This reminds me. I wonder what the local dentist (NOYB) is putting up
with nowdays?

Short Wave Sportfishing wrote:
On Wed, 30 Jan 2008 14:46:18 -0000, wrote:

On Wed, 30 Jan 2008 09:30:17 -0500, JimH wrote:


He promptly blamed the lender as he said he did not know what an ARM
was. Doh!

Summary of sub-prime write-downs in Q4
UBS $13.7 bln
Citigroup $13.7 bln
Morgan Stanley $10.3 bln
Merrill Lynch $8.4 bln
HSBC $3.4 bln
Bank of America $3.3 bln
Deutsche Bank $3.1 bln
Barclays $2.7 bln
Royal Bank of Scotland $2.6 bln
Credit Agricole $2.3 bln
Bear Stearns $1.9 bln
Credit Suisse $1.9 bln
JP Morgan Chase $1.6 bln
Goldman Sachs $1.5 bln
Wachovia Bank $1.1 bln
Lehman Brothers $0.8 bln
SunTrust Bank $0.6 bln
Total: $72,900,000,000 and counting!

I guess the lender didn't know what an ARM was either.

There is a curious dynamic going on in the sub-prime blame game that
is annoying me to no end.

Think about what 72 billion is compared to the 13.7 Trillion dollar
economy. Pocket change. And it's being written down in value so next
year, it's as if it didn't exist and you start over.

Due to Greenspan's laissez-faire attitude towards national money
supply, there was an excess of capital that was available for loan
floats - in short, lots of cash that needed to be invested or put to
work in some fashion.

Once you have people throwing money at you, it's natural to take
advantage of it. It's also natural for people to over estimate their
ability to pay down debt based not on yesterday, but on tomorrow. Hey,
want a low rate ARM for two years at 2% on $500K - hell, I can flip
the house in two years for a $800k the way the real estate market is
going - whoo hoo!! They don't think about what happened in other
bubbles that happened yesterday - the future becomes fact even if it's
based on fantasy. Additionally, everybody knows somebody who knows
somebody who made a cool $500K selling their house. Yep.

So, what happens now is that banks are holding huge amounts of asset
debt - mortgages are like accounts recievable (only different) and
considered assets. And what do you do with assets - you try and
increase their net worth over time multiplying their asset value. And
what's a good way to do that? Why sell the mortgage debt to long term
investors.

Which led to complex financial investment instruments like CDOs, SIVs,
CDO squared, CDO-n (in which CDO collatarized over CDO which
collatarized other CDOs), etc., basically slicing up bits and pieces
of mortgages into holdings for investors. Take one with $100K,
another with $200k, another with $50k and sell a $350K mortgage to
these three investors and collect the servicing fee - a cool .5% or so
of the total package. Do that a few times over and your are making
more money which you can dump back into...well, you get the point.

Once you get locked into a cycle of derivitive debt, all bets are off
because the incentive is to make more money - a classic bubble.

So, to put it plainly, nobody is really at fault (other than those who
practiced outright fraud which is a very minor part of all this).

With one exception - Greenspan and that's only because he kept the
money supply too high. Having said that, it's not his fault either
because he did what he had to do to get the economy on track after
'87, '92 and 2001.

Everybody owns a piece of it. The real question is what to do about
it.

My opinion is the same as Jim Cramer and Barney Frank - let the US
Treasury buy the assets of the mortgage insurers and basically put
them out of business. Then take the good assets and sell them off to
somebody like Buffett (or others) with an incentive discount, take the
lousy assets and junk 'em for what ever they can get. That will
stabilize the market.

Then you can put the insurance companies back into the game by putting
rules in place that brings the mortagage lending practices back to
what worked before - verification of income and ability to pay based
on monthly/yearly income and expenses.

In short, put some sanity back into the market.

That's my story and I'm sticking to it. :)