April 23, 2010

Bits Bucket For April 24, 2010

Post off-topic ideas, links and Craigslist finds here. The DC meetup link at the forum is here.

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Comment by Green Shoots
2010-04-23 23:27:43

All of the lending industry’s attempts to shame underwater borrowers into continuing to make unaffordable mortgage payments are just a scam. If it is in the homeowner’s rational self-interest to walk away and he does so, then good for him — this kind of business acumen is extolled on Wall Street as smart thinking, and if it helps a Main Street household settle the score with greater fools in the banking business, then all the better.

Strategic Defaulters Are Not Mortgage ‘Deadbeats’
By Annie Lowrey
4/23/10 5:01 PM

Bloomberg News’ Caroline Baum has a tart piece on strategic defaults and consumer spending — invoking the theory, first put forward by HousingWire’s Paul Jackson, that underwater homeowners are purposefully defaulting on their mortgages and using the funds to buy regular goods. That would explain why consumer spending is increasing despite high unemployment, declining real incomes and rising foreclosure rates. Historically, at least, cash-strapped consumers cut their discretionary spending and then stopped paying their auto loans and credit cards before quitting their mortgages. But the latest recession has upended that calculus. And homeowners left owing more on their homes than their homes are worth are more and more often walking away.

Baum writes, “Those deadbeat homeowners, facing possible eviction and in some cases unemployed, are throwing caution to the wind — and money at retailers.” I quibble with that depiction. Strategic defaulters are not “deadbeat,” nor are they lacking “caution.” They are making an economically rational calculation, generally one that is in their best interests. They walk away, and the bank takes their house — that is how real-estate contracts work, and banks themselves do it all the time.

As Roger Lowenstein wrote in the New York Times Magazine: “Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. [When a homeowner strategically defaults, he] isn’t escaping the consequences; he is suffering them.”

Moreover, strategic defaulters tend to be economically distressed. These “deadbeats” decide that they and their families would be better off finding a new place to live, rather than continuing to let their mortgage winnow away at their income. My guess is that they aren’t heading out to buy new Hummers, but rather thinking more along the lines of toothpaste and new shoes and infant formula.

Comment by joeyinCalif
2010-04-24 05:21:54

If someone owed you money, you’d do or say whatever you thought might coax them to repay you. If someone called your efforts a “scam” you’d have to wonder what they were smoking..

Comment by ecofeco
2010-04-24 12:40:22

Yet businesses, ESPECIALLY the financial sector, do this all the time.

Good for the goose, good for the gander, eh?

I’m not saying it’s right, but right and wrong are sometimes at odds with reality.

Comment by joeyinCalif
2010-04-24 13:37:44

Business is business.. People are people. The two are socially distinct groups, and have completely different sets of rules.

If people were permitted to act like businesses, there would be no schools. Children would be working as soon as they were strong enough to lift a bucket. Those too old to work would be set adrift.
..and nobody would complain about it.

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Comment by RJ
2010-04-24 08:08:16

in total agreement

Comment by FB wants a do over
2010-04-24 08:15:04

The opening comment and negative overtone reads like something PB would have posted. However, Green Shoots posts it. Very weird.

Comment by Sammy Schadenfreude
2010-04-24 08:29:07

Green shoots must’ve had a series of mini-strokes. That, or he came in here brimming over with CNBC-inspired delusions about the economy, but his exposure to the HBB has made him see truth and reason.

Comment by Professor Bear
2010-04-24 09:45:20

Even hardened trolls have occasional bursts of insight :-)

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Comment by Diogenes (Tampa, Florida)
2010-04-24 09:05:06

“But the contract explicitly details the penalty for nonpayment — surrender of the property.”
While that may be true in some States, it is not true in many, including Florida. We are a recourse State, which says the “loan” is a personal debt of the borrower. The property is held has “collateral”, meaning it can be taken to help satisfy the debt, but is not the only recourse the lender has to satisfy the debt of the borrower.
In other words, if the debtor has other assets, or money they are spending on “stuff”, the lender can get a court -ordered deficiency judgment against the borrower for the balance due.
Unfortunately, many lenders don’t pursue all legal recourse. They do, however, sometimes sell the debt to collection companies or agents who will pursue the borrower to the ends of the earth to collect the payments due.
Be careful of “strategic default” if you live in a recourse State and think you can “walk away” from your obligations, which is what they are.
The author is right, they did sign a Promissory Note. In some States, that is enforceable under the law, and some companies will pursue the deadbeats to perdition’s door. I support the lenders. They made a loan. They did not agree to go into business with a house-flipper. They don’t get any “appreciation” when the price goes up, why should they suffer the loss of loan when prices decline? It’s not a partnership, as some here would like to propose.

Comment by eddiamond
2010-04-24 15:14:59

If they made a loan to a guy with six other houses, they did go into business with him. They made a loan that says if the borrower fails to repay, the collateral would be reposessed. In return for the loan the borrower will pay interest. The contract goes unfulfilled, the reposession clause kicks in. Done deal.

Comment by NYCityBoy
2010-04-23 23:51:14

Good morning. One more day and I might get home. If not, I will be looking for that ship that Palmetto or Packman keeps mentioning.

The stock market is up 8 weeks in a row. It seems that the Obama administration views the stock market as the economy. It is as if they believe that a rising stock market means a healthy economy. The backwards thinking at work here is just astounding. We are back to bubble stupidity. The thought that the stock market can drive the economy is just as dumb as thinking housing can drive the economy. The cart is squarely in front of the horse.

I believe TPTB want people to see their 401k statements and think everything is wonderful. I doubt Joe Lunch Pail and Tina Text Messager understand that they need to cash in for those valuations to mean anything. The economy, and 401k participants, are better served with a nice steady upward trend. They can buy at lower prices for a long time. Now, they are going to have their 401k shoved full by fund managers that are buying retail stocks, REITs, financials and tech stocks at nosebleed levels. AAPL is 270 dollars. Amazon is 150 dollars.

We are priced for perfection here. The fund managers will be buying and praying that they can make it through until bonus time.

It seems that Mister Bernanke has chosen his game. The Euro may be showing us what it is. If he can make moves that crash other currencies then the dollar may be the last of the worst standing. Greece may be the first domino but I doubt it is the last. Aladinsane may be laughing as all of these currencies seem to be weakening against his shiny little rods.

It is Saturday morning. The sun is shining. There is so much to think about. But, hey, it is great to be alive.

Comment by palmetto
2010-04-24 05:08:52

“One more day and I might get home. If not, I will be looking for that ship that Palmetto or Packman keeps mentioning.”

You might have been home by now if you’d been able to book passage at the first sign of trouble. I was discussing your situation with a buddy, though, and he pointed out that it probably isn’t so easy, passenger ships having mostly gone the way of the buggy whip due to air transportation.

Comment by alpha-sloth
2010-04-24 08:39:47

The Queen Mary 2 is the last passenger ship crossing the pond, but I’m sure it’s booked solid. The QE2 was purchased by Dubai World, so they’ve got a money making opportunity if they care to take it.

If you really want out, I’d take a train heading to wherever the airports are open. Maybe south towards the Med? It’s a great place to be stuck, if nothing else.

Comment by Diogenes (Tampa, Florida)
2010-04-24 09:09:44

I wouldn’t have even thought about getting “back home”. It’s early spring. Take the Eurail down to Greece where I hear they have a currency crisis. Take some Euro’s with you and find a nice villa on the coast for a week or 2. There are probably some great bargains to be had and you can forget about the States and all the crooks running our government for a while longer.

Comment by REhobbyist
2010-04-24 15:54:35

I’m with Diogenes. I wish I could be stuck in Europe with dollars for two weeks. I’m sure that NYCityBoy and his wife have enjoyed themselves - he’s no dummy!

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Comment by DennisN
2010-04-24 09:40:44

Most airports in the south of Europe have stayed open. Why not take the train south into Spain or Italy and fly home from Madrid or Rome? Both places should have major trans-Atlantic connections. I’ve flown into both from NY.

Comment by Sammy Schadenfreude
2010-04-24 06:14:22

If the Fed believes its own hype about the “recovering” economy, why do they still maintain these ridiculously low interest rates that punish savers and encourage consumption and speculation?

Comment by Reuven
2010-04-24 12:10:39

Because the Obama Administration’s constituents don’t save or work. They live on handouts.

Comment by ecofeco
2010-04-24 12:44:06

Thanks god Wall St. doesn’t do that.

Oh wait…

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Comment by eddiamond
2010-04-24 15:18:42

We became Obama constituents after the Bush admin put us in the soup line, encouraged the outsourcing of jobs, weakened the unions and helped Wall St. rob main street of all their savings.

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Comment by Sammy Schadenfreude
2010-04-24 16:13:24

And Obama changed all that how?

Comment by alpha-sloth
2010-04-24 16:23:43

Rome wasn’t rebuilt in a day.

Comment by Chris M
2010-04-24 22:03:47

Yeah that’s it. What this country really needs is stronger unions. That’ll solve our problems. I’m sure the outsourcing trend has nothing to do with strong unions in the first place. Workers of the world unite! (to send those jobs to china).

Comment by Pondering the Mess
2010-04-26 09:17:27

Because the economy is based on run-away consumption (which requires the punishing of savers.)

Comment by RJ
2010-04-24 08:24:29

We invested the proceeds of our home we sold in 2006 in a mutual fund only to see it lose 40% of its value during 2009’s March market lows. With conviction we stayed invested only to see it rally 79% to break even. In fact, right now it is at its high water mark. The market has gone sideways for 10 years but Bill Nygren’s Oakmark Select has outperformed the S&P by almost 8%. In fact before the financial fiasco, he was able to compound investors’ returns by a staggering 18%. This means your money will double every four years. Most have abandoned this thinking for most modest gains of 8%, but because the majority now feels this way is exactly why these returns might be feasible. Maybe not at Oakmark, but somewhere. I have read hundreds of books about investing, and never realized why people just don’t invest with the “masters” that have proven track records and in time they would get rich. Patience is at issue. Diverting instant gradification is another issue. But most importantly, you have to have conviction. During the lows we were dollar cost averaging into the fund. There are only a handful of masters and it begins with Ben Graham and ends with Warren Buffet. When I take these finance classes at University. I cringe at efficient market hypotheses and betas. The market (any market) is made up of people that have high emotions. When you can see this: I promise you that all of you will be wealthy.

Comment by Sammy Schadenfreude
2010-04-24 08:32:35


Here’s an option you might want to look into, NYCityBoy. With all the disruptions and hassle of air travel this is looking like the wave of the future. Might be an adventure, too.

Comment by Martin Gale
2010-04-24 00:49:34

Let’s face it: times are tough for everyone these days, in one way or another.


Comment by Silverback1011
2010-04-24 12:16:37

Surely this article is a joke, right ? Mr. Chandler is just crowing about his wealth and status, right ? If he gave all of his millions away to charities, and then tried to live alongside the hoi polloi, then perhaps he might find out what it’s like to struggle. The poor little prince, locked up in his “tower of no worries…”

Comment by ecofeco
2010-04-24 12:51:55

Uh, it’s The Onion. :lol:

Comment by stpn2me
2010-04-24 02:01:18

Can someone tell me why the DOW is up 70 points? Here in N.C., it’s being reported that ALL 100 counties had a lower unemployment rate this past reporting period.

The reason I say this: One of the big points on this blog is that without employment, there can be no real housing recovery. Does it look to anyone else like a fake pushing up of the housing market is coming again? Seems like they (the establishment) are setting the stage…

Comment by Green Shoots
2010-04-24 05:01:44

The stock market always goes up, in the long run.

Comment by wmbz
2010-04-24 05:13:36

Yep, who wrote the book DOW 30,000? Wonder if it can make it back to 14,000 this year?

Comment by palmetto
2010-04-24 05:19:01

I think we’re about to see that double-dip some of the economists have been talking about. I’ll have mine with sprinkles, please. Oh, wait, I think Washington’s been sprinkling already and the bladder’s about empty.

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Comment by wmbz
2010-04-24 05:25:09

No way man, we have a V recovery, uncle sugar and BB is printing us out of da hole. Creating jobs along the way, this recession stuff is child’s plays, when you control the levers. I don’t know what all the fuss has been about the cesspool will make it right.

Comment by oxide
2010-04-24 10:01:30

I’m anticipating the double dip too. I moved some stock around a couple weeks ago for just that purpose. If nothing else, you can’t go wrong with an early version of “Sell in may and walk away.”

Comment by Sammy Schadenfreude
2010-04-24 13:08:54


What do you think is going to happen this week on the markets?

Comment by REhobbyist
2010-04-24 16:23:01

I hope it dips again. I got out in 2007 and was afraid to go back in last March. I got out of bonds 4 months ago and I’m sitting in cash. It’s kind of uncomfortable, but I sleep well at night.

Comment by Bill in Carolina
2010-04-24 16:28:20

The stock market reflects traders’ guesses about the near future. It tends to lead the economy. It is NOT connected to the housing market. We could have a booming economy and an overheated stock market in a few years, while house prices barely move and volume picks up only a little.

Comment by nickpapageorgio
2010-04-24 20:52:13

I am thinking the recovery will look more like an upside down square root symbol.

Comment by Sammy Schadenfreude
2010-04-24 06:15:49

The guy that wrote the book DOW 36,000 was John McCain’s economic advisor during his 2008 run. Go figure.

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Comment by Professor Bear
2010-04-24 07:33:56

Looks like deflation has sunk the price of that book.

Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market (Paperback)
James K. Glassman
James K. Glassman (Author)
Kevin A. Hassett (Author)

(Author) “NEVER BEFORE have so many people owned so much stock…” (more)

2.4 out of 5 stars See all reviews (78 customer reviews)

78 Reviews
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› See all 78 customer reviews…

Available from these sellers.

5 new from $29.99 24 used from $0.25
Publisher: Crown Business
Published: October 1, 1999
– $3.14 $0.01
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Published: November 14, 2000
– $29.99 $0.25
Audio, Cassette, Abridged
Available from these sellers.
Publisher: Soundelux Audio Publishing
Published: September 1, 1999
$2.77 $0.18

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Comment by pressboardbox
2010-04-24 07:46:33

There has never been a better time to buy this book!

