I wanna be a bond vigilante

NEW -> Contingent Buyer Assistance Program
If the big banks are going to capitalize Ambac, who is going to capitalize the big banks? The banks don't even have enough capital to meet their reserve requirements.
 
<p>awgee - if the banks and bond insurers pass cash back and forth fast enough, the cash will eventually travel at the speed of light. But when that happens, per the Theory of Relativity the cash will be everywhere all at once. Which is like having an infinite amount of money with credit available at every given point in the universe. Mission accomplished.</p>
 
Are the banks going to borrow from the Fed? And what will they use as collateral? So far the Fed, with the TAF, has only taken Freddie Mac and Fannie Mae insured paper as collateral. Will the Fed start taking the toxic crap? The Fed is not a government enterprise. The Federal Reserve is a private organization owned by the member banks and it's purpose is to enable those private banks to retain power.
 
Good thread.



awgee.. the easiest way to short a treasury bond is via treasury futures. You need a broker that has futures trading. This is very cheap, you trade at the same prices as the big boys. Just need to remember to roll your positions every quarter. Among the cheaper brokers is www.interactivebrokers.com, but you need to know what you are doing as they don't provide much hand holding.



theose wandering about the fed cutting rates... this is a old as sin... you have an economy choked with debt. The only way to solve this is by inflating away the value of this nominal debt. Luckily, it's the Chinese who end up the losers (the largest creditors to the US)
 
Scenario: Joe Sixpack bought a home a couple years ago, with an ARM from Countrywide and 5% down, for $400,000. Joe could rent this home for 60% of what it costs him to own.<p>


Forward to today: Joe's home is worth $350,000, his ARM has reset and may recast. Joe is hurting and is getting farther and farther behind. He may have to default on his mortgage.<p>


Here comes the government to the rescue: The FHA pays Countrywide $350,000 for Joe's loan, gives Countrywide a voucher for up to $50,000 of possible future gains from any future sale of the home, and refinances Joe with a new loan of $350,000.<p>


Everyone is happy and everything is hunky dory. Or is it?
 
<p>Yeah, I noticed that most of the bailout proposals have the assumption that the homeowner wants to keep the home. What if there is a recession, and they lose their job have to move to another city for a new job? What if Schiller's irrational enthusiasm wanes and people realize that spending more than half their income on a mortgage isn't worth it if they aren't going to make a small fortune on an appreciating asset? What if the divorce rate goes up and people have to sell? What about the people who own more than 1 home and want to pare back to only 1 home?</p>

<p>This is an interesting article BTW - especially the only bailout idea that doesn't involve people keeping homes (ie. govt buys the houses & rents them out). Don't really get why that's necessary though - didn't banks in the Great Depression just take the homes back and rent to the former owners? </p>

<p><a href="http://online.wsj.com/article/SB120233791944648889.html?mod=googlenews_wsj">http://online.wsj.com/article/SB120233791944648889.html?mod=googlenews_wsj</a></p>

<p> If the Bernanke Fed succeeds in heading off what might have been a severe recession, it will look like they have done too much. The challenge for Mr. Bernanke then will be to boost rates as rapidly as he has just cut them to avoid an outbreak of inflation.</p>

<p class="times">But that is the more pleasant outcome. What if house prices keep falling, and the economy keeps sinking?</p>

<p class="times">Another three or four months like the past one, and Mr. Bernanke and Mr. Paulson will be thinking seriously about aggressive proposals that -- for now -- are deemed too radical. Like creating a federally funded outfit to buy mortgages that are in or near default and refinance them at easier terms so the borrowers can keep their homes, as Senate Banking Committee Chairman Christopher Dodd is already suggesting. Or helping state and local government agencies buy houses that are in foreclosure and rent them out until the housing-market rebounds, <a href="http://online.wsj.com/article/SB120226298614746353.html?mod=Capital">as San Diego is already contemplating</a>.</p>
 
<p><em>"Yeah, I noticed that most of the bailout proposals have the assumption that the homeowner wants to keep the home."</em></p>

