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Harm,
What do you expect from people who were drinking the kool-aid? Yep, they were all wrong, just like we knew they would turn out to be.
It is frightening that so many bloggers have been so far ahead of the curve than these bankers, investors and economists. It indicates much deeper problems in the financial institutions.
HARM,
Let's see. I loaned money to someone to buy a house. Since I am so smart, I also buy insurance that this guy pays back the loan. Now the house is 50% of the loan value, and that guy has disappeared. And in the meanwhile, the insurance agency meanwhile has no money either. Hmmm. May be, I have a problem. I admit to that possibility. You are definitely onto something here.
I think what wigs me out most about watching the bubble burst is reading about it several months earlier on the blogs. To see “counterparty default risk†in the MSM is disquieting, to say the least. Oh, and it looks like there may be some "seepage" into CA munis: Municipal bonds hit by mortgage fallout.
Also, it appears that "jingle mail" has hit main street with a vengence. Low/no equity FBs getting the green light (look, my neighbor did it) is the final shoe dropping as far as I am concerned.
Last I heard derivatives were touted as great tools to spread risk.
The risk is spreading alright.
There's some entertaining stuff in the story pointed to by the "Bass Shorted" link.
"When someone explained to me that it was a synthetic CDO that takes the other side of my trade, it took me a month to understand what the hell was going on.''
This guy vs. the charlatan Sadek? God I love it when guys Sadek have to eat dirt.
"and that guy has disappeared" LOL!
Great topic HARM! Perhaps ACA's 29% ownership by BSC explains why Santa didn't visit them this year!? ( Naughty little Bear Sterns!)
O.K, here we go. I got some brand new steps and some weight to lose!
Just as most of us had never heard of, or gave any further thought to now defunct, laughable subprime lenders like Sebring, Own-it and my favorite "QuickLoanFunding.com" we'll have a whole new cast of J.O's to lampoon. Warren B. gave out some stern warnings about the explosion of derivatives as early as '02 (but what the hell would HE know ).
Perhaps the problem was that he spoke in too vague a terms and should instead pointed to s-p-e-c-i-f-i-c J.O's?
"The risk is spreading alright" LOL!
Good one Bear. Kind of like "the containment is spreading" but w/ a fresh new twist. I like it!
Peter P
2007 Dec 20, 6:10am
“The risk is spreading alright†LOL!
Yet another reason for a bailout!
Oh just to clarify (and please feel free to correct me) when WB was quoted in interviews about his concern for the growth in the use of derivatives I think most of us just kind of assumed he was talking about.... options, futures, options on futures and so on.
Does anyone here recall thinking to themselves back in '02 this pertained to credit default swaps etc? I know I sure didn't.
What was it that Warren called "derivatives"? Oh yeah, I believe it was-"weapons of financial mass destruction".
Richmond,
Yeah, I believe he DID say that. :) I'll see what I can't dig up. Even though WB sold his long held SoCal beach home around the peak, he insisted it was more about fundamentals and portfolio management than out of fear of a housing bubble. I don't ever recall a direct comment connecting the HB w/ WOFMD's?
DQ: Bay Area home sales stuck at two-decade low; price picture mixed
Deep Freeze coming
http://www.dqnews.com/RRBay1207.shtm
Question: I am looking at foreclosure.com, there's a new tab called sheriff sale, what does it mean? Thanks.
Isn't that where the Sheriff executes the forelosure sale in the front yard?
I don't think they do that in CA. Real estate pros say it takes their business.
I could be wrong, but that rings a bell.
Peter P
2007 Dec 20, 7:03am
Question: I am looking at foreclosure.com, there’s a new tab called sheriff sale, what does it mean? Thanks.
Perhaps it means that the persons or occupants had already been hauled out by the sheriff.
Perhaps it means that the persons or occupants had already been hauled out by the sheriff.
I sure hope not, because half the fun of buying a foreclosure is being there in person to see the look on the previous fliptard occupants' faces' as they get hauled off. :twisted:
“The risk is spreading alrightâ€
Like my middle-aged a$$ after another round of holiday binging.