Comment by Professor Bear
2010-04-24 09:47:52

Here’s another good’un. They are so cheap, I am going to buy one myself:

Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them (Hardcover)

~ David Lereah (Author) “The recent U.S. real estate boom has made money for an incredible number of households in America…” (more)

2.3 out of 5 stars See all reviews (58 customer reviews)
58 Reviews
5 star: (15)
4 star: (4)
3 star: (0)
2 star: (1)
1 star: (38)

16 new from $2.95
62 used from $0.01

Comment by combotechie
2010-04-24 05:18:44

“One of the big points on this blog is without employment, there can be no housing recovery.”

Ah, but there can be an economic recovery of a sort.

When FBs decide to walk (or stay and not pay) then they get to SUDDENLY enjoy spending whatever money they used to send to the bank. This could end up being several thousand dollars a month per FB, which ends up being a big and sudden jolt to the economy.

Party on.

Comment by alpha-sloth
2010-04-24 12:28:52

Keynesianism is easier in an age of spendthrifts.

Comment by Pondering the Mess
2010-04-26 09:21:05

Ugh, back to this silly idea of people needing a job to buy things in the CONsumer eCONomy!

Nope - in New Future, we just print and borrow our way to wealth!

Comment by ecofeco
2010-04-24 13:01:43

The “jobless” recovery is nothing new.

However, unemployment numbers are being fudged, although some regions are seeing some improvement. Whether from real employment or drop outs, is unclear. (my money is on drop outs)

Any uptick at this time is consumer spending is most likely due to pent up winter demand as well as “simply can’t hold out any longer and must purchase essentials” spending.

Comment by wmbz
2010-04-24 03:30:33

Greece can’t wiggle free of the debt bind it’s in and today begged for money from member nations of the European Union. Spain and Portugal are juggling heavy debt and have their backs to the corner, too.

~ Come the Greeks, bearing debt.~ NYT

< Think about it. If you find yourself carrying a debt load you can’t pay you take hat in hand and beg for more loans. Sound reasonable? Not to students of monetary history who have found nations repeating this sad exercise over and over again ever since the days of….well, ancient Greece!!

Comment by Sammy Schadenfreude
2010-04-24 06:20:09

This so-called EU/IMF “rescue package” depends on Germany actually coming through with funds, as opposed to making vague pledges to do so. The German people are up in arms about bailiing out the Greeks, and four German professors who sued to prevent Germany’s entry into the EU have said they will sue to block the bailout the moment the formal request from Greece is recieved. That could tie the release of funds up for months or scupper it altogether. In additions the Germans keep adding demands they know the Greeks can’t or won’t accept. Meanwhile the markets reward the end of “uncertainty” by going higher, while serial defaults loom among the PIIGS. Pure insanity.

Comment by Diogenes (Tampa, Florida)
2010-04-24 09:21:21

The entire concept of a “monetary union” without a political union was a disaster waiting to happen. It’s never been done in history. While there have been numerous accords and agreements that put Brussels at the head of an arbitrating body, you can see that providing policing of the letters of intent is more complicated.
The Germans should go back to the Deutsche Mark and segregate their finances from the other members of the “union”. The Italians are probably cheating as much as the Greeks, they just have it hidden better. Spain can’t be far behind.
In many ways, their Union is much like ours: someone is looking for someone else to pay the bills. Hail Obama!

Comment by Sammy Schadenfreude
2010-04-24 09:39:30

I’m going to howl with glee when Greece defaults and burns these greedy, stupid bondholders and any governments that extended them “rescue money.”

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Comment by ET-Chicago
2010-04-24 10:04:50

In many ways, their Union is much like ours: someone is looking for someone else to pay the bills. Hail Obama!

When I look at the EU’s current situation, I think “Things are kinda screwy here in the states, but the European Union is FUGAZI.” Makes our structure (as imperfect as it is) seem a whole lot better.

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Comment by wmbz
2010-04-24 03:41:48

Plugs sez…

Biden sees up to 200,000 new jobs next month

WASHINGTON (Reuters) – Vice President Joe Biden predicted on Friday the U.S. economy would create 100,000 to 200,000 jobs next month, with a rise to 250,000 to 500,000 jobs per month soon afterward, according to a press pool report.

“We caught a lot of bad breaks on the way down. We’re going to catch a few good breaks because of good planning on the way up,” Biden told a political fundraiser in Pittsburgh, the pool report said, as he hailed the Obama administration’s recovery efforts.

Comment by wmbz
2010-04-24 03:46:18

Phew! Good news for the unemployed, according to Plugs Biden we could have over employment in short order. Then ‘we’ will be looking for ways to cut jobs I guess. No worries uncle sugars got it handled.

Comment by Sammy Schadenfreude
2010-04-24 08:34:41

We’re going to catch a few good breaks because of good planning on the way up,” Biden told a political fundraiser.

Are we instituting Soviet-style five year plans now? Behold the Centralized Economy.

Comment by ecofeco
2010-04-24 13:33:11

Considering we need something like 400,000 per month for the next 2 years just to get back to where we were 2 years ago, this news is no news.

Comment by wmbz
2010-04-24 04:07:48

Our four-legged friends are now getting their own Army battalion - but dogs have been doing duty on the battlefield for centuries

Read more: http://www.dailymail.co.uk/femail/article-1268323/A-breed-apart-Our-legged-friends-getting-Army-battalion–dogs-doing-duty-battlefield-centuries.html#ixzz0m0yfiO7A

Comment by scdave
2010-04-24 07:14:19

Cool…Particularly the paratrooper…

Comment by stpn2me
2010-04-24 07:20:14

When I was in korea, the koreans were demostrating outside of Camp Red Cloud. Adjacent to the front gate, a few demonstrators cut through the wire gate. The MP’s released two highly trained Rotties. Once the first korean got pulled through the hole in the fence, those behind him made a hasty retreat!

Comment by DennisN
2010-04-24 09:48:03

I was up at Camp Red Cloud back for the spring of 1982. The locals were happier to see us back then.

Comment by palmetto
2010-04-24 04:18:24

Arizona, YOU ROCK! Hats off to Jan Brewer, one of the most courageous ladies in politics today. Thank you, Jan Brewer!!

Comment by wmbz
2010-04-24 04:24:58

Ariz. governor signs immigration enforcement bill
The Associated Press
April 23, 2010; 10:40 PM

PHOENIX — Gov. Jan Brewer ignored criticism from President Barack Obama on Friday and signed into law a bill supporters said would take handcuffs off police in dealing with illegal immigration in Arizona, the nation’s busiest gateway for human and drug smuggling from Mexico.

With hundreds of protesters outside the state Capitol shouting that the bill would lead to civil rights abuses, Brewer said critics were “overreacting” and that she wouldn’t tolerate racial profiling.

“We in Arizona have been more than patient waiting for Washington to act,” Brewer said after signing the law. “But decades of inaction and misguided policy have created a dangerous and unacceptable situation.”

Comment by wmbz
2010-04-24 04:27:28

Looks like the Az. gov. is one tough cookie! Standing up to the thumb sucking bed wetting whiners. Including golf pro Barry!

Comment by palmetto
2010-04-24 04:53:59

Barry had to say something, but the truth is, he couldn’t care less. It finally dawned on me that Washington rather enjoys the game as it currently stands. Holding out the possiblity of amnesty keeps the people fighting each other, whipsawing back and forth, which creates a nice distraction while more pocket-picking goes on.

There will never be another amnesty. But there will always be the possiblity.

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Comment by Sammy Schadenfreude
2010-04-24 06:23:15

The Arizona bill is going to force the immigration issue prior to the November elections. That’s a good thing.

Comment by Diogenes (Tampa, Florida)
2010-04-24 09:29:02

A good thing is a matter of perspective. I oppose legalization.
Voting for Amnesty before the Republicans can get control away from the Democrats in November is a likely win for 12-20 million illegals…….and their families and a big loss to U.S. Citizens who will pay for it.
Just like Socialized Medicine that the majority of Americans OPPOSED, the fascists in power forced it on us. They will do the same with Amnesty if not stopped. The MAJORITY of Americans OPPOSE Amnesty, by whatever Euphemism you wish to give it. I am hopeful November will be a time of massive Legal Voter turnout to upend this Administration Permanently.

Comment by Sammy Schadenfreude
2010-04-24 09:44:43

It’s naive to think the November elections will change anything. Meet the new boss, same as the old boss. Our financial oligarchy will still own both parties and virtually all politicians. Our corporate overlords will demand and get a continued flow of immigrant wage slaves to prop up their “shareholder value” and keep costs low.

Comment by ecofeco
2010-04-24 13:35:24

Uh, Diogenes , Bush was going to give the illegals amnesty as well.

That dog won’t hunt for this admin either.

Comment by eddiamond
2010-04-24 15:29:13

In a Republic, MAJORITY does not rule. Else America would all be White Christians as all other ethnics groups and religions would be illegal since the MAJORITY rules. People often confuse republics and democracies.

Comment by ET-Chicago
2010-04-24 16:49:56

Else America would all be White Christians as all other ethnics groups and religions would be illegal since the MAJORITY rules.

Just because one group is in the majority does not mean “all other ethnics [sic] groups and religions would be illegal” in a democracy. In fact, that would be highly unlikely.

Comment by scdave
2010-04-24 07:17:27

Which now will increase traffic across the California and Texas borders…Lets see if Texas & California have the testicles to follow suit…

Comment by SV guy
2010-04-24 08:19:34


Kalifornia might as well be called Baja Oregon.

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Comment by sleepless_near_seattle
2010-04-24 10:03:50

I was thinking this very thing as well. Next step is to go after corporations who hire them. Then I’ll believe we’re on the way to real reform.

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Comment by BlueStar
2010-04-24 07:22:51

Tell me again why we don’t fine and imprison employers who hire ANY illegal workers. This law is flawed to it’s core. No jobs = No immigration. Now you will still have smugglers, sex traffic and a host of black market types but that’s what the FBI is for.

Comment by Sammy Schadenfreude
2010-04-24 08:39:57

Concur. As long as the Republicans’ corporate pimps want wage slaves and Democrats want ever-increasing entitlement programs to maintain their votes-for-payola schemes, the flow of illegals will only increase. With Obama & Co’s support for amnesty, what Mexican is going to go through the tortuous legal entry process when they can hop the fence and benefit from Democrat-on-Arrival amnesty programs?

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Comment by ET-Chicago
2010-04-24 09:03:20

Tell me again why we don’t fine and imprison employers who hire ANY illegal workers. This law is flawed to it’s core.

If you want to target illegal immigration, why not target the reason for illegal immigration? Because that would step on too many toes.

Politicians are beholden to their donors. And corporate interests in many sectors (farming, meat packing, food service, etc.) depend on the constant influx of below-market wage earners. Thus the tight-wire act of seeming to be tough on immigration while not trying to address the root causes of the problem.

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Comment by Lip
2010-04-24 09:06:18

In AZ you “can” loose your license if you employ illegal immigrants, but in practice I don’t think it happens that often.

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Comment by sleepless_near_seattle
2010-04-24 10:14:43

Radio program yesterday had a caller who, I think, nailed it. Illegal immigrants don’t take jobs. In fact, nobody “takes” a job. If the job pool were not open to undocumented workers, problem most likely goes away.

I say “most likely” because I still think there are those who would find a way to stay. I still think you also need to address anchor babies and criminalize being here without visa, greencard, citizenship. Prosecute employers, criminalization, no citizenship for children born here to undocumented parents.

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Comment by ET-Chicago
2010-04-24 10:56:36

I still think you also need to address anchor babies and criminalize being here without visa, greencard, citizenship.

I was with you for part of your post, but you want to criminalize the over-stayers?

Don’t you think we have enough of our population incarcerated?

We have 5% of the world’s population, but more people in prison than any other country, including China. Throwing thousands of non-violent offenders into prison is not a solution.

Comment by sleepless_near_seattle
2010-04-24 20:58:46

No, I guess I was thinking more along the lines of deportation.

Comment by ecofeco
2010-04-24 13:38:19

Tell me again why we don’t fine and imprison employers who hire ANY illegal workers?

Is that a trick question, BlueStar? :lol:

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Comment by eudemon
2010-04-24 04:39:07

It will be interesting to watch the upcoming States Rights vs. Federal Mandates battle. Obama seems to deeply resent what Arizona is doing. Said something to the effect that states can’t handle their own security/policing issues as well as the Federals.

There will be more of this as Washington continues its push to rob the citizenry of self-determination.

The People are fed up. When will the Elitists get it through their thick heads?

Comment by palmetto
2010-04-24 05:14:10

Yesterday was a squeaker. I was so distracted I kept checking google and alipac to see if she had signed it yet. If she had vetoed it, to my mind, that truly would have been the point of no return for the US. Now, I do feel there’s the teensiest chance we might be able to turn the ship around. You can bet old Palmy will be on the horn to Tallahassee come Monday. There’s two state officials, one a rep in Jax and the other a senator in Eustis, who are proposing legislation.

Comment by scdave
2010-04-24 07:24:11

rob the citizenry of self-determination ??

Texas could lead the way out…..

Comment by alpha-sloth
2010-04-24 12:09:04

Texas’ up-and-coming wanna-be-Reagan governor, Rick Perry, is notably silent on illegal immigration. As is Jeb. Unfortunately, it’s another issue like abortion. The Repubs will use it to whip up the base, but will never seriously try to end it. It’s too valuable to their voter turnout, and, more importantly, to their corporate sponsors.

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Comment by ecofeco
2010-04-24 13:40:43

Uh, Rick Perry is ALREADY governor. He’s just running for re-election.

Illegal immigrants, like slavery before, is integral to southern states’ economies.

Comment by alpha-sloth
2010-04-24 14:42:48

Wanna-be-Reagan, but is already gov. (He’s got his eyes on the prize, and it ain’t secession.)

Comment by oxide
2010-04-24 10:06:33

Question: Why didn’t Arizona just pass a law to build its own fence on the border?

