Friday, May 14, 2010

I'm Workin' on it!

Hi - thanks for stopping by!

I'm working on a new site, and have been kind of quiet over here lately - sorry! If you're interested in hearing about the new site when I launch it, send me an email and let me know...

Thanks!

Wednesday, February 17, 2010

How To 'Greece' A Credit Crisis

I love the parable offered by David Kotok at Cumberland Advisors in a recent market commentary, a link to which you will find below.

“My Big, Fat, Never on Sundays Story.”

It is the month of February, on the shores of the Adriatic Sea. It is gray and raining. The little Greek town looks totally deserted.

It has been many months of tough times; everybody is in debt and everybody lives on credit. The government has run out of money and the unions are constantly striking but getting nothing because there is nothing left to be gotten.

Suddenly, a rich German tourist comes to the village. He enters the town’s only hotel, lays a 100 euro note on the reception counter, and goes upstairs to inspect the rooms in order to pick one.

The hotel proprietor takes the 100 euro note and runs to pay his debt to the butcher.

The butcher takes the 100 euro note and runs to pay his debt to the pig grower.

The pig grower takes the 100 euro note and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 euro note and runs to pay his debt to the town's prostitute, who, in these hard times, provided her services on credit.

She runs to the hotel to pay for the rooms she rented on credit when she brought her clients there. She hands the proprietor the 100 euro note.

He lays the note back on the reception counter so that the rich tourist will not suspect anything.

A minute later, the wealthy German comes down the stairs, announces he did not like any of the rooms, puts the 100 in his pocket, gets into his Mercedes, and drives away.

There were six financial transactions. No one earned anything. Nothing was added to GDP. However, the whole town’s debt-GDP ratio changed dramatically. The village folks are now out of debt and look to the future with a lot of optimism.

Oh, if it were only so easy?

You can see more context to this in the commentary piece, and also other fantastic coverage of the sovereign debt issues, and whatever else may be going on in the market at the given moment at the Cumberland Advisors website.

Wednesday, February 10, 2010

Quote - Got Me Thinking...

I came across this quote in a recent investment newsletter (you can read it here). It's worth pausing on to consider the relevance in today's environment. Not making a political statement; I'm more optimistic than this.... just waxing philosophical... let me know what you think.

"A democracy is always temporary in nature; it simply cannot exist as a permanent form of government. A democracy will continue to exist up until the time that voters discover that they can vote themselves generous gifts from the public treasury. From that moment on, the majority always votes for the candidates who promise the most benefits from the public treasury, with the result that every democracy will finally collapse due to loose fiscal policy..."

- Alexnder Fraser Tytler, Scottish lawyer and writer, 1770

White Collar Thuggery - "Give me your Breitling! And the Rolex!"

Financial ruin isn't pretty. No question, the burst bubbles of the credit and real estate industries have put more than a few people out on the street. The ugly, sputtering, desperate last spasms of a business persona failing to cling on is exemplified by this story from the Boston Globe. I love the juxtaposition of the behavior - shake downs, threats, extortion - with the high class imagery of designer watches and fancy restaurants.

Monday, February 01, 2010

Another Piece of Evidence to Support the 'Evil Banks' Argument

Wow. This is pretty ugly. Caught on tape, here is a conversation between a real estate agent trying to facilitate a short-sale, where there are two lenders on the property.

Bank one is going to accept partial payoff, meaning they will not recover 100% of the loan out on the property. But they do get 100% of the proceeds of the sale.

Bank two doesn't get a dime. Therefore, they have zero incentive to approve the sale, and in fact, they have an incentive not to - it helps them avoid digesting the loss on their current balance sheet.

So how do these deals get done? Well one way, as in this recording, is for the 2nd lender to bribe the real estate agent and demand that they pay them privately. Which is a violation of federal real estate settlement practice laws.

In a good showing for real estate agents, this one is clearly aware of and concerned about the conflict and the related ethical issues. Listen to how the bank administrator tries to bully them into complying.

Not pretty. Watch for more of this to bubble up to the surface and hit the news. There's a lot of murmuring about this practice going on right now.

Sunday, January 31, 2010

Why Your Lender Will Not Approve Your Loan Modification

Loan Modification has been all over the news for the last two years, as the Credit Crisis /Housing Bubble / Mortgage Meltdown debacle has played out and left many a homeowner trapped with a burdensome loan on an un-lendable property or in an un-lendable circumstance.

I've been right there with you trying to see past the smoke and mirrors to find out if modifications actually work. And when most inquiries end up being answered by snake oil salesmen, it's pretty easy to get discouraged. The media has made a sport out of exposing some of the worst con artists out there preying on vulnerable, desperate homeowners.

But when the White House came out with a "Home Affordable Modification Program" (HAMP) last year, there was some promise in the idea of a sanctioned and systematic approach to the process. And then the numbers just didn't show up. Sure, there have been some modifications, but not nearly as many as there are distressed homeowners. Banks are not just handing these out.

So why not? Because tt's a waste of money. A lost cause. The Boston Federal Reserve puts it to numbers in a recent paper. You don't have to even read past their title to get into the arguments, but there are some interesting data in the paper for the statistically-inclined.

  • Securutization makes it logistically difficult for lenders to identify the end-invesors and modify terms
  • Redefaults occur in roughly 1/3 of modified cases, thereby rendering the effort wasteful
  • Self-cure occurs in roughly 1/3 of untouched delinquent cases. Another 'why bother?' argument...
I find the self-cure idea particularly interesting, as it doesn't paint the picture of a vortex of distress in the housing sector like you hear from other sources. It may be a little early to tell still, but i's going to be something to keep an eye on.