Peter P
2007 Dec 20, 8:24am
In this example the Gov is the Lion, the RE-bailout is the Zebra, and we be the grass.
At least we are "renewable." ;)
DQ: Bay Area home sales stuck at two-decade low; price picture mixed
Median price is up 1.5% year over year. Come on folks, remember, a rising median rasises all boats -- or something like that.
Paging Prince Prospero, you're wanted in the green room.
I don't know exactly what Warren Buffett had in mind as derivatives but if anything fits it's the whole CDO, CDS CLO markets. It's hard to tell what's in them, there's no standard method for valuing them, and there's no standard of accounting for that value. And yet, the numbers are counted as if they were cash on hand. Until the contract is ultimately settled both parties can book a profit. Money from thin air!
Warren Buffett on Derivatives:
http://www.fintools.com/docs/Warren%20Buffet%20on%20Derivatives.pdf
Buffett's observations in the final paragraph are quite prescient in light of the current situation.
What's wrong with DQ ? Deep freeze and stuff. But fortunately, the indicators are moving in different directions.
Different than where they want to be. But all in their different ways pointing to the same direction.
Latest nominee for bleeding-heart media "victim" sob story of the year!:
http://www.reuters.com/news/video?videoId=73045
Just loved the whole "2nd generation illegal immigrant", "homeless renter" tent city thing --very Hooverville-ish. Got the MSM "American Dream/victim" boilerplate down pat. They even managed to fit in a quick stat on foreclosures without even once mentioning the possible reasons WHY these people were being foreclosed on!
Bravo, Reuters!
Peter P
2007 Dec 20, 9:08am
What is a 2nd generation illegal? Did their parents go outside of the country for childbirth just so that the kids can remain illegal?
DinOR :
I definitely was not aware of what CDO and related alphabet soup when I read about WB's comment about derivatives. Even now I am trying to wrap my mind around the figures being thrown. For example Mish's post about 681 Trillion being the size of derivatives. This is magnitudes bigger than the size of the global economy. Someday I might understand how the hell this can happen.
Another thing I noticed today on CR was also talked in the blogsphere long time ago. Now banks are afraid that the stigma of losing the home will no longer be there. Financially, it will be a smart move for many people to simply walk away. And it will become kind of fashionable as well.
It was long time ago that I remember someone (TxChick) saying "Broke is the new black".
Malcolm
2007 Dec 20, 9:28am
Bush just signed into law a bailout bill aimed at removing taxes from debt forgiveness relating to foreclosure or refinancing. Let the flood gates open, now there is no incentive for hanging on to a house or any penalty for walking away from it.
What is a 2nd generation illegal? Did their parents go outside of the country for childbirth just so that the kids can remain illegal?
:lol: I was mainly referring to her parent's (likely) status, but yeah, point taken.
Q for all you Aussies, Kiwis, Canadians, Brits & other nationalities out there: Do children of illegal immigrants get automatic residency/citizenship in your country too?
Peter P
2007 Dec 20, 9:49am
Q for all you Aussies, Kiwis, Canadians, Brits & other nationalities out there: Do children of illegal immigrants get automatic residency/citizenship in your country too?
Brits: No. Mother must be settled at the time of birth.
Malcolm
2007 Dec 20, 9:51am
Ha ha, and the latest boomer folly, it turns out that those fine art TV auctions were selling fake paintings. Hope none of you guys paid $3,000 for one of those fake $90,000 Salvador Dalis. God what is it with these people?
Ok, I know the boomers used to ditch economics class because it was teaching evil concepts or you just wanted to smoke pot. In either case, if something is worth $90,000 in a normal market you are not going to just pick it up for $3,000 on a nationally telivised auction. It is just a reocurring theme with these people, it is charged on a credit card, so it is like the money doesn't demand the same care.
Malcolm
2007 Dec 20, 9:53am
Aparantly this fraud was 6 billion dollars a year. Who cares though? It is just debt.