Comment by alpha-sloth
2010-04-24 12:14:53

They’d have to fence in the whole state. Besides, it’d be a lot cheaper to just enforce these new laws. If they seriously fine people who employ illegals, the jobs would dry up, and I’d bet the vast majority of illegals would leave. (Although a lot will probably go to other states.)

Comment by exeter
2010-04-24 19:35:10

The AZ gov harping on the immigration issue is merely more GOP pandering to it’s idiotic base. Throw anything and everything against the wall, no matter how stupid it makes you look, and see if it sticks. If it resonates with the brain-dead, run with it.

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Comment by Carl Morris
2010-04-24 22:48:43

I don’t think you understand their idiotic base as well as you think you do.

Comment by Professor Bear
2010-04-24 04:31:53


* APRIL 23, 2010, 11:04 P.M. ET

2nd UPDATE: US Regulators Close Seven Illinois Banks

(Adds quote from Alexi Giannoulias.)

By Victoria McGrane

WASHINGTON (Dow Jones)–U.S. regulators closed seven Illinois banks on Friday, including a Chicago bank closely tied to the Democratic candidate running for President Barack Obama’s former Senate seat.

Friday’s failures bring to 57 the number of U.S. banks that have failed already this year, after 140 failures in 2009. The FDIC said the total cost to its deposit insurance fund from Friday’s failures topped $970 million.

State banking regulators shuttered Chicago’s Broadway Bank, owned by the family of Alexi Giannoulias, who is locked in a fierce midterm election battle with U.S. Rep. Mark Kirk (R., Ill.) for Obama’s old Senate seat. Giannoulias’ role at the scandal-plagued institution, which had total assets of approximately $1.2 billion as of the end of 2009, has become a central issue in the race.

Late Friday, Giannoulias told the Associated Press that the collapse of the bank will inspire him to work harder in his bid to win the Senate race. He said he knows first hand the impact that the economy has had on people and businesses in Illinois.

There was no bailout for my father’s bank. It is an incredibly sad and heartbreaking day for me and for my family. This bank has helped thousands of people when no one else would give them a chance,” he said. “What has happened tonight is just a sliver of the hardship which has become endemic in our society only strengthens my resolve.

Comment by Sammy Schadenfreude
2010-04-24 06:26:05

This bank has helped thousands of people when no one else would give them a chance,” he said.

Translation: this bank engaged in reckless and irresponsible lending and speculation. Unlike the more politically protected too big to fail banks, they didn’t pour enough money into Republicrat coffers to rate a taxpayer bailout.

Comment by joeyinCalif
2010-04-24 07:09:44

..During the treasurer campaign, the Tribune revealed Broadway Bank had loaned millions of dollars to Michael Giorango, a convicted bookmaker and prostitution ring promoter. At first, Giannoulias played down the relationship but later admitted he met Giorango in Miami to inspect property the bank had financed. Giannoulias also backtracked on comments that none of the loans went for casinos, when one in Myrtle Beach did. There has been no suggestion the loans were illegal.

Broadway Bank also issued loans to Rezko, a political insider later convicted as part of the Blagojevich scandal. Giannoulias defended the bank’s loan to Rezko, noting Broadway later declared Rezko in default. He also defended Blagojevich’s appointment of his brother Demetris to the Illinois Finance Authority board.


big bank.. little bank.. and the difference is.. ?

Comment by Sammy Schadenfreude
2010-04-24 08:42:17

The MSM, in their infatuation with The One, never exposed the deep ties between Rezko and Obama.

Comment by ET-Chicago
2010-04-24 09:07:03

The Tribune, Sun-Times, and other media outlets have tried to expose that link for years. It has yet to materialize in any substantive way, though there is clearly plenty of grist for the rumor mill.

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Comment by ecofeco
2010-04-24 13:43:53

Sammy, just go to Google News and search “Rezko and Obama”

537 articles from MSM pop up.

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Comment by alpha-sloth
2010-04-24 12:24:03

I thought Obama was an arch-criminal member of the Chicago mafia. He can’t even keep his own supposed-crony’s bank from being shut down?

There must be a deeper more complex conspiracy at work, no? Let’s hear it. Or have Rush and Glenn not come up with it yet?

Comment by ecofeco
2010-04-24 18:37:29

Their waiting on the final quorum from Billie O’.

Comment by WT Economist
2010-04-24 04:33:36

The word is the big emerging market economies are back to strong growth, and global commodity prices are rising. That means there may be demand to match supply that atrophied in the recession, even if U.S. consumers no longer have the money to buy.

This gets back to a stagflation scenario for us as the next step. Consumer prices rise even with high unemployment, because former real estate brokers cannot easily switch to producing raw materials and the stuff we can no longer afford to import from China. Asset prices remain weak, unless and until a falling dollar allows them to rise in nominal dollars while falling or being stagnant in real dollars. Unemployment eventually falls, but people work for less and pay more — as taxes rise and public services are cut.

Not a happy scenario, though most of the alternatives are worse.

Comment by eudemon
2010-04-24 04:44:18

You’ve not mentioned that the bills are now due.

In our past stagflation scenario, the nation’s Entitlement Ponzi Scheme could continue unabated. No longer.

Comment by palmetto
2010-04-24 04:44:42

Stagflation? Whoo-hoo! I like the night life, I wanna boogie, I’m gonna put on my dancin’ shoes and a Huk-A-Poo shirt. Disco balls are back in style! 1970s, here we come!

Comment by ecofeco
2010-04-24 13:46:10

And people are once again driving ugly cars, dressing badly, doing bad drugs, and listening to mind numbingly stupid music.

*sigh* things REALLY do run in cycles. :(

Comment by gonzonista
2010-04-25 09:12:42

and when hasn’t this been the case?

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Comment by Pondering the Mess
2010-04-26 09:28:10

Stagflation: the worst of all worlds - is the logical outcome.

It’s not simply deflation or inflation, it’s just lots of people who are trying to get by each day becoming poor… but the banksters are still rich, so that’s all that matters (or so it sadly seems these days.)

Comment by Professor Bear
2010-04-24 04:46:11

Has the Fed ever previously sucked up an entire asset class of toxic securities onto its balance sheet? How is it going to unwind this without roiling markets? Perhaps if they jawbone about their future unwinding plans long and loudly enough, the bond market will price in the adjustment before the actual unwinding occurs.

The thing which most confuses me about these securities is their ownership status; did the Fed buy them from banks that owned them previously? And did they pay “fair market value,” or an inflated price, based on artificially low interest rates designed to prop up the value of toxic MBS to the seller’s advantage? And were the transactions carried out at ARMs length? If not, how were the deals set up? From where I sit, it seems like another massive giveaway from the American Treasury to private banks, but then I am a bit of a skeptic…

So many questions, so much opacity…

* The Wall Street Journal
* APRIL 24, 2010

Fed’s Focus: How to Sell Its Mortgage Securities


The Federal Reserve has acquired more than $1 trillion worth of mortgage-backed securities in the past 15 months. At their policy meeting in the coming week, Fed officials will try to decide how and when to get rid of them without jarring financial markets and the nascent economic recovery.

The Fed’s thinking on interest rates is straightforward. The recovery has gained traction but hasn’t been vigorous or long lasting enough to warrant raising them soon; after its Tuesday and Wednesday meeting it is likely to repeat its signal that rates will stay low for an “extended period.”

The more challenging issue will be agreeing on a long-term plan to shrink a balance sheet bloated to $2.38 trillion—more than double precrisis levels—according to Fed insiders.

At their policy meeting next week, Fed officials will try to decide how and when to get rid of them without jarring financial markets and the nascent economic recovery.

Sales of mortgage-backed securities aren’t likely soon. It is also possible that the Fed won’t signal its intentions on the matter in its post-meeting statement Wednesday. But markets are on edge because its mortgage bonds holdings are so large. At $1.1 trillion in holdings of mortgage debt guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, the Fed owns roughly a fifth of all these outstanding instruments.

The sheer size of the portfolio makes these decisions so key. The Federal Reserve Bank of New York estimates Fed purchases of mortgage and Treasury bonds pushed long-term interest rates down about half a percentage point. The mere announcement of sales could have the opposite effect, as investors price in future sales.

Speculation about sales Friday morning knocked prices of longer-term Treasury bonds down, and helped push the 10-year note’s yield up from 3.770% to 3.813%.

“If they sell the assets, it is clearly going to have a pretty big impact on the long end of the bond market, depending on how they do it, when they do it, and the speed at which they do it,” said David Zervos, bond market strategist with Jefferies & Co.

Even if they reach a consensus, many officials want to stay flexible to avoid locking themselves into a course they might need to change later. “It seems to me neither necessary nor advisable to decide upon a single game plan that will be announced in advance and rigidly implemented,” said Daniel Tarullo, a Fed governor, earlier this month.

Fed staff in the coming week will present models to forecast how different approaches to reducing the portfolio might play in markets. But some officials worry that they have little experience selling assets and can’t rely exclusively on models to predict how markets will react. That—and a worry about disturbing the vulnerable housing market—has top officials inclined to proceed gradually and cautiously, at a predictable pace.

Though interest-rate increases and asset sales are still likely a ways off, the Fed is gearing up to take smaller, baby steps toward the exit. In coming weeks, it is likely to start testing a new program in which it will accept long-term deposits from banks called term deposits, a step meant to help drain money from the banking system when it wants to raise interest rates.

It also will broaden tests of “reverse repo” trades which are another way to drain money from the financial system to include not only banks, but also money-market mutual funds and possibly other financial institutions.

Fed officials will describe these as tests, and not the beginning of a tightening.

Some Fed officials are pushing for a more aggressive approach. In April, Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank, called for monthly sales of $15 billion to $25 billion to eliminate the Fed’s mortgage holdings within five years. “It is likely the Fed will have to sell a nontrivial amount of its MBS holdings,” he concluded. Some Fed policy makers—among them Charles Plosser of Philadelphia, Jeffrey Lacker of Richmond and Kevin Warsh at the Fed board—are sympathetic.

Fed Chairman Ben Bernanke made his preferences clear. “I currently do not anticipate that the Federal Reserve will sell any of its security holdings in the near term, at least until after policy tightening has gotten under way and the economy is clearly in a sustainable recovery,” he said in February testimony before Congress.

As part of their debate, Fed officials will be weighing how to reach different objectives. Officials see sales of mortgage-backed securities as a way to accomplish two things at once—shrinking the balance sheet over time and returning to a portfolio dominated by government bonds.

Comment by Sammy Schadenfreude
2010-04-24 06:31:44

The Federal Reserve has acquired more than $1 trillion worth of mortgage-backed securities in the past 15 months. At their policy meeting in the coming week, Fed officials will try to decide how and when to get rid of them without jarring financial markets and the nascent economic recovery.

This is why local municipalities need to start imposing punishing fines and liens on mortgage holders who let properties sit vacant and neglected. The Fed will continue to “hold back” its ever-growing inventory to perpetuate the illusion that the economy is “stablizing” and defer the inevitable day of reckoning. Unless their hand is forced.

Comment by Professor Bear
2010-04-24 07:36:15

‘The Fed will continue to “hold back” its ever-growing inventory to perpetuate the illusion that the economy is “stablizing” and defer the inevitable day of reckoning. Unless their hand is forced.’

Are you suggesting the so-called “shadow inventory” is directly tied to Fed MBS purchases? Please explain how this connection works if you understand it (I don’t).

Comment by pressboardbox
2010-04-24 07:54:01

Fed owns Fannie’s paper. Works for me.

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Comment by Professor Bear
2010-04-24 08:34:46

The part I don’t get is, does this some how keep vacant homes off the market? For instance, if a home in default has it’s toxic mortgage wrapped up in a MBS, and said MBS is in the Fed’s catacombs, does that mean the home can stay off the market indefinitely?

Comment by Diogenes (Tampa, Florida)
2010-04-24 10:26:32

It can stay off the market until “Bandos” and Vandals strip the fixtures and salable parts from it, making it uninhabitable.
Then, the FED can sell of the remaining skeleton at 100% of it’s booked asset value. Ha. Ha. Give me a break.
This is the next shoe to drop.

This is largely why i haven’t taken advantage of the rising stock prices. I have been slow to react. I just can’t see the future valuations of stocks when the zero interest rates unglue and the “holdings” of many companies and businesses are revealed as fraudulent valuations. But then, if you can flood the country and the world with enough dollars, perhaps the scraps will really be worth the booked values of their holdings.

Comment by Professor Bear
2010-04-24 11:28:41

‘I just can’t see the future valuations of stocks when the zero interest rates unglue and the “holdings” of many companies and businesses are revealed as fraudulent valuations.’

I can’t either. But then I could not have foreseen the lengths to which the Fed would go to artificially inflate asset prices; could you?

My main questions are:

1) Will the Fed continue to artificially support asset prices going forward?

2) Are there any exogenous factors which could undermine their ability to do so?

Comment by neuromance
2010-04-24 19:10:14

My main questions are:

1) Will the Fed continue to artificially support asset prices going forward?

2) Are there any exogenous factors which could undermine their ability to do so?

1) Yes, if doing so will improve the balance sheet of the banks. Both Obama and Geithner have said it is national policy to “stabilize” home prices. The logical justification is to keep the banks operational (why?)

2) The Fed is a black box with a printing press. The economy and faith in the currency is based on confidence. As long as the Fed stays a black box, and can make toxic loans disappear, it’s not clear any exogenous factor, short of inflation, will undermine the Fed’s ability.

That’s the way it looks to me.

In the long term, I think house prices will continue to “slow leak” back to historical norms. After all, a tremendous amount of wealth was extracted from excited buyers during the housing bubble. If buyers simply cannot raise that level of money again, it seems like prices will have to adjust.

But then I could not have foreseen the lengths to which the Fed would go to artificially inflate asset prices; could you?

This was the one piece of the game that I didn’t foresee. A very astute friend of mine, a fellow who personally made north of 500K during the tech boom with his company (AFAIK), said that “very smart and powerful people want to see this game keep going, and they’re going to do all they can to do so.” An important point. With money supply manipulations, bond and stock manipulations, they seem to be able to maintain some level of confidence.

What kind of black swan might impact this ability? I don’t know. Unemployment? A massive turnover of politicians in the November elections? Strong inflation? Other?

