The Guiding Light of Wall Street...

   

I hardly touch on financial matters (anything more than the date on a page gives me a huge headache).  A big big dip on the stock exchange, some oddity I notice…  However, I saw this at Danny Schechter’s News Dissector - a good fluid piece on the sub prime implosion, found it eminently readable and followed the link…

First, a long snag from Schechter

[T]hen, as predicted but at first downplayed, the bubble began to burst. Suddenly, it was not just poor people to be blamed for being financially irresponsible—even as two million families face foreclosures of their homes— but the whole financial industry itself.

Wall Street is far more culpable than main street.

Last week, Credit Suisse, predicted a big stock market fall in 6 months because securities are overvalued. The Fed warned of l00 Billion in credit losses. The Guardian reported, “Some analysts said they feared a broader credit crunch if a collapse in confidence in the US mortgage market rippled out to other parts of the debt markets.” A NY Post article suggested that over two TRILLION dollars is at risk. Of course, all of this is speculative but as they say, when there is smoke in high places, fire can’t be far behind.

Last Saturday, the New York Times reported, “Anxiety over securities backed by risky mortgage and rising interest rates has roiled the credit market for several moths. Now the CONTAGION (caps mine) from those troubles seems to be spreading into other parts of the marketplace.”

Terms like “roiled” and “contagion” are insider words for a spreading panic Writing on Money And Markets.com, Mike Larson declares “ITS ALL HITTING THE FAN.

He says two Bear Sterns funds simply “VAPORIZED” explaining,

“In plain English, here’s what happened:

These funds invested in complicated mortgage securities

They used extensive leverage, or borrowed money, to improve returns … Then, delinquencies and foreclosures started surging, and the value of the underlying loans and bonds tied to them began sinking fast.”

Now private equity firms which have been making monster deals built on debt are being squeezed. Much of the debt is being seen as junk. We have also learned that the agencies rating credit and debt offerings had their heads in their rear ends. They have lost credibility putting the market at more risk.

The excellent website Mi-explode.com reports that since late 2006 l00 major US Lenders have collapsed or “imploded.” The editor sums up the reasons this way: “Thank you greed; thank you delusion; thank you anti-regulation—we couldn’t have done it without you!”

The press is beginning to wake up and realize how important this is. They have been talking about the rise of the stock market as if that tells the whole story. Yes, some corporate profits are up but what’s happening down below is alarming. Note, the market fell nearly 150 points after last weeks high of 14000.

Business Week saya that the subprime crisis is spreading to other kinds of debt, and far more serious than thought writing it is “Only a surprise to those who listened exclusively to soundbite-based talking-heads belaboring “subprime” as an isolated implosion. Around here, long ago we were forwarding along data and analysis showing sharp rises in delinquencies in virtually all classes of consumer debt.”

More Contagion.

We are finally beginning to talk about real money and a real danger of the kind that terrifies bankers and the elite. They may not care about the poor, but they do about themselves!

As Mike Larson suggests: “Ultimately, losses on subprime mortgage bonds alone may total as much as $90 billion, according to one estimate. Losses on collateralized debt obligations (CDOs), investment vehicles created from slices of various mortgage-backed securities and asset-backed securities, may total billions more.”  [snip]

A few snips from the Larson article

Meanwhile, News from the Housing
Industry Keeps Getting Worse and Worse

Pulte Homes (PHM) became the latest builder to warn of big problems in its business. The third-largest home builder said orders plunged 20% from a year ago. And it’s going to take as much as $770 million in pre-tax charges to write down the value of land and other assets on its books.

Meanwhile, the National Association of Home Builders released its latest monthly index data, which dropped four points in July to 24.

That was far worse than the 27 reading expected by economists … the third-lowest level on record … and the worst since January 1991. All three sub-indices — which measure present home sales, expectations for future sales, and current buyer traffic — fell, too.

Here is a good place to say a small thing I do know.  I don’t usually include charts / graphs from articles but see that big dip in ’91… I am sure we all remember that.  Out here, in the Bay Area and in the highly desirable counties north of the City, we barely felt that nice big rise in 93/94… what happens out here in a recession and a big hit on RE, etc.  our RE, from developers moving on options, to housing starts, to selling – from cheapish condos to multi-million dollar property prior to foreclosure, it all screws down hard, freezes in place (owners needing to sell start weeping) and does not move for years.  We did not exit from the recession in the early 90s, in terms of RE, until the late nineties.  Not really.  The dirty secret is we needed that nasty bubble the Venture Capitalists (VC) churned out of the dot com (or as I call it, dot com dot died) era.  That did not end too well, for some people at least…

Just my view.

A snip for two more from Larson…

Here’s My Point: The Worst Is
Not Over, So Protect Yourself!

I’ve been closely following the mortgage and housing markets for years. Since things started topping out in mid-2005, and the long slump got underway, I have heard two things almost every step of the way.

The first is that the worst is over and the bottom is in.

All along, I have maintained there is no evidence of that. And this week, even the Chairman of the Federal Reserve, Ben Bernanke, was forced to admit as much before Congress. He said,

“Although a leveling-off of home sales in the second half of 2006 suggested some tentative stabilization of housing demand, sales have softened further this year, leading the number of unsold new homes in builders’ inventories to rise further relative to the pace of new home sales. Accordingly, construction of new homes has sunk further, with starts of new single-family houses thus far this year running 10 percent below the pace in the second half of last year.”

I was so entertained in a sort of fin de siecle way… The law firm I was at in the late 80s (’87 to ’00) was uniquely positioned to catch the drift shall we say.  They had a special relationship with Bechtel and were involved in global building projects, aside from everything else….  And they did catch the drift, in ’89.  But did nothing.  Like a lot of big firms they waited for a well known event to blame it all on (“we were holding our own in a tough market until…”)   Some firms out here used 9/11 to make moves in a softening economy… My firm held off, held off.  ‘Til ’91, when they began large lay-offs.

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