Malcolm, I couldn't believe that Bush actually signed "Don't 1099, Bro" into law, so I had to check the AP feed myself. Maybe I shoud consider a temporary change in career to "short sale specialist". I have to admit it becomes a no brainer for the seller -- at least before it was challenging: jingle mail (ruined credit but no tax consequences) or short sale (keep credit but pay IRS for debt forgiveness). Oh well, I'm sure there's enough people with seconds to make life interesting. Actually this is an area where a savy "short sale specialist" could come in handy: how to divide the debt foregiveness so that the first and second lien holders find it acceptable (get the second to accept pennies on the dollar as they get zip if foreclosed).
And it will become kind of fashionable as well.
Especially if you were being "held hostage" by the bank with an ARM reset and can now rent for 1/3 the price. What's not to like...
Malcolm, I couldn’t believe that Bush actually signed “Don’t 1099, Bro†into law, so I had to check the AP feed myself. Maybe I shoud consider a temporary change in career to “short sale specia1istâ€. I have to admit it becomes a no brainer for the seller — at least before it was challenging: jingle mail (ruined credit but no tax consequences) or short sale (keep credit but pay IRS for debt forgiveness). Oh well, I’m sure there’s enough people with seconds to make life interesting. Actually this is an area where a savy “short sale specia1ist†could come in handy: how to divide the debt foregiveness so that the first and second lien holders find it acceptable (get the second to accept pennies on the dollar as they get zip if foreclosed).
And it will become kind of fashionable as well.
Especia1ly if you were being “held hostage†by the bank with an ARM reset and can now rent an equivalent house (on the same block) for 1/3 the price. You come off looking like a genius...
Malcolm
2007 Dec 20, 10:08am
While I have a different strategy, I totally agree that now there is nothing to stop a mass exodus of sellers. On principle I don't believe a non recourse loan should ever carry a tax liability for debt forgiveness but without understanding specifics it seems like this law lets everyone, including the cash out people, walk away. Taking cash out and not paying it back should always be viewed as debt forgiveness, there is absolutely no reason to not tax that income. Evidently in this country we tax the shit out of hard work but larsony is now a tax shelter.
Canada is the only other country than US that recognizes citizenship by birth.
EU plugged the hole years ago, with Ireland being the last. I think Ireland closed the loophole a couple of years ago because I read something about illegal immigrants rushing to Ireland to give birth before the deadline to acquire an EU passport for their kids.
Oz plugged the hole in the 90s. At least one parent has to be a PR in order for the kid to be born as an Aussie.
Canada and us are the only fools standing.
At least one parent has to be a Puerto Rican in order for the kid to be born as an Aussie?
Weird.
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While the sheer volume of bubble/hedge fund/MBS-CDO implosion stories appearing in the news daily nowadays, it can be difficult to pick out the "pearls" among the pebbles, or the truly extraordinary items from the mundane "yet another Wall Street multi-billion-dollar write-down". (Btw, amazing to see bubble implosion lead headlines every day on Bloomberg, MSNBC & CNNMoney, etc. compared to just 2-3 years ago, isn't it? Any long-timers remember Face Reality, Fake P, MarinaPrime, CuriousCat, DAiryQueen, etc. brushing off our concerns as Chicken Little, doomster hand-wringing?).
This one recently caught my eye, and stayed in the back of my mind (via Tanta with Calculated Risk):
I've often read MSM quotes from Wall Street outfit bigwigs (Goldman Sachs, Merrill Lynch, Morgan Stanley, Chase, Citibank, etc.) to the effect that, "Even if all these MBSs/CDOs, derivatives, swap agreements & $Trillions in other financial Dark Matter go 'boom!', we're ok, dude. 'Cuz we, like, hedge 'n stuff."
Apparently, (if I'm reading Jim Keegan correctly), if your "insurance company" goes belly-up, then you "may" have a problem collecting on that insurance policy. So, I guess it comes down to a case of gambling --even on the bearish/short side-- is *still* gambling?
Am I interpreting this correctly?
Discuss, enjoy...
HARM
#bubbles