Comment by Professor Bear
2010-04-24 20:17:46

“What kind of black swan might impact this ability?”

I’m thinking the China property bubble collapse might suffice to get’er done.

Comment by Carl Morris
2010-04-24 20:22:07

Yeah, when China has their 1929, that should get somebody’s attention.

Comment by Timmy Boy
2010-04-24 08:37:44

“Fed staff in the coming week will present models to forecast how different approaches to reducing the portfolio might play in markets. But some officials worry that they have little experience selling assets and can’t rely exclusively on models to predict how markets will react. That—and a worry about disturbing the vulnerable housing market—has top officials inclined to proceed gradually and cautiously, at a predictable pace.”


ALSO, “vulnerable housing market” = “Artificially propped-up housing market”

Comment by ecofeco
2010-04-24 13:47:34

WELCOME, to Mark-to-Fantasy Island!

Comment by Pondering the Mess
2010-04-26 09:33:23

Was it the Hotel California, where you can check out any time but you can never leave? That sums up Mark-to-Fantasy Island!

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Comment by Professor Bear
2010-04-24 04:52:31

I find the market’s deafness to bad news a great puzzlement. Back in the day, bad news would be instantly priced into shares; more recently, an overwhelming avalanche of bad news can have little apparent effect.

What gives? The “too much noise” theory is highly dubious.

The Wall Street Journal

* APRIL 24, 2010

Full Disclosure: Most Risks Hide in Plain Sight


Without full and proper disclosure, investors can’t make an informed decision. Even with full and proper disclosure, however, many investors still can’t make an informed decision.

That is the unspoken irony at the heart of the Securities and Exchange Commission’s lawsuit against Goldman Sachs.

Don’t get me wrong. One of the most fundamental tenets of financial regulation is that forewarned is forearmed. Without good disclosure, the markets can’t function. I’m not saying that Goldman—which denies all wrongdoing and any material omission—shouldn’t have disclosed to buyers that short sellers at Paulson & Co. helped put together the now-notorious Abacus deal.

What I am saying is that telling investors what they need to know is necessary, but insufficient. Receiving information and using it wisely are two entirely different things. Regulators, rightly, focus on ensuring that disclosure is provided. But investors struggle with using it wisely. As the Nobel Prize-winning economist Herbert Simon warned: “Information consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.”

Consider a recent analysis of disclosures by Ambac and MBIA, two specialty insurance companies. Each quarter, in forms they file with state regulators, such firms must list any significant exposures they may have to the same kinds of derivative securities that are under dispute in the SEC’s case against Goldman. The insurers posted the filings on their own Web sites; with a little digging, investors could find them.

Robert Bartlett, a law professor at the University of California, Berkeley, found that Ambac and MBIA’s state filings—plus other public information from the Irish Stock Exchange Web site—gave ample disclosure about the derivatives to which they were exposed. But on the days when the credit ratings of those derivatives were massively downgraded, the share prices of Ambac and MBIA barely budged relative to the market. Only when the insurers issued earnings announcements that showed the cumulative losses did investors finally take notice and sell Ambac and MBIA’s stock.

“It was apparently very difficult even for institutional investors to contend with the amount and volume of noise in the market in 2008,” Prof. Bartlett says.

Comment by Professor Bear
2010-04-24 04:56:03

Gollum’s evil plan was admittedly a thing of beauty.

The Wall Street Journal
Moody’s chief admits failure over crisis
By Stephanie Kirchgaessner in New York and Kevin Sieff in Washington
Published: April 23 2010 19:20 | Last updated: April 24 2010 00:55

The chief executive of Moody’s admitted to a Senate panel on Friday that the US credit rating agency failed to anticipate the severe deterioration in the US housing market that led to the financial crisis and was “not satisfied” with its performance.

However, Raymond McDaniel defended the the credit agencies’ dependence on fees paid by Wall Street firms, claiming that “potential conflicts exist regardless of who pays”.

But evidence presented at a hearing before the Senate detailed how some senior managers at Moody’s and Standard & Poor’s suppressed internal concerns about the securities they rated due to pressure from the banks that paid their fees.

Eric Kolchinsky, a former managing director of a Moody’s unit, believed that he had saved the agency from committing fraud in 2007 when he insisted that it change the way it rated the instruments because of deterioration in the housing market.

When it emerged that Moody’s had seen a slight drop in market share, Mr Kolchinsky was berated by a manager.

Friday’s hearing before the Senate subcommittee on investigations, as well as a hearing on Tuesday that will centre on Goldman Sachs, are being held as senators negotiate a bill to reform financial regulation. Senators are expected to vote on Monday to begin formal debate on the controversial measure.

On Moody’s ratings of Goldman’s Abacus product, at the centre of allegations against the bank, Mr Kolchinsky said that he would have wanted to know that hedge fund manager Paulson & Co was making bets against the security.

He said neither he nor his staff had been aware of Paulson’s involvement in their rating of the transaction. “It just changes the whole dynamic – if the person choosing it, wants it to blow up,” he said.

Comment by joeyinCalif
2010-04-24 06:29:51

Moody’s would have changed it’s rating if it knew Paulson was betting against Abacus?

Does Moody’s normally depend on some investor’s personal opinion when rating stuff? What if that investor is just some numb-skull with money to burn..?

I would have thought Moody’s had more reliable and sophisticated methods of determining risks.

Comment by Professor Bear
2010-04-24 08:32:48

“I would have thought Moody’s had more reliable and sophisticated methods of determining risks.

‘We rates the way our clients ask us to rate, or else lose their business.’

Comment by joeyinCalif
2010-04-24 10:19:47

Well.. lets say that is true.. Moody’s rates according to a clients wishes.

Who is responsible for Moody’s false ratings? Their thousands of clients or Moody’s?

Who would value their opinion on what an “accurate” rating was.. or on what Moody’s thinks is “missing information”?

They have no rating guidelines except the one you mention: The way clients ask them to rate.
In other words they are crooked. And Moody’s is supposed to be a star witness?

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Comment by Sammy Schadenfreude
2010-04-24 06:33:54

Will there be accountability? No. Will there be consequences? No. Not unless it comes via lawsuits, and I hope a flood of these are coming.

Comment by Sammy Schadenfreude
2010-04-24 08:47:19

The only way the credit rating agencies and the crooks who ran them are going to be held accountable is with civil lawsuits. Unlike a make-believe SEC investigation or stage-managed hearing in front of Wall Street’s Capital Hill puppets, a good attorney will get these guys under oath and force them, under penalty of perjury, to tell all. I hope the rating agencies get hit with a tsunami of lawsuits for their criminal dereliction of duty and complicity with the banksters.

Comment by Professor Bear
2010-04-24 04:59:08

Can anyone imagine a hooker making ends meet who refused to ever accommodate her customers’ desires?

The Financial Times
Nixon moment for ratings agencies
By Sam Jones in London and Stephanie Kirchgaessner in Washington
Published: April 23 2010 19:58 | Last updated: April 24 2010 02:17

It was September 2007 and Standard & Poor’s, the world’s largest ratings agency, was about to send the global economy into a tailspin with the surprise downgrading of billions of dollars worth of mortgage-backed securities.

In an e-mail to a colleague, one S&P analyst ruminated about how, even in the middle of a looming crisis that was largely due to S&P’s own failures, the company was sounding more like the “Nixon White House” than a reliable agency worthy of investors’ trust.

“If this company suffers from an Arthur Andersen event, we will not be brought down by a lack of ethics … nor will it be by greed as this plays so little role in our motivations, it will be arrogance,” the analyst wrote.

The Enron scandal ultimately felled Arthur Andersen, a fate that does not appear on the horizon for the rating agencies. But an inquiry by the US Senate’s permanent subcommittee on investigations has put the groups’ ethics in a harsh spotlight.

The inquiry culminated in a full-day hearing on Friday, showing in minute detail the prominent role that S&P and its arch-rival, Moody’s, had in the financial crisis. The picture that emerged was of two companies engaged in cut-throat competition for market share and revenue, resulting in diminishing quality of credit ratings.

The Senate panel’s 500-page dossier depicts agencies acting in the interests of those who paid them – the banks – rather than those who depended on them – the investors. In a hearing on Friday, Richard Michalek, a former senior credit officer at Moody’s who left in 2007, described how the company’s then-president, Brian Clarkson, pushed to make it a more “accommodative” agency to its bank clients.

Quote-unquote: e-mail insight from the ratings agencies

‘Ratings agencies continue to create an even bigger monster – the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.’ S&P internal e-mail December 2006

‘Screwing with criteria to get the deal is putting the entire S&P franchise at risk – it’s a bad idea.’ E-mail from S&P employee, June 2005

‘Analysts and [managing directors] are continually “pitched” by bankers, issuers, investors – all with reasonable arguments – whose views can colour credit judgment, sometimes improving it, other times degrading it (we “drink the kool-aid”). Coupled with strong internal emphasis on market share & margin focus, this does constitute a “risk” to ratings quality.’ E-mail from Moody’s chief risk officer to Raymond McDaniel, CEO, October 2007

‘[N]o body gives a straight answer about anything around here … how about we come out with new [criteria] or a new stress and actually have clear cut parameters on what the hell we are supposed to do.’ Instant Message from Standard & Poor’s employee, August 2007

‘It sounds like Moody’s is trying to figure out when to start downgrading, and how much damage they’re going to cause – they’re meeting with various investment banks.’ Internal UBS e-mail, May 2007

‘You’re right about CDOs as WMD [weapons of mass destruction] – but it’s only CDOs backed by subprime that are WMD.’ E-mail by Moody’s employee, November 2007

Comment by palmetto
2010-04-24 05:15:41

“When have I ever refused you an accomodation?” Marlon Brando, The Godfather.

Comment by wmbz
2010-04-24 05:19:44

AT&T sees 500% surge in Wi-Fi network usage
Dallas Business Journal

The use of smartphones and other devices has driven up demand for AT&T’s 20,000-plus Wi-Fi hotspots by more than 500 percent in the first quarter.

Use of Dallas-based AT&T’s Wi-Fi hotspots surged to 53.1 million connections in the first quarter, compared with 10.7 million connections made in the first quarter last year, and more than half of the 85.5 million total Wi-Fi connections made in 2009.

As customers increasingly adopt Wi-Fi-enabled smartphones and devices, they’re relying more and more on Wi-Fi hotspots to stay connected.

Comment by combotechie
2010-04-24 06:55:05

Which means if you want to use your smartphone you need to go to a place where there’s a Wi-Fi hotspot because AT&T doesn’t have the wide-bandwidth cell-tower infrastructure needed to support all the smartphones Apple made and sold.

Apple gets the bucks for selling the phone, AT&T gets the bucks for supplying the service. Apple gets paid up front, AT&T gets paid over time.

But if AT&T can’t supply the service due to lack of infrastructure then customers will walk. This won’t hurt Apple - they got paid up front - but it is sure to hurt AT&T.

The only recourse AT&T has is to build more infrastructure, but this infrastructure is very expensive and new gee-wiz wide-bandwidth-consuming devices are projected to come onto the market for the foreseeable future thus AT&T is condemned to endlessly recycle its earnings back into building infrastructure.

Apple wins, AT&T barely hangs on.

Comment by scdave
2010-04-24 07:39:10

AT&T barely hangs on ??

Well, the demand side of the equation appears to be clear so, instead of AT&T barely hanging on I think it means AT&T “raise there fees”…You already paid for the devise…Sounds like a mouse trap to me…

Comment by combotechie
2010-04-24 07:55:58

But if AT&T raises their fees then that means there is an additional reason to jump ship to another service provider.

Reasons to jump ship already are showing up: Competitors see how popular iPhones are and now want in on the action so they come up with their version of the iPhone.

The thing is, the newer the smartphone the smarter the smartphone is. Soon the smartphone will be smart enough to choose whatever service provider is the best to use at any given moment and that’s the service provider the smartphone will choose to use.

This will pit the service providers against each other and hence the service the providers provide will evolve into mere commodities wherby price will be their only disguishing features.

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Comment by SV guy
2010-04-24 08:25:52

I’ve got a 3G iPhone that I pay dearly for. My wife has one as well. I’m eligible for a new subsidized 3GS but I am waiting to see which other providers join the fray.

Love the phone. Competition is good.

Comment by combotechie
2010-04-24 08:34:20

Everybody I know who has an iPhone loves it. They just want it to work whenever they want to use it.

They realize the problem is not with the phone; the problem is with the lack of wide-band capacity. They don’t blame Apple for this, they (correctly) blame AT&T.

Verizon and others are ready or getting ready with their versions of the iPhone and are ready or are getting ready with some competing wide-band infrastructure.

“Love the phone. Competiton is good.”

Indeed it is. Very good for the consumer, very good for the manufacturer, but not so good for the service provider.

Comment by ET-Chicago
2010-04-24 10:13:38

They realize the problem is not with the phone; the problem is with the lack of wide-band capacity. They don’t blame Apple for this, they (correctly) blame AT&T.

I think smart iPhone users with a little critical thinking ability do blame Apple for entering into an exclusive arrangement with AT&T. Smart in a short-term view, but not in the longer term.

Comment by Sammy Schadenfreude
2010-04-24 08:49:25

Has anyone really studied the health and environmental implications of all those Wi-Fi signals everywhere?

Comment by ecofeco
2010-04-24 14:01:23

WiFi and 3G are dead.

4G WiMax is here, and available in the top ten cities now and every city by next year.

Faster, cheaper and unlimited. And no, I’m not talking about Sprint.

Comment by combotechie
2010-04-24 14:31:26

“WiFi and 3G are dead.”

“Faster, cheaper and unlimited.”

This is what I am talking about. There will be no end to the need for service providers to upgrade their infrastructure.

The endless supply of next generations will endlessly push sales of new products which will be a win for customers and for the manufacturers and marketers, but it will become a constant money drain for the service providers as they struggle to keep up with the necessary infrastructure upgrades.

Remember, the manufacturers and marketers get their money upfront, at the point of sale. The service providers get their money as the product is used. Rapid technology changes benifits the customers and manufacturers/marketers but hoses the service providers.

