE went from what $5B to $12-14B with no real wages increase. Just simple observation will tell you that all the starting $5b has been spent on chinese crap and the rest is phantom equity that has spen almost as liberally.
Q: How much is a fired Chinese fund manager able to spen in order to see any return on his funds $12k slice of a home in Orange County over the next 3 years.
A: Nothing.
Thoughts?
Ben, this might be an interesting thread.
Excellent points Rich. When you break it down to a per house equation, it makes it much easier to see the damage that has been done.
The main problem with CDOs is that they were given too high of a rating- perhaps they are intrinsically too hard to rate. The math geek side of me admires the basic idea, however. The basic CDO works like this… suppose that we bought a large number of collateralized (debt) instruments of various kinds (we are acting like a bond fund in a way), these could be asset backed securities (auto loans), commercial real estate securities, REMICs from mortgage based securities (1st lien, 2nd lien, heloc, prime, Alt-A or subprime), or issues from other CDOs (actually, CDOs can also contain emerging market bonds, corporate bonds, distressed debt, etc. Properly, if you are talking about CDOs that are based on bank loans, you call them CLO, collateralized loan obligations). However, unlike a bond funds (where we would sell shares), we instead issue bonds on the value of our collection of securities. In order to make these palatable to investors, in the simplest case, we can agree issue the bonds on, say, 80% of par and we can hold 20%, with the proviso that any defaults will come out of our 20% first. This gives the bondholders some extra security, so they should be willing to pay more for the bonds. In actuality, CDOs will play the interesting game of first splitting off a senior tranche (that holds as much of the principal as possible as long as it still is rated AAA), the a second tranche out of the remainder that is as large as possible while getting an AA rating, etc. until the lowest salable tranche is issued at the BBB level. Whatever principal is left is kept by the securitizer as the first loss tranche. What is cool about this (or sinister…) is that the name of the game is making, say, the AAA tranche contain as much of the principal as possible without losing the AAA rating. Since the rating agencies were using models relying on appreciation of RE, it is absolutely guaranteed that most (if not all) CDO tranches should be down graded, whether they are based on subprime or not.
Bear Stearns strategy is really very simple. It’s all about buying time and postponing the evil day of reckoning for as long as possible in the hope that there would be an orderly realisation of the CDOs with minimal loss. However as with all best laid plans all it takes is for another blowup to throw a spanner in the works. In effect it’s very much like a squad of soldiers trying to hide underwater from an enemy patrol by holding their collective breath for a few minutes . As is almost always the case the enemy patrol choses to take a long break on the river bank a few meters from the underwater soldiers one of whom has an itchy throat and feels like coughing. I welcome suggestions for the title of the film.
Swept Away by an Unusual Destiny in the Deep Swamp of Metaphor
We had “A Bridge Too Far” already, how about “A CDO Too Good” ?
More like Bear Stearns is buying time while the senior managers loot the place and head for the exits. I mean, come on! Somehow the public must get stuck with this crap. If not, golden parachute time.
It all went downhill when “Smithers” of the green eyeshade at the local S&L retired and Ward realized that maybe he had been too hard on the Beaver. Tranch wasn’t even a word yet. My spell check says it still isn’t
Tranch, my bad. Tranche. Spell check says it’s ok. Bet it wasn’t a word in the 50s tho.
Tranche is French for ’slice’. I guess saying ‘this is the AAA rated slice’ just wasn’t cool enough…
The print version of the Business Week story referenced on Friday had a great picture that went with it. A bunch of guys in suits all pointing guns at each other, straight out of some Tarantino flick.
Last paragraph from the article:
But the prospect of a meltdown is on everyone’s mind. On June 26, UBS (UBS ) analysts held a conference call with money managers to review the Bear situation. “There’s a search for contagion going on,” says Douglas J. Lucas, a UBS analyst on the call. “I’ve talked to people from as far away as Australia.” Everyone is watching to see who might blink.
Here’s a link for those who missed it:
http://tinyurl.com/263r6u
I know this is OT, but has anyone else read Richistan (the book)? What really bopped me over the head was the spend-spend-spend mentality among the people the author studied. As a group, they didn’t do anywhere near the amount of saving and investing that one would expect them to do.
Many of them were quite heavily mortgaged. So much for the upper crust paying cash for their houses.
Many of them were quite heavily mortgaged. So much for the upper crust paying cash for their houses.
Good. This means there will be good properties in nice areas available for the bubble sitters.
In Greenspan’s testimony before congress in 2005, about systemic risk, he was asked a question about how a collapse would unfold. His response was, within a matter of weeks, not months.
I cannot seem to find the exact quote, but it is in the congressional record somewhere. Can someone help help me find it?
http://www.federalreserve.gov/boarddocs/testimony/2004/20040224/default.htm
this is why I bought some bonds…
when they are the worst they are the best….
when the news is all negative adn consumers are down, buy. buy, buy…….bubble sitters want to buy, but they are waiting.
‘This wake-up call allows us to focus on some of the market’s excess,’ U.S Treasury Secretary Henry Paulson said this week.”
———————————————————-
Well….
Goodmorning Sunshine!
the only problem is you can’t unscrabble an egg.