<p>Exactly, why does everyone assume Joe will want to keep making payments?</p>

<p>And why does everyone assume that Joe will qualify to refinance? Do we need to list all the reasons why he may not qualify?</p>

<p>And if home prices do not rise? How many homes do US taxpayers want to own?</p>

<p>And these certificates will be tradable assets? ROTFLMAO! Would you want to own any of them? I will not.</p>
 
<p>Awgee "The banks don't even have enough capital to meet their reserve requirements."</p>

<p>Not quite. The problem is the good banks aren't accumulating new capital fast enough to expand fast enough to provide large amounts of new credit to good borrowers. That's one of the reasons for the auction rate problems. Another difficulty is that many financial instifutions aren't banks, such as Merrill Lynch or Fidelity. They can't go to the Fed discount window. </p>
 
Bu - Check this out and tell me what you make of it. If this link doesn't work anymore, Calculated Risk has another take of the same subject yesterday or maybe the day before.

<p>


<a href="http://financialsense.com/fsu/editorials/andros/2008/0215.html">http://financialsense.com/fsu/editorials/andros/2008/0215.html</a></p>

<p>and here is someone else writing about the bank's insolvency:</p>

<p><a href="http://www.safehaven.com/article-9551.htm">http://www.safehaven.com/article-9551.htm</a></p>

<p> </p>
 
<i>Yeah, I noticed that most of the bailout proposals have the assumption that the homeowner wants to keep the home</i><p>



The real benefit to a bailout is averting the waste of a foreclosure. Absent that, there's no benefit to society and the bailout is just a wealth transfer and not likely to be a political winner with such a hot topic.
 
<p>I want to point out a <strong>big</strong> lie that keeps getting repeated to the point where people accept it as truth.</p>

<p>The lie is: Foreclosures cost more than a workout with the borrower.</p>

<p>Who knows? It may be true in some cases and it may not be true in others, but the blanket statement is preposterous.</p>

<p>Think. If a foreclosure always cost more than a workout, wouldn't the lenders be making a pretty big effort to do more workouts? This doesn't take a mental giant. If you can save money, what do you do? You think banks are not smart enough and greedy enouth to do whatever they must to cut their losses short?</p>
 
Well, I don't know about "preposterous." There was a post at another discussion board (which i can't find now to post here) by a guy who claimed to have worked many years as a division manager for a bank's REO department. When discussing short sale vs. foreclosure, he said that foreclosure is always more costly to the bank than short sale, so why does any property go to foreclosure since there would always be someone willing to buy it for more from the bank through a short sale? He said he has seen the figures, and he could never understand why a bank would let a property go to foreclosure when, as a short sale, there's nearly always someone willing to buy it for less than owed but more than the bank could get at a Trustee's Sale.
 
For an interesting article on peak oil, you might look <a href="http://www.washingtonmonthly.com/features/2005/0506.drum.html">here</a>.





As to the foreclosure thing, as I have read some of the posts over at Calculated Risk, it isn't that banks don't want to do workouts, but that they don't have enough trained staff to do them all. Anecdotally, I have RE agent friend (retired on the residential side of the biz a few years ago) who helps some other agents in dealing with the banks on workouts. She said that *many* of the first line bank people she has dealt with are little more than notetakers and have to run every decision through a superior, and don't even know what she is talking about half the time.





Once an NOD and NTS are filed, the process is on an assembly line that can be stopped, but isn't always easy. IIRC, the beneficiaries on the DOTs are often not the banks, but a title company (or title company subsidiary that runs a service, such as <a href="https://ladsvalues.landam.com/">LandAmerica Default Services</a>) who may get a cut of the action and have an incentive to see the foreclosure through.





So while the easy explanation usually is the real explanation, sometimes being cheap, lazy, and/or incompetent are the explanations.
 
Yup, they don't have enough people, can't keep up with needed increases, don't pay squat, and they have no clue what they are doing. I mean, all the loss mit people from the 90s are retired.
 
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