Comment by Bill in Carolina
2010-04-24 16:43:19

One of the drivers of the tech bubble that burst in 2001-2002 was a report by some Wall Street telecom analyst that Internet traffic was almost doubling every 90 days. That caused panicked carriers to order a humungous amount of fiber optic capacity, which was duly installed by the industry. Only then was it discovered that growth wasn’t anywhere near what the report said.

500% YOY? Sorry, I don’t believe that one. Fool me once, shame on me…

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Comment by Sammy Schadenfreude
2010-04-24 19:04:52

I don’t buy it either. More and more cash-strapped consumers are switching to pay-as-you-go plans. I don’t see the explosive growth of the past continuing.

Comment by AbsoluteBeginner
2010-04-24 06:18:14
Comment by Timmy Boy
2010-04-24 08:45:30

I wonder how his purchase of K-Mart stock turned out….


Comment by max4me
2010-04-24 06:18:48

Hey Guys

I got one for you.

Had a talk with my Grandpappy. He is a smart man worked as an accountant for Aurthur Young back in the 70s at time he was a very successful entrepreneur blah blah, my point is he is smart and good with numbers.

But I found me and him disagreeing.

He told he knew a family that wanted a house out in Las Veges. The bank owned it and wanted 300K they offered 150K the banks said no. Then they took it to auction (or were forced by FDIC I am not clear on that point) the family that offered 150 got it for 78.

So when grandpappy talked about getting a 300K house for 78K I pointed out that it was now a 78 K house cause isnt that what it went for?

He got alittle defense as I tried to point out that that the price you ask and the price you get are two different thing right? and really cranky when I pressed him how he knew the house was worth 300k etc.

So guys am I right in saying the house aint 300K?

Comment by aNYCdj
2010-04-24 06:45:21

Well Yes and No….ask grandpappy will the house cash flow at $300K?

Can you rent it out and pay the mortgage taxes insurance etc…and still make $100 or more profit a month? if so then you did get a $300K house for $78K….

Comment by RJ
2010-04-24 07:04:13

The house may not be worth 300k, but if someone is willing to buy it for that amount then that is how much the house is worth. The person who bought it for 78k may have done well for him/herself. However, if no one wants to purchase the home due to high unemployment, high inventory, and/or no financing available, then the house is worth zero outside of the offset it provides the buyer for renting a comproble place.

Comment by In Montana
2010-04-24 07:53:51

“if someone is willing to buy it for that amount then that is how much the house is worth”

I don’t believe that anymore, though I was taught that in economics. HBB taught me to look at income and rents so I think there is such a thing as an objective value. If someone paid 300k for a place that rents for 1000/mo then they paid more than it was worth.

Comment by Professor Bear
2010-04-24 07:46:07

The house ain’t all that…

You presumably cannot get a precise estimate of the value of a house through just one transaction, but if it sold at auction for $78K, it seems safe to assume that it has a market value (by any reasonable definition) of less than $300K.

You might point out to your grandpa that the seller can list a home at whatever astronomical price they choose; similarly a buyer can offer any lowball amount to take a home off a seller’s hands right down to $0. Until a buyer and seller agree on a transaction price, you really have little basis to judge market value.

Comment by Kim
2010-04-24 10:29:46

“Until a buyer and seller agree on a transaction price, you really have little basis to judge market value.”

Based on the fact that the buyer was willing to pay $150K (initial offer) and the seller was willing to sell for $78K (auction price), the house is worth somewhere between $78K and $150K (nowhere near the $300K Gamps is arguing).

Comment by ecofeco
2010-04-24 14:04:01

In RE, what you pay is what it’s worth… until what you get for selling it.


Comment by awaiting wipeout
2010-04-24 06:26:11

Lawrence Yun, the Chief Economist for NAR was just on a local So Ca (L A area) Real Estate hype show, and he said we’ve hit bottom, and might see higher prices starting in 2011. Prcies have stablized, and consumer “confidence” in the real estate market is getting stronger. All is well.

IIRC, PB mentioned “consumer capacity” vs. “consumer confidence” a while ago.


Comment by Professor Bear
2010-04-24 07:47:41

We have had serial bottom callers predicting a bottom for one year out for maybe four years running already…so far their stopped-clock prediction has not materialized, but eventually they will be right — probably some time after 2015 in most parts of the U.S.

Comment by ecofeco
2010-04-24 14:05:25

It took 4 YEARS for the Savings & Loan disaster to hit bottom.

Comment by Bill in Carolina
2010-04-24 16:46:47

Well, the housing decline is in its fourth year now. 2007, 2008, 2009, 2010.

We must be having fun. :-)

Comment by ecofeco
2010-04-24 18:40:15

Only just barely technically was it 2007. For most, it was 2008 and ‘09.

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Comment by awaiting wipeout
2010-04-24 06:47:01

Let’s dish inventory and housing prices.
In the area I’m looking in, housing inventory in the $400K-$500K is nonexistent (both price and listings)for anything in the 2,000 sq ft range. I’m looking in east Ventura County and west
L A County. I’m bummed out.

Evidently, the propaganda worked. One home that is reality is worth $300K, is being listed at $575K, a redone flip. Some idiot will buy it no doubt. Truly, I am floored.

People buying at these prices have truly lost or never had a mind. When will this insanity end?

Comment by RJ
2010-04-24 07:13:59

My uncle lives in Ventura. His neighborhood is off of Johnson Drive, most homes there were going for over 700k. One sold less than a year ago right on Johnson for 200k or so. He’s a contractor, and he says things are moving at the 300k to 400k range if you can find one. best wishes

Comment by awaiting wipeout
2010-04-24 07:41:40

Thanks RJ, but the City of Ventura doesn’t work for us, but I appreciate the well wishes and the great information.

Comment by Professor Bear
2010-04-24 07:51:15

“Evidently, the propaganda worked.”

Don’t confuse propaganda with outright manipulation:

- Fed MBS purchase program
- Huge increase in share of federally guaranteed mortgages
- Foreclosure moratoriums
- Banks hanging on to REO inventory, dribbling it on to the market at a slow rate in order to prop up prices
- $10K first time buyer credit

etc etc etc

I am not saying propaganda had no role; but without the myriad government sponsored life support programs, the market would probably have reached affordable pricing by now in your and my areas of SoCal.

Comment by Sammy Schadenfreude
2010-04-24 08:52:23

The government, Wall Street, and the corporate-owned MSM have a symbiotic relationship. All have a vested interest in convincing the rubes that the economy is recovering, and all use skewed and misleading data to support their case, while burying the bad-news stories that belie the party line.

Comment by rentor
2010-04-24 07:55:35

In Milpitas, CA. & Fremont, CA.
A year ago numerous homes (approx. 2000 sq. ft.) in the 400 to 800K range now none. Is this the tax credit at work or have we turned the corner?

I can’t imagine the housing market turning and making whole a whole lot of speculators. and people who should never have been given a mortgage.

Comment by vmaxer
2010-04-24 08:00:05

Patience, this is the year of clearing out the suckers. The lull in resets and artificial demand created by by tax credits, created the illusion of stabilization. The excitement resumes later this year, for the next two years.

Comment by scdave
2010-04-24 08:08:25

reality is worth $300K, is being listed at $575K ??

“worth” can be a subjective term wipeout…Like you said, the inventory in this price range is thin so its “worth” could be driven by the lack of supply…

Comment by awaiting wipeout
2010-04-24 08:29:35

I get your point, and I referring to 2002 prices, from the County Recorder’s Office. That’s all I really care about. They can put lipstick on a pig… and it still stinks.

Comment by ecofeco
2010-04-24 14:07:05

Our consumer economy could not function without idiots.

Could. Not.

Comment by Sammy Schadenfreude
2010-04-24 06:48:20


Not so fast, Germany says on Greek bailout.

Comment by jamehar1
2010-04-24 06:51:12

Ohio Man facing foreclosure remodels home with SUV. Lets add a criminal record to the bad credit record.


Comment by Sammy Schadenfreude
2010-04-24 08:53:40

He’ll still be able to get a government-backed home loan.

Comment by jamehar1
2010-04-24 06:52:45

Ohio Man facing foreclosure remodels home with SUV. Lets add a criminal record to the credit hit.


Comment by exeter
2010-04-24 19:46:03

That’s beautiful..

Comment by Sammy Schadenfreude
2010-04-24 06:54:48


South Koreans raised their sunken naval corvette and now say it appears to have been hit with a torpedo.

This can’t be good.

Comment by scdave
2010-04-24 11:29:30

Nice post Sammy…I tell ya, I think we are just a spark away on any number of fronts from all hell breaking lose in the USA and throughout the world…It would make this current recession look like a picnic…Consumer spending would literally “seize up”… Immediately, the must have Ipod (or whatever you call it) would become irrelevant…

Comment by Sammy Schadenfreude
2010-04-24 13:17:32

South Korea’s president on Friday gave the clearest signal yet Seoul had no plan to launch a revenge attack, calming investors worried that armed conflict would damage the South’s rapidly recovering economy.

“The probably catastrophic costs of a war on the peninsula will greatly constrain the U.S. and South Korean options for a military response, which thus remains an unlikely trigger for major military conflict,” the global strategy group Control Risks wrote in a research note this week.

So in other words North Korea can torpedo ROK ships at will, since the president of South Korea is more concerned about “calming investors” than responding to brazen aggression.

Comment by ecofeco
2010-04-24 14:09:11

NO. They WILL retaliate. Just when no one is looking.

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Comment by pressboardbox
2010-04-24 16:42:46

“So in other words North Korea can torpedo ROK ships at will, since the president of South Korea is more concerned about “calming investors” than responding to brazen aggression.”

Reminds me of how the Scamsters at Goldman and the Fed got away with breaking every rule during the “crisis” in the name of “saving the economic system”. I got the feeling a headline could have come out that Goldman murdered babies and they could have gotten away with it because if they got in trouble they could possibly fail and “bring down the whole system”. At some point wrong is just wrong and nobody should have to take it.

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Comment by Sammy Schadenfreude
2010-04-24 07:22:00


Sales tax revenues in Sacramento area plummet - doesn’t sound very green shootish to me. I wonder what the nationwide trends are showing.

Comment by Lip
2010-04-24 09:12:15

AZ revenues are still decreasing (per an insider) although no longer dropping off the cliff. We might level off as the state is trying to find new revenue streams that don’t rely on selling cars or homes.

Comment by ecofeco
2010-04-24 14:11:26

Nationwide trends depend upon who you’re listening to.

But my money, and friends and acquaintances, still say sales are down for most.

Comment by RJ
2010-04-24 07:31:00

Hey Guys,

I haven’t posted on this blog for a long time, except for the reply’s today. We sold in 2006. We are currently in escrow for a home that is 2200 sq ft, 15000 sq ft lot for 195k with major, major upgrades. We are putting 20% down and are looking at a payment of 1000 to 1100 per month. the house was built in 2007 surrounded by really great homes and golf courses. The home was sold in 2007 for almost 400K. I am in Bakersfield, Ca. Do you guys think we are doing the right thing? This 2 bedroom apartment we are living in is getting cramped with 3 children. I wanted to stay in the 2x annual income but we are slightly above that threshold. (single income family) Unemployment is high here @17%, inventory is huge due to foreclosures, but rent is higher in some cases than buying. Median family income in Bakersfield in 45K (that is household income!). I have this thesis that hyper-inflation will occur because the federal gov’t wants to pay their high debts with inflated greenbacks. If this is true, then buying now would be a prodigious move. I would be locking into that payment and to a fixed interest rate of 5% or so. I feel I have a job that will keep up with inflation. What say you guys given this info? Pls ask questions if you need more to answer. I’ve always respected most everyone on this board.

Comment by RJ
2010-04-24 08:03:41

what’s up with the huge delay? and has anyone heard from crispycole?

Comment by RioAmericanInBrasil
2010-04-24 08:16:28

It sounds like you are buying for less than the cost of land and to build. Your monthly payment is great. You want the space and you’ll have it.

1. Are there HOA dues?

2. Are neighboring houses occupied?

3. How many years do you plan to stay.

4. Is your job secure?

5. Was the house built well?

6. Are there any trees? (I like trees)

Comment by RJ
2010-04-24 08:29:46

4.yes, oil Oxy found a huge reserve to extend the life of the field.
5.yes, I think so-will have home inspection done
6.yes, small ones though, we plan on planting at least 30 trees
thank you so much for those very valid questions! In answering them I gaining more confidence.

Comment by jameshar1
2010-04-24 08:30:15

If escrow closes after May 1st, will you qualify for the California FTB tax credit? Then you get the 8K fed credit and the california credit?

Comment by RJ
2010-04-24 08:36:10

We have purposefully opened escrow before April 30th to qualify for the Federal Tax credit of 8k. We are not concerned about the State Tax credit because it is non-refundable, meaning that it is just an off-set of State income taxed owed, and since we have an effective tax rate of negative due to family size and income, the state tax credit means nothing to us.

Comment by Professor Bear
2010-04-24 08:47:18

“We have purposefully opened escrow before April 30th to qualify for the Federal Tax credit of 8k.”

Don’t you realize that, thanks to the effects of leverage on the home purchase budget constraint, home prices are likely to drop by far more than $8K when the credit goes away? In other words, your net worth is likely to drop thanks to taking advantage of the $8K credit. I have explained this too often on this blog already to feel inclined to go through it once again… stupid people will have to learn their lessons in life’s dear school.

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Comment by RJ
2010-04-24 10:24:19

anybody that refers to themselves as professor makes you wonder, even if he is a professor

Comment by Professor Bear
2010-04-24 11:24:16

“anybody that refers to themselves as professor makes you wonder”

I think of myself as more of a financial markets humorist than a professor these days. If you put the Professor title in that light, perhaps it will make more sense to you.

Comment by RJ
2010-04-24 12:10:25


Comment by Professor Bear
2010-04-24 08:30:26

“I have this thesis that hyper-inflation will occur because the federal gov’t wants to pay their high debts with inflated greenbacks. If this is true, then buying now would be a prodigious move. I would be locking into that payment and to a fixed interest rate of 5% or so.”