April ‘07 Case-Shiller HPI:
http://www.voiceofsandiego.org/articles/2007/07/02/toscano/901hpi070207.txt
The April index is -7.1% since November ‘05. March was -6.9%. Doesn’t seem like a lot, but these are no seasonally adjusted numbers. Last year the index actually went up 0.6% from March to May. I think we’re going to see an index below -10% before September.
OK, so who should we believe?
http://tinyurl.com/ytwe5p
“Economy will see boost in Q2, moderate later”
or
http://www.shadowstats.com/cgi-bin/sgs/archives
“Jul. 1, 2007
Recession Signals Deepen as Inflation Pressures Mount / Help-Wanted Advertising Falls to New Cycle and 50-Year Lows / May’s help-wanted advertising index plummeted to 27, from 29 in April, hitting new cycle and 50-year lows. After allowing for the Internet’s siphoning meaningful volume away from the print media, the renewed plunge in the current data still signals a sharp weakening in current economic activity and could be a harbinger of weaker-than-expected June employment data due for release on July 6th. There were no happy surprises in other economic releases last week. On the price front, ongoing M3 annual growth for June looks like it was close to matching May’s pace, while oil prices moved higher, again, and the Fed fretted a little more openly about its inflation worries.”
All that upbeat Q2 talk lately seems an awful lot like the delaying tactics of an army in full retreat.
Huh huh heh huh….he said “dyke.”
dike = earthen wall to restrain floodwaters. dyke = what “vile” is giggling about.
Kidney anyone? I think the manager of China’s Foreign Exchange Investment Co. is going to volunteer as organ donor soon. Two kidneys, actually….
“Jul. 2, 2007 (China Knowledge) – China’s Foreign Exchange Investment Co., has made a loss of US$33.84 million after The Blackstone Group L.P. stocks fell for five consecutive days. The stock closed at US$29.27 on Jun. 29, down 1.41% on the same day, lower than the initial IPO price. The stock had fallen an accumulated US$5.79 since Jun. 25, down 16.5%.”
The friggin chinese currancy is way undervalued and they need a shitload of infrastructure. Why don’t they just invest that money in country. I understand about them needing to not cause the dollar to slide, but that is happening anyhow. They would be better off buying heavy paving equipment and other heavy construction stuff than trying to invest that money outside their own borders. They must surely know that they got royally screwed on their MBS. What will it take for them to learn to spend those dollars as quickly as they make em.
I mean really, how much can we screw them without reprecussions? China, India and their surrounding area economically attached to them are 1/2 of the worlds population. The notion that they NEED our markets is utter political bullshit!!! They need our markets just like they need another boat load of worthless paper. Seems to me they can just as easily (easier) send their consumer crap to Russia (and other energy exporters) in exchange for oil and nat gas and get a much better value than they do from us.
When the Chinese finally do untie from the US consumer their prices for energy will fall (in real terms) as it expoldes in the US. We must be close to a point where the rest of the world awakens and refused to send us stuff for promises.
An anecdote on the state of CT real estate: I spent this morning watching my brother, a superior court judge in CT, preside over a court session. In CT, the superior court handles everything from child custody to murder cases, including mortgage forclosures. This morning, 19 properties were forclosed. At lunch, I asked my brother what an average number of forclosures was a year or two ago. His answer, 1 or 2. In several of the cases this morning, the property owner never made a single payment, and most of these mortgages were only 1-2 years old. Things are heading south everywhere.
URGENT REQUEST to any readers who are “insiders” in the mortgage or securities business:
As I’ve mentioned a couple of times earlier, I’ve been researching whether the California False Claims Act (and other states’ FCAs) have any angles that reach fraudulent real estate/mortgage transactions.
I just (as in, this morning) finally located some case law that has me veeerrrry interested … so much so that I’d rather not go into detail in public.
Ben, is there any way I could arrange for trusted readers to contact me privately?
Where are you looking? Witkin on Torts? CalJur? Wests CA Code?
If you have Lexis, call their 800# and ask for the research assistance. THEY ARE GREAT - They will do boolean & plain language searches for you.
I would help you but I am presently in NM and don’t have access to my usual law library in CA.
I rec that you do a search on state legislative intent for that CA law. You can always put that into your doc if it strengthens your position.
May want to also look in the Opinions of the AG - see if there is anything there.
The Ninth Circuit case is well known: Wang v. FMC Corp., 975 F.2d 1412, 1421 (9th Cir.1992). However, as you know, Wang is federal, however, there may be case references there to help you out.
All the best to you,
~Misstrial
heres a bond study,
I invested 5000 and my accout has 5015.15 in it
but, I have a loss of 14.15?
how is this possible?
Maybe it’s a bond mutual fund and you’re reinvesting distributions, which adds to your basis. So say the fund distributed $30 of income which you reinvested, bringing your cost to $5030. Then the value of the fund shares themselves drop a little to $5015. Since your total invested amount is $5030, you now have a loss of $15.
The FT.com story about the problems with Bear Stearns bailing out the hedge fund that it operates puts the finger on something that has been bothering me ever since they rescued it.
They should be punished for that. I’m just not sure how.