Everybody paying attention already knows the Fed faces a moral hazard of creating ‘higher than expected’ inflation to try to defuse the debt bomb, and one might interpret the promise of ZIRP into the indefinite future as a feeble attempt on the Fed’s behalf to inflate. But it appears they are caught in a liquidity trap (aka “pushing on a string”), as despite pushing the interest rate pedal to the metal, and perhaps even directly targeting particular asset prices to make them go up (stocks, housing, oil), fundamental demand in the economy appears too weak to support current prices — i.e., the heavily manipulated above-market pricing has come at the cost of a severe drop in transactions volume in housing and stocks.

The Fed successfully inflated its way out of the financial crisis of the early 1970s; by the late 1970s, wages, housing and gold prices were all merrily roaring skyward, thanks to a flood of easy money from the Fed. But by late 1979, double-digit inflation led to Volcker’s painful campaign to stamp it out. There was high job loss and much wailing and gnashing of teeth, but American households generally had sufficient savings to ride out the double-dip recession of the early 1980s. As a consequence of the high inflation between 1975-1980, the Fed succeeded in hosing retirees on fixed income pensions, as they had no way to keep up with rampant wage and consumer goods inflation as current workers had. Note that this was one of many instances where the Fed’s policy came with an implicit (”screw the retirees”) allocation decision.

So now we face the aftermath of yet another financial crisis (they come fast and furious these days), and the Fed clearly faces an incentive to inflate, but can they? There are some roadblocks this time around that did not exist in the mid-1970s:

1) We have a collective case of bubble fatigue. The word is out there that the Fed is in the bubble-blowing business, and the pernicious effects of bubbles on the real economy are growing in the collective consciousness. Thus they do not have the tactical advantage of surprise if they employ further bubble creation in their War on Savers.

2) The wipe out of the housing market has resulted in massive destruction of fundamental demand for real-estate related positions in the FIRE sector. Our government leaders appear to have not worked through the denial stage of this reality yet, and our labor market has not gone through the adjustment away from a real-estate-centric model to a reallocation of labor into more productive areas. How one can create wage inflation in a labor market this far out of whack is beyond my grasp, but perhaps the Fed has some financial engineering wizardry that it can apply to the task.

3) In the past decade, we have enjoyed massive bubbles in stock, bond, housing and gold prices, to name a few. All of these are related to the Fed’s super-duper low rate policy, which they keep talking of unwinding. When they eventually let interest rates adjust back upward towards historical norms, where do you expect the support for housing prices near their still-inflated levels will come from?

Comment by RioAmericanInBrasil
2010-04-24 08:56:27

where do you expect the support for housing prices near their still-inflated levels will come from?

I agree with a lot of your post PB but also:

1. 1K a month mortgage is less than rent I think
2. 20% down, pay it off in 15 years, who cares if the price goes down?
He will have lived there for 15 years and now it’s paid off.

Wouldn’t that be great?

Comment by Professor Bear
2010-04-24 09:41:32

“20% down, pay it off in 15 years, who cares if the price goes down?”

20% of $195K = $39,000. If the value of the home drops another 20%, as is quite likely to occur after all the federal government’s housing market feeding tubes are removed, then the guy loses his entire down payment. A larger drop than 20% would result in a larger loss.

I personally don’t see any reason to throw away savings on a housing market money pit, but to each his own…

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Comment by CarrieAnn
2010-04-24 13:55:10

20% of $195K = $39,000.

I’ve already spent this amount in rental costs since selling.

Comment by Professor Bear
2010-04-24 15:25:19

“I’ve already spent this amount in rental costs since selling.”

Have you some how incurred a $39K capital loss by renting? Because my $39K loss scenario does not include the mortgage payments, which are the ‘cost of renting from the bank.’

Comment by RJ
2010-04-24 08:57:35

good points. real estate is local and in my neck of the woods–Bakersfield, Ca. One can buy a really nice place on a single income, comfortably. With that said, I’m not saying housing will not ratchet down. As people get out from under the yoke of their indebtedness (high mortgages) watch the Stock Market roar as the consumers buy up stuff. The losers will be the people that hold all those mortgage back securities paper many are defaulting on.

Comment by scdave
2010-04-24 10:52:39

RJ….Buy your house…Buy a Lawn Mower and a Weber….Get a dog…Then enjoy raising your family…Good Luck… :)

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Comment by RioAmericanInBrasil
2010-04-24 12:05:00

Buy a Lawn Mower and a Weber

I bet I have one of the only Webers in Rio!

The master touch. Just like this one:


(But I wish I needed a lawn mower)

Comment by RJ
2010-04-24 12:15:42

thanks, my weber is at my parents house and we often bar-b-que there while we are living in our apartment (almost 4 years now). barbequing is always worth it especially for large groups of people. I agree with purchasing the lawn mower over hiring a gardener.

Comment by scdave
2010-04-24 12:56:02

Don’t forget the dog…The kids gotta have a dog… :)

Comment by scdave
2010-04-24 12:58:47

As for you and your Weber Rio, My gosh, did you just pull that out of the box or are you some kind of clean freak Chef ?? :)

Comment by RJ
2010-04-24 14:01:28

We invested the proceeds of our home we sold in 2006 in a mutual fund only to see it lose 40% of its value during 2009’s March market lows. With conviction we stayed invested only to see it rally 79% to break even. In fact, right now it is at its high water mark. The market has gone sideways for 10 years but Bill Nygren’s Oakmark Select Fund has outperformed the S&P by almost 8%. In fact before the financial fiasco, he was able to compound investors’ returns by a staggering 18%. This means your money would have doubled every four years. Most have abandoned these kinds of gains from their projections. For most modest gains of 8% are expected. But because the majority now feels this way, is exactly why these returns might now be more feasible than ever before. In the long run it is all about earnings in the Stock Market much like it is all about the rents in the real estate market–all else in speculation. You may not earn 18% at Oakmark, but one can earn it somewhere. I have read hundreds of books about investing, and I never realized why people just don’t invest with the “masters.” I consider people masters if they have outperformed the major market indices by a wide margin for at least 10 years. Track records aren’t everything, but its a major thing. In time people would get rich. Only a handful has done it. I try to explain this to my friends and family and realize that something that can be so simple to me can be so difficult for some. However, once I find out that they’re in credit card debt, I hold back my advice because they are essentially using the power of compound interest in reverse. 1)Patience is at issue. 2)Diverting instant gradification is another issue. 3)But most importantly, you have to have conviction. (During the lows we were dollar cost averaging into the fund.) There are only a handful of masters and it begins with Ben Graham and ends with Warren Buffet. Value investing is the only form of investing there is. It took me 10 years to figure this out and I giving you guys this for free. Why? Because investing has taught me that life is not a win lose game–corny I know but true. Much like oxygen, money abounds–its just up to us to inhale. We can all win. When I take these finance classes at University. I cringe at efficient market hypotheses and betas. The market (any market) is made up of people that have high manic depressive emotions. When you can see this: I promise you that all of you will be wealthy.

Comment by RJ
2010-04-24 14:06:59

I know that’s a clean looking weber. Rio huh what’s climate like there. and median income and price of home?

Comment by alpha-sloth
2010-04-24 15:15:06

I used to love my weber, but ever since I started using an electric grill (I add wood chips for flavor), food cooked over charcoal tastes like it was cooked in car exhaust. Gas grills give food a bad flavor too. I tried real wood charcoal, but it burns too hot and fast. In fact, the worst thing about going electric/wood chips, is now everything cooked otherwise tastes bad. (Weber makes an electric grill, but it’s some cheesy little balcony model, nothing like their real grills.)

That is an awfully clean grill and patio ya got there, Rio. My grill looks more like the Deathmobile. Downwind from Iceland. With potted plants and bbq tools all around it.

Comment by RioAmericanInBrasil
2010-04-24 18:11:36

I know that’s a clean looking weber. Rio huh what’s climate like there. and median income and price of home?

Hi all. The pic is not my Weber or patio. I googled my Weber model and found the pic. It’s even the same color! But my Weber is that same model and it IS that clean. But just for now.

I’ve been here 2 years next month and I built a house. In fact my Weber was the last major thing that I did unwrap, only last week! I have not BarBQed in over two years now. I used to be well known for it in N.Cal. I grew up in KC. Last week I unpacked the Weber and get this, I even brought 6 bags of Kingsford Charcole from the good ol USA!

The climate here is sub-tropical in the winter and tropical in the summer. A little too hot for me but it keeps the weight off. Being 4 blocks from the ocean, things corrode and rust. I have a Weber grill cover, (brand new cover) a bicycle cover and other covers.

Middle Class and Rich numbers: Housing is expensive but always has been. Zoa Sul (South zone Ipanema, Copacabana, Leblon, Lagoa) is like San Francisco or Manhattan,(not typical Brazil) there is no more land and never will be more. A 2,200 square foot apt in the Zona Sul would cost between about 250-800K US dollars, depending on the neighborhood or how close it is to slums. A house (row house, no yard) or duplex would be 15% more if you can find one. Mortgages are new here. Middle Class in Rio make starting at about 20K US dollars a year and up. The rich make as much as the USA rich. Brazil is very under housed. Rio is crowded and densely populated.

These numbers are all averages and Saturday night estimates. Brazil is a crazy country. A lot of things are different here!

Have a good weekend!

Comment by awaiting wipeout
2010-04-24 09:04:59

PB, you’re the man. Very well thought out commentary and thoughts.

Our first home purchase was in late 1984, $138K price tag, 2100 sq ft, w/20% down and an ARM of 17.5% . I remember the Volcker days well. We refinaced into a reasonable fixed/30 yrs eventually, and stayed put 14 yrs.

The early days taught us a few things about inflation and a financial crisis lifestyle.

Comment by RJ
2010-04-24 10:59:28

payment before refi 1618 and change

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Comment by Professor Bear
2010-04-24 11:05:21

Sounds good, so long as you are sure you won’t need to sell in the next decade…

Comment by scdave
2010-04-24 11:31:54

I agree Pbear…Its got to be for the long haul…

Comment by mrktMaven FL
2010-04-24 11:51:55

The Fed doesn’t care about wage earners, savers, or retirees. All it cares about is keeping the oligarchs positioned at the top of the pyramid — maintaining the status quo.

If the government really wanted change, it would have allowed investment bank failures. After all, these predators destroyed both ends of their customer base by (1) hooking borrowers with teaser rate NINJA loans then (2) packaging and marketing these same loans to unsuspecting investors as AAA securities. The markets were saying game over but the Fed with help from Congress saved the predators.

Comment by mrktMaven FL
2010-04-24 11:30:21

I think it’s a double plus good move.

Back in the 30s the government diluted the currency against gold. In the 70s, it abandoned gold completely. Today, by purchasing mortgaged backed securities and giving everyone up to 8K to buy a home with newly printed moneys, the fed is diluting against the housing stock.

By using this maneuver and suspending accounting rules, the fed is giving the banking industry time (and lots of fee earning opportunities) to turn housing inventory over. More importantly, the fed and the banks are now the largest owners of the housing stock. So, if necessary, the fed will dilute further to have its way.

Comment by Natalie
2010-04-24 07:52:15

Birds have nested in the dryer vent near my bedroom window, and their eggs hatched a few days ago. Too nice to evict and foreclose on the rather large family, I have begun to keep the tv on at low volume. I was awaken when the volume suddenly increased dramatically. It was Armondo Montelongo of Flip This House fame. At first I thought it was a horrible nightmare, but to my dismay it was reality. It is going to be a tough couple of weeks.

Comment by RJ
2010-04-24 08:31:28

too awesome, too funny

Comment by Professor Bear
2010-04-24 07:58:38

Don’t look now, but our neighbors to the north are about to start tightening up their monetary policy. Where will that leave US?

Saturday April 24, 2010

Sovereign Debt Only Lags Behind Greece, Portugal: Canada Credit
April 23, 2010, 8:04 AM EDT

By Alexandre Deslongchamps

April 23 (Bloomberg) — Canadian bonds, the worst performing sovereign-debt market the past three months after Greece and Portugal, may fall further as investors speculate policy makers will raise interest rates as early as June.

Canada’s bonds maturing in a year or more fell 0.9 percent during the last month as investors bet the central bank may begin raising its overnight target rate from a record-low 0.25 percent at its next meeting on June 1.

“The market isn’t sure if the bank will raise by quarter points or half points,” said Sebastien Lavoie, an economist at Laurentian Bank of Canada who expects the rate to rise to 2 percent by year-end. “There is an argument to be made for half- point increases and when the market becomes convinced of that, it will be reflected” in the two-year bond yield.

Bank of Canada Governor Mark Carney this week boosted his forecast for first-quarter growth and dropped a pledge to leave rates unchanged until July unless the inflation outlook changed. Investors are now considering if the central bank may raise its rate faster than a quarter-point at each of its five meetings until the end of the year.

“Short rates reflect an expectation that the bank will start tightening in June and increase in quarter point increments — attention will now shift to looking for clues the bank might tighten more aggressively” said Mohammed Ahmed, a rates strategist at Canadian Imperial Bank of Commerce in Toronto. “You can expect to see a period of extreme data sensitivity for short-term bonds — if you have much better- than-expected economic releases, and in particular consumer prices, the market will respond by pushing rates higher.”

More From Businessweek

* Sovereign Debt Only Lags Behind Greece, Portugal: Canada Credit
* Weber Says G-20 Countries Share ‘Certain Optimism’ on Growth
* Greece Debt Restructuring May Spark ‘Lehman Event,’ Reid Says
* Ontario’s Mayman Sees Risk of Overzealous Regulation (Update1)
* Canada to Sell C$3 Billion of 10-Year Securities on April 28

Comment by Professor Bear
2010-04-24 08:01:44

It’s all contained.
It’s all contained.
It’s all contained.
It’s all contained.

* The Wall Street Journal
* APRIL 22, 2010, 11:51 A.M. ET

Spain, Portugal Shares Plunge On Greek Contagion Fears
By Bernd Radowitz

MADRID (Dow Jones)–Iberian stocks fell sharply Thursday amid concern the escalating Greek debt crisis could spread to other southern European countries with troubled finances.

Madrid’s IBEX-35 index ended 2.19% lower at 10,821.9 points, while Portugal’s PSI-20 index closed 2.57% down at 7,751.95 points.

“There’s confusion and a great insecurity in the market,” said Karsten Sommer, a trader at BCP in Lisbon, adding that rising government sovereign yields are bad news for stocks.

As Moody’s Investor Service Inc. downgraded Greek sovereign debt, the cost of taking out insurance of Greek government bonds through credit default swaps surged about 10% to 620 basis points earlier Thursday. Spanish CDS spreads were also pushed higher to 171.5 basis points from 158.5 earlier in the day, while Portuguese CDS spreads moved to 260 basis points from 232.

Banking stocks were hit hard, with Banco Santander SA (STD) down 3.1% to EUR9.91, and Banco Bilbao Vizcaya Argentaria SA (BBVA) plunging 3.1% to EUR10.55. Portugal’s Banco Espirito Santo SA (BES.LB) shed 4.1% to EUR3.569 after a Nomura downgrade.

Comment by Sammy Schadenfreude
2010-04-24 09:04:46

“During times of universal deceit, telling the truth becomes a revolutionary act.” — George Orwell

Professor Bear,

For me, the HBB is a rare oasis from the “universal deceit” we are marinating in. The information and insights I gain in here from so many posters are a lifeline to sanity, reason, and hope. I’ve been particularly grateful for you and your posts and commentaries. It’s like seeing a candle in the darkness. Thank you.


Comment by Professor Bear
2010-04-24 11:22:33

Glad you find some value in my posts, Sammy. Five years after I began posting here, I still often feel like John the Baptist — “I am the voice of one crying in the wilderness…” Wall Street’s PR machine is to be commended for their success in cooking up so many straw man distortions of the grand scale of systemic theft currently underway.

I am quite concerned that it is taking me so long to work through the anger phase of the housing bubble stages of grief. However, I look forward to later this year when I expect the American masses will catch the anger contagion, just before the fall 2010 election season.

Got popcorn? ;-)

Comment by pressboardbox
2010-04-24 17:18:00

I don’t like your posts at all. I am a hard-core Green-Shoots fan.

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Comment by Professor Bear
2010-04-24 08:43:19

This looks like Gollum’s Enron moment. Three cheers for subprime!

No decent human being would behave in his personal affairs like these people did. Somehow, since these Really Smart Guys investment bankers made lots of dough on these deals, ethical considerations don’t matter at all.

The Wall Street Journal

* APRIL 24, 2010, 11:34 A.M. ET

Goldman’s Tourre Foresaw Subprime Chaos, Emails Show


Goldman Sachs Group Inc. executive Fabrice Tourre predicted in 2007 that subprime borrowers “will not last so long,” according to newly released emails from a Senate investigation.

“According to Sparks, that business is totally dead, and the poor little subprime borrowers will not last so long!!!” Mr. Tourre wrote in a March 2007 email to his girlfriend, referring to a Goldman Sachs colleague.

In a June 2007 email, Mr. Touree boasted to his girlfriend he had just landed in Belgium where he managed to “sell a few abacus bonds to widows and orphans that I ran into at the airport.”

Some of the emails came around the time of a transaction arranged by Mr. Tourre that is now the subject of a Securities and Exchange Commission civil suit.

The SEC charged the firm and Mr. Tourre with misleading investors. Goldman failed to disclose that a hedge-fund client helped design a security to drop quickly in value, the SEC alleged. The security was linked to the value of mortgage-backed securities.

Goldman Sachs CEO Lloyd Blankfein at Cooper Union in New York earlier this week.

Goldman said it did nothing wrong. It said the investors were sophisticated institutions that knew what they were getting into.

Separate emails released Saturday by Senate investigators showed top Goldman executives cheering the gains they were reaping as subprime-mortgage securities collapsed in value in 2007.

Comment by bobo4u
2010-04-24 12:33:37

Will Blankfeind go the way of Ken Lay? We can only hope.

Comment by ecofeco
2010-04-24 14:17:27

Having walked the hallowed BOD halls of a few Fortune 10 companies, I know for a fact they are looking out 5-10 years and pretty much know what the future will bring.

How? Because they are MAKING it.

Like the change in bankruptcy laws. The credit cards companies (the biggest sponsor of the changes) knew that tough times were coming and people would default.

Comment by Lip
2010-04-24 08:47:04

Oro Valley RE

For Eng in NJ, I looked up the entire area in ORO Valley, including Dove Mountain, and the MLS system only showed 5 houses on the market. Somehow that doesn’t seem right. In addition the most expensive was $399k, which didn’t seem to match what I thought you were looking for (aka Scottsdale or Sedona)


Comment by awaiting wipeout
2010-04-24 09:12:16

Lip and HBB’ers-
IIRC, you can block inventory from showing in the MLS, but that might be in Ca, only, but I doubt it. I recall something about it from an MLS class I took a few years back. It might as something as simple as “A” for active, and “NA” for non-active on a selection menu. I recall something about a rotation tactic.

I’m not in residential, but I hold a license.

Comment by englishmaninnj
2010-04-24 16:33:01

Thanks Lip, much appreciate any info on this area and people’s opinions.

Comment by englishmaninnj
2010-04-24 16:38:19

my twinn girls are now 18 months old today. I was alwayys confident they would survive, but never confident I would!

It looks like I might be able to relocate with the bank and be a telecommuter and keep my NYC salary. If that’s proves true we will be moving at about this time next year. Need to do due diligence in Scottsdale and Sedona as well before then.

I’ve just heard good things about Oro Valley,but i’m sure there are other great areas in the Tuscon ares, right Slim?

I’m planning to write another piece for Ben soon about what’s going on in the big money center banks right now, hopefully people will be interested. Also, I’ll include some vignettes about my Super-consumer BIL, he just lost a $450,000 lawsuit.

Thanks for any info.

Comment by Professor Bear
2010-04-24 08:52:25

Option-Arm Loans Add to Shadow Inventory
Sunday April 18, 2010

Will the $230 billion in option adjustable rate mortgages (ARMs) create a second wave of foreclosures worse than the subprime mortgage crisis? These dangerous loans are worse than interest-only loans, because borrowers don’t even have to pay all the interest each month. Instead, they fall deeper into debt until the loan resets, sometimes tripling the payment.

Although only two percent of all home loans are option ARMS, they are worth $300 billion - and most are likely to default. That’s because 60% are in California where home prices have fallen 30-40%, disqualifying borrowers from MakingHomesAffordable home loan modification.

Here’s what makes option-arm loans so dangerous.

1. Option-arms start with “teaser” rates - about 1-2%. These can reset after the first payment.

2. Loans reset at higher rates - even though the fed funds rate has stayed the same.

3. Most (80%) option ARM borrowers make only the minimum payment each month. The rest gets added to the balance of the mortgage - just like negative amortization loans.

4. Most borrowers think payments are fixed for five years. However, once the unpaid mortgage balance grows to 110% or 125% of the original value, the loan automatically resets - sometimes as much as three times the original payment amount.

5. Steep penalties prevent borrowers from refinancing.

6. Banks weren’t required to report how many option-arm loans they wrote, so no one really knows how many are out there. (Source: “Toxic Mortgages,” Center for Responsible Lending,November 5, 2007; “Nightmare Mortgages,” Businessweek, Spetember 11, 2006

What It Means to You

Option ARM loans will keep housing prices down by adding to the backlog of shadow inventory. These are homes that are in the foreclosure pipeline and will end up at auction in a year or so. There are widely different estimates of how many homes are in the shadow inventory - anywhere from 1.7 - 7 million. This shadow inventory could keep housing prices flat for anywhere from one to three years.

The shadow inventory is in addition to the real inventory of 3.6 million unsold homes, an 8.6 month supply according to the National Association of Realtors. Another 300,000 homes are added to the shadow inventory each month.

Comment by Lip
2010-04-24 08:54:08

Residential Market NW Phoenix

Well folks, we got an offer on our house 1 week after it hit the market. Therefore we’re looking in 85310 and 85383 while we prepare to rent.

Out of 32 houses that seemed acceptable, 4 were lender owned and 28 were short sales. Not one was owned and above water!!!

This evidence, plus the graph that someone posted yesterday about the Option Arms getting ready to reset, makes me think that the market is going to take another dive.

How long can the government prop up this market? Maybe after the election in Nov its all going to come crashing down then again, maybe they’ll just keep trying


Comment by ET-Chicago
2010-04-24 09:08:27

Out of 32 houses that seemed acceptable, 4 were lender owned and 28 were short sales. Not one was owned and above water!!!

That’s pretty incredible. Where does that leave you, option-wise?

Comment by Lip
2010-04-24 10:46:34

Renting while we watch the crash

Comment by ET-Chicago
2010-04-24 11:14:17

Sorry, I skipped forward in my thought-thinkin’.

Wondering if you’re seeing rentals that aren’t over-leveraged, upside-down, underwater, or otherwise compromised? Or is there some stability in the rental market there?

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Comment by Lip
2010-04-24 14:29:45


Yes to everything except “some stability in the market”.

I have business with some apartment complexes and they say that the residential houses are making it really difficult to keep their apts rented. I personally will have trouble trusting just any Joe6pack landlord so I’m not sure if we’ll get a house or an apartment.


Comment by joeyinCalif
2010-04-24 12:01:35

Even if the economy shows proof positive it can stand without the housing market, I don’t think government would remove support before the weather warms in Spring 2011.

As for that graph.. Where did the data come from and how up to date is it? A big percentage of those loans may have already defaulted.

Comment by Lip
2010-04-24 14:31:15

Jo, I’m not sure but it showed a hugh mountain of Option Arms getting ready to reset. I tried to find it later, couldn’t, saw something shiny and then started watching my Blackhawks on the tele.

I will be looking and will repost when I find it.

Comment by joeyinCalif
2010-04-24 15:59:43

was it yesterday or the day before.. I took a quick look for a source I might search but saw nothing.. no business name or link or a .com to follow.

..and removed the tail end of the posted http link, but ended up at some generic home page web domain..

The curve didn’t look like the mortgage re-set chart that has been often posted.. It might be an update. Or it might just be the tail end of the old, familiar chart.

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Comment by Sammy Schadenfreude
2010-04-24 09:13:07


Goldman’s internal e-mails have been released and will be a PR disaster even if they don’t directly implicate the company in criminal activity [which remains to be seen]. GS’s defense strategy of blaming their short-related malfeasance on a single low-level employee are going to take a huge hit as these e-mails depict the depth of predatory cynicism and snarkiness that prevailed at the firm. Customers come first, my a$$.

Comment by joeyinCalif
2010-04-24 12:45:16

<i…cynicism and snarkiness..

huffington calling the kettle black..

Why is it sooo difficult to see that GS owned a lot of toxic stuff itself, and took the short side (too little, too late) in a desperate attempt to cut it’s own losses.

And if one does somehow manage to grok it, how the hell is it a crime?

Comment by ecofeco
2010-04-24 14:23:45


They knew FROM THE BEGINNING, the assets were toxic. Not only that, but they sold the securities as AAA when they knew it wasn’t.

Maybe you missed that part.

Comment by joeyinCalif
2010-04-24 15:50:54

If anybody knew, why did they all buy some of it for their own portfolios, including Goldman Sachs?
Can you name any of the characters, public, private, corporate.. anyone that didn’t buy some of that toxic stuff?

There is zero evidence, much less any proof, that anybody “knew from the beginning”.

It was called toxic AFTER the bubble popped and people came down off the KoolAid-high.
Only then did they began to realize that selling houses to strawberry pickers might not have been such a good idea after all..

Only THEN did someone noticed crap mortgages were mixed into the CDOs… and suddenly everyone was trying to find a scapegoat to take the blame for their own investment stupidity.

Prior to the bust mortgage securities were a huge money maker for everyone involved. Investors of all sorts around the world were making money hand over fist and demanded more and more of that toxic stuff.

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Comment by alpha-sloth
2010-04-24 16:21:46

GS probably had a little on their books for cover, (’hey, we held some too’) and/or because they hadn’t yet packaged and sold them. The question is their net bet, and it’s looking like it was heavily against what they were selling as quality, for reasons they were aware of and discussed in their emails.

Time will tell. In the meantime, why are you so sure they’re innocent, Joey? Have you seen all the evidence?

Comment by ecofeco
2010-04-24 18:43:26

Yes, there is evidence.

And why did they buy for their own portfolio? That’s how a good con works.

Comment by joeyinCalif
2010-04-24 18:51:26

A good con is never discovered. A mediocre con is suspected. A bad con is known to have happened.

A really terrible con is not only discovered by casual observes like you, but it backfires and costs the cons money.. so this musta been a really really bad one.

Comment by englishmaninnj
2010-04-24 16:44:30

I really agree with this perspective.

I know someone in the CDO area at GS who told me two years ago that the whole group agreed to forego bonuses for one year in order to completely hedge their long position in retained CDO bonds (very, very expensive to do)……..really, GS has smarter people than anyone else, and I’m not being sarcastic.

Comment by ecofeco
2010-04-24 18:44:36

There were a lot of smart people at Enron who got thrown under the bus, as well.

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Comment by Sammy Schadenfreude
2010-04-24 10:37:47


As each new day brings new revelations of GS wrongdoing, the firm is stepping up its funding of Republicans ($167K in March vs. $123K for Democrats). As always, the banksters’ best investment is a political contribution.

Comment by joeyinCalif
2010-04-24 14:32:08

Banking ranks low on the lists of top political contributors in every category.. PACS.. corporations, special interest groups, as an industry, lobbyists, etc.

NAR, Teacher’s unions, Indian gaming, Lawyers.. AT&T and several others regularly out-bribe the banksters by a large margin..
Here’s what looks to be a good source for statistics.. from what they pay to what they might have received in return.


Comment by 2banana
2010-04-24 20:16:21

You saying the cool $1 million to obama needs to be hedged???

Comment by Lip
2010-04-24 10:51:10

Pictures of the Iceland Volcano


Is this going to heat or cool the planet?

Comment by Sammy Schadenfreude
2010-04-24 13:20:18

The more immediate question is when/if it’s going to start spewing more ash into aviation lanes. And if/when big sister Katla is going to erupt, supposedly with ten times the fury. That’s the last thing the Eurozone needs.

Comment by Professor Bear
2010-04-24 20:11:02

Cool it.

Comment by Professor Bear
2010-04-24 20:14:04

Those photos send shivers down my spine.

Comment by Professor Bear
2010-04-24 11:07:56

The Economist is coming off as quite the apologist for Gollum. Small wonder, given the large share owned by international pirates, er, I mean, banksters.

The Economist
From Wikipedia, the free encyclopedia
Jump to: navigation, search
For the Lost episode, see The Economist (Lost).
The Economist TheEconomistLogo.svg
Type Weekly Newsmagazine
(Registered as such in the UK)
Format Magazine
Owner The Economist Group
Editor John Micklethwait
Founded September 1843
Headquarters 25 St James’s Street
Circulation over 1.3 million copies per week
ISSN 0013-0613

The publication belongs to The Economist Group, half of which is owned by the Financial Times, a subsidiary of Pearson PLC. A group of independent shareholders, including many members of the staff and the Rothschild banking family of England,[8] owns the rest. A board of trustees formally appoints the editor, who cannot be removed without its permission. In addition, about two-thirds of the seventy-five staff journalists are based in London, despite the global emphasis.[9]

Comment by Professor Bear
2010-04-24 11:17:21

This kind of apology for banking scams really gets under my skin. The article seems to suggest that the German bank should have realized that Gollum and the ratings agencies which rated their crap MBS were running a grift operation. How could those dumb Germans have been so foolish to trust Gollum and the ratings agency prostitutes who worked for them, anyway?

Whatever happened to the good old days, when fraud schemes resulted in prison time for the perpetrators? Nowadays, perpetrating fraud and selling the scheme to a trusting victim seems to be seen as a badge of honor on Wall Street. People who place their trust in what banksters say, or who try to play by the rules, are mocked for their gullibility.

Is this the kind of banking system the Fed wishes to nurture back to health in America? I personally don’t believe this international banking piracy business model is sustainable.

IKB, credit-crunch chump
The bigger fools
The bank left holding the can

Apr 22nd 2010 | BERLIN | From The Economist print edition

“WHO’S on the other side, who’s the idiot?” is the question posed by one of the characters in “The Big Short”, Michael Lewis’s new book on those few investors who bet against the subprime-mortgage market. “Düsseldorf. Stupid Germans,” is the answer they keep getting. “They take rating agencies seriously. They play by the rules.

Comment by neuromance
2010-04-24 20:14:19

PB, if you get a chance, check out this Bill Moyers piece with William K. Black, on fraud. Black is an astute fellow.

Comment by Professor Bear
2010-04-24 15:32:02

Don’t know about you guys, but this sure does sound like insurance fraud the way the MSM reported the story. I don’t expect amoral Wall Street attorneys to understand this at all.

Goldman Sachs Metaphor Festival
By Barry Ritholtz - April 23rd, 2010, 5:00PM

Comment by Sammy Schadenfreude
2010-04-24 13:31:50


The Sickening Abuse Of Power At The Heart of Wall Street

: “The finance ministers and central bank governors of the world are in Washington this weekend for the spring meetings of the International Monetary Fund. As is usual, the world’s megabanks are also in town in force, organizing big meetings and small dinners.
Through these meetings dutifully troop US treasury officials, providing in-depth and off-the-record briefings to investors.

Banks such as JP Morgan Chase and the other top tier financial players thus peddle influence, leverage their access, and generally show off. They accumulate information from a host of official contacts and discern which way policymakers – their “good friends” – are leaning.
And what is the megabank whisper mill working on? Ignore the “economic research” papers these banks put out; that is pure pantomime for clients-to-be-duped-later. I’m talking about what they are telling the market – communicated in specific, personal conversations this weekend.

They are telling people that, based on their inside knowledge, Greece and potentially other Eurozone countries will default on their debt. Perhaps they are telling the truth and perhaps they are lying. Most likely they are – as always – talking their book.

But the question is not the substance of their whisper campaign this weekend, it is the flow of information. Have they received material non-public information from US government officials? Show me the calendar of the top 10 treasury people involved, and then we can talk about whom to summon from the private sector to testify – under oath – about what they were told or not told.

Comment by CarrieAnn
2010-04-24 14:37:26


Bill Black’s eye-popping opening statement at House FinServ hearing on Lehman Bros. failure

Bill did a good job spotlighting the crimes against the people and asks why the Fed and SEC didn’t act.

from jessescafeamericaindotcom

Comment by Professor Bear
2010-04-24 15:37:28

Great vampire squids have the defense mechanism to launch a vicious counter attack when cornered.

Goldman hits back over fraud claims
Goldman Sachs has launched an all out attack on the US Senate committee investigating the collapse of the mortgage market in America after the investment bank was accused of profiting from falling house prices.

By Kamal Ahmed
Published: 10:02PM BST 24 Apr 2010

Yesterday the investigating committee led by Democrat senator, Carl Levin, released a series of emails suggesting that the bank made more money than it lost during the crisis of 2007 and 2008. The emails were said to contradict claims by the bank that it had been “net long” on the market and had suffered losses of over $1bn.

One email from Lloyd Blankfein, the chairman of Goldman, said: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.”

Mr Levin said that the emails contradicted previous statements made by Goldman.

“These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”

Goldman immediately hit back last night, saying that the investigating committee had “cherry picked” emails from millions of pages of evidence. The bank said that its accounts revealed the losses it had made.

“What it shows is that we had net losses of over $1.2bn in residential mortgage-related products in the period,” a spokesman said.

“It is concerning that the sub-committee seems to have reached its conclusion even before holding a hearing.”

Comment by pressboardbox
2010-04-24 16:45:30

“One email from Lloyd Blankfein, the chairman of Goldman, said: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.””

-No f*ckface, you made money because AIG paid in full all of your hedges thanks to Hank’s Bailout.

Comment by alpha-sloth
2010-04-24 17:00:55

Squirting their squid ink as they try to elude capture. Man the harpoon!

Comment by pressboardbox
2010-04-24 17:15:46

The squirted ink is actually red but appears black due to accounting tricks inside the ink=spewing gland.

Comment by joeyinCalif
2010-04-24 18:43:30

Maybe Goldman didn’t know any better, but when you rape and pillage an economy you are supposed to come out ahead… not end up being stuck $$billions.

Comment by Professor Bear
2010-04-24 20:09:35

“…not end up being stuck $$billions.”

That problem is the reason for bailouts.

Comment by Sammy Schadenfreude
2010-04-24 16:42:25


The cautionary tale of Ghana’s Ashante Gold was an early illustration of Goldman’s propensity to screw over its nominal clients.

Comment by Professor Bear
2010-04-24 20:08:33

“Monday, April 19, 2010

Goldman Sachs: A Fraudulent history repeats itself - The Legacy of Ashanti Gold

The only ones who should be surprised by Fraud allegations levied against Goldman Sachs are insiders who have become so arrogant as to think that they were somehow untouchable. Personally, I am wondering why it has taken so long.

Together, much of the Wall Street Bailout process was designed by Treasury Secretary Timothy Geithner, Past President of the NY Federal Reserve Bank; Stephen Friedman, an ex-Goldman Sachs officer who still serves on the Board of the NY Fed; Hank Paulson, an ex-Goldman Sachs operative who designed the hedge funds that plunged the financial markets into turmoil in the first place; and Goldman Sachs financier Robert Rubin. As the crisis unfolded, Goldman Sachs continued to market these Hedge Funds to uninformed clients, even after becoming aware that mortgage-backed securities were crumbling. And when When AIG was bailed out…the primary beneficiary was Goldman Sachs.”

Gollum’s business model:

1) Place myriad alums and inside connections in high places in government.

2) Commit what appears to any decent human being to constitute fraud.

3) Rely on connections in high places to squelch fraud allegations.

4) Repeat steps 2) and 3) ad nauseum.

Comment by Sammy Schadenfreude
2010-04-24 16:53:44


California’s fiscal crisis is causing a breakdown of the court system. Even during the Great Depression no courts were shut down. The world’s 8th largest economy is unraveling, and yet US markets are hitting new highs. It makes no sense to me.

Comment by Professor Bear
2010-04-24 20:21:59

How come shorts are evil when individuals use them, but just fine when Gollum does?

Goldman Sachs Execs Lauded Profits From Housing Market Collapse

Voice Of America News
24 April 2010

E-mails released Saturday show executives of the U.S. investment bank Goldman Sachs boasting about making money by betting against risky subprime mortgages as the U.S. housing market was collapsing in 2007.

In one of the e-mails, which were released by a U.S. Senate committee, Goldman Sachs Chief Executive Lloyd Blankfein said the company lost money on the mortgages - but made more than it lost by taking a so-called short position on the mortgages.

Short positions are bets the market will go down.

The emails were released as Blankfein and other Goldman Sachs executives prepare to testify on Tuesday before a Senate committee investigating the origins of the financial crisis.

Goldman Sachs said Saturday the Senate committee unfairly released only four emails from almost 20 million pages of documents provided by the company.

Earlier this month, U.S. financial regulators filed suit against Goldman Sachs, accusing the company of assembling a package of mortgage investments intended to fail, and selling the security to investors without warning them of the dangers.

Goldman Sachs has vigorously denied any wrongdoing and has vowed to defend its reputation.

Some information for this report provided by AP, AFP and Reuters.

Comment by Professor Bear
2010-04-24 20:23:08

The Financial Times
Disgruntled bondholders round on Goldman
By Patrick Jenkins
Published: April 24 2010 03:00 | Last updated: April 24 2010 03:00

Goldman Sachs’ behaviour in Lloyds Banking Group’s November refinancing - in which it had a dual role as an underwriter of the bond and an investor - has drawn criticism from a surprising quarter: other investors in the deal.

The FT reported yesterday that as one of six underwriters on Lloyds’ £10bn bond restructuring, Goldman had pushed for a higher coupon on the new securities, including an uplift of as much as 2.5 percentage points compared with the old bonds they were replacing.

It had also been involved in the decision on the “waterfall”, deciding which bonds should be given priority rights to exchange for the new higher-paying securities and which should come lower down the ranking.

At the same time, Goldman was an investor in the bonds. The bank did not comment ahead of the original story’s publication, but yesterday disputed suggestions from some people close to the transaction that it had held a significant investment.

Comment by Professor Bear
2010-04-24 20:25:38

Is there any California gubernatorial candidate who is not tainted by ties to Gollum?

Whitman, Brown have ties to Goldman Sachs

The Republican was on the Wall Street bank’s board, and the Democrat was mayor of Oakland when the city was involved in a complex financing deal with the firm.

By Michael Rothfeld, Los Angeles Times

April 24, 2010

As a main theme of his campaign for governor, Jerry Brown has attacked Wall Street bankers for fueling the nation’s economic troubles.

But he has avoided mentioning Goldman Sachs, the bank that is a recent focus of scrutiny, even though it is one of the biggest liabilities for Meg Whitman, the leading Republican candidate for governor, who sat on the company’s board.

Brown, a Democrat and California’s attorney general, also has connections to Goldman, which was charged with civil fraud last week by the Securities and Exchange Commission. The links are his sister and a complicated financing deal made by the city of Oakland, where he served as mayor for eight years.

That deal, known as an “interest rate swap,” was supposed to guarantee Oakland stability in its debt payments but is now costing the cash-strapped city $5 million a year. The agreement, which goes until 2021, has an estimated cancellation cost of $19 million. The city is trying to renegotiate it, and union officials representing government employees are calling on Goldman to let Oakland and other municipalities out of such agreements.

The swap, like those entered into by many governments, began in 1998, the year before Brown took office. City officials renegotiated it in 2003, right before his sister, Kathleen Brown, the former state treasurer, began working for Goldman as the West Coast head of municipal finance. In 2005, when the city paid off the debt Goldman had arranged, it left the interest rate swap in place.

Municipal officials said it made sense to do so because they would have had to pay $15 million to end the deal. That decision also continued a steady revenue stream for Goldman Sachs that has turned more favorable for the company and less so for the city as the economy has eroded.

Whitman’s spokesman, Tucker Bounds, called the arrangement “a big-money deal for Wall Street that is costing California taxpayers millions of dollars a year.”

“No matter how you look at it, Jerry and his sister were on both ends of a bad deal for taxpayers, and Goldman Sachs pocketed millions,” Bounds said.

Comment by Professor Bear
2010-04-24 20:27:23

Jerry Brown seeks to force Moody’s to release evidence of role in housing meltdown

The state attorney general wants Moody’s to respond to a subpoena in a probe of why the firm gave glowing ratings to shaky securities. Moody’s says he’s looking for documents that don’t exist.

California Atty. Gen. Jerry Brown, at a news conference in Sacramento, accused Moody’s Investors Service lawyers of stonewalling. A Moody’s spokesman said the firm had been cooperating with Brown’s office. (Lawrence K. Ho / Los Angeles Times / April 19, 2010)
By Tiffany Hsu, Los Angeles Times

April 20, 2010

California Atty. Gen. Jerry Brown said Monday that he was seeking a court order to force Moody’s Investors Service to comply with a subpoena, claiming that the credit rating company was withholding evidence of its role in the housing meltdown and recession.

The subpoena from September is part of an investigation into why Moody’s gave glowing ratings to shaky securities backed by subprime mortgages.

But Brown accused the firm’s lawyers of stonewalling and said that in conversations with his office they had called the subpoena “a waste of time.” Brown said the lawyers had refused to provide “complete responses” to questions.

In a fiery press conference Monday, the attorney general accused Moody’s of “immaculate deception,” saying that the firm had “thumbed their nose at the people of California” while trying to cover up “behavior that was completely unethical and in many cases illegal.”

“If Moody’s has nothing to hide, then why are they hiding?” said Brown, a gubernatorial candidate this year. “Come out from your legal obfuscation and meet us.”

Michael Adler, a spokesman for New York-based Moody’s, said the company had worked with Brown’s office for months and was “committed to continuing to do so.”

“Moody’s has already provided tens of thousands of pages of documents in response to his requests, and is continuing to provide additional materials,” Adler said. “We will maintain our ongoing dialogue with the attorney general to resolve the concerns he raised.”

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