by Tanta on 8/04/2008 09:49:00 AM

I feel really bad that I missed being first on the freezing crunchy squeeze.

by Tanta on 5/20/2008 04:00:00 PM

Caroline Baum is exercised over Fannie Mae's recent announcement that it was dropping its "declining markets" policy. Yeah, so, a lot of us didn't like that.

But the rest of us did not write a column that is titled "Mary Had a Little Lamb and a Jumbo Mortgage" and then have this thing about kings and taxes and then Fannie turns out to be the fairy godmother, which is Cinderella, not Mary and the lambs, and then admits to perfect ignorance of what "DU" is and then makes claims about what DU is and then ends up predicting that Fannie will self-insure mortgages which would be like totally surprising since it would require the king to change Fannie Mae's charter which forbids such things, and dammit if you don't get all the way to the end and there aren't any jumbos in it. Boy howdy.

by Tanta on 3/16/2008 11:00:00 AM

Dr. Krugman has inspired me to get back to the Muddled Metaphor Index. Longtime readers will know that the MMI emerged last summer as one of our blog's tools for measuring distress in the credit markets. The MMI is calculated by plotting the disintegration of metaphoricity in reports of credit market events against the general unwillingness to recognize reality until it bites you on the shoulderblade, and then chortling over the results. Some people question the science here, but we tell them to go jump in a desert.

Today's text is the reliable New York Times on Thornburg Mortgage's problems. Personally, the thing I like best about this article is that it makes no sense whatsoever to anyone who doesn't already know what Thornburg's business plan is. You imagine the average reader asking: so if Thornburg doesn't make these "Ninja" loans, how come they own all these securities full of them? The term "leverage" haunts the article like an elusive ghost that hints at a sinister presence but never quite fully materializes. That's because the whole thing just begs for another awkward metaphor to be piled on.

There are in fact several gems here:

Thornburg already had one near-death experience last summer, when the mortgage crisis first hit and its shares plunged. Racing from interview to interview, and huddling with investors and analysts, Mr. Goldstone managed to convince the market that his company could survive. He even managed to raise more than $500 million in fresh capital from investors.

This time, though, the outlook is more dire.

Specifically, the problem concerns Alt-A securities, an obscure part of the mortgage debt market that may soon become as familiar as the now-infamous subprime category. Thornburg holds billions in securities backed by Alt-A mortgages, which were considered safer than subprime but not rock solid.

Alt-A (short for Alternative-A) borrowers typically had good credit scores but lacked the documentation to lift them into the prime category.

“Alt-A has been the precipitating event; it’s just been feeding on itself,” Mr. Goldstone says. “You have AAA-rated mortgage securities trading with junk bond yields. That makes no sense.”

Yeah, it was all so precipitous. Unless you're some blogger who has been harping on the looming Alt-A problem for a year or so. Then it's more like a--oh, no, not a--AAACK!---

The story of Alt-A and Thornburg also illustrates why the current credit crisis is different from past panics, like the market crash of 1987 or the crisis a decade ago when Long-Term Capital imploded. Those were rapid-paced events, which erupted and then faded from view. This is more akin to a slow-motion, chain-reaction car crash.

Whew. I was just sure it was gonna be a train wreck, and I don't think I can handle any more of those. But of course it's like a car crash in the ocean:

IN other words, this isn’t the tip of the iceberg; it’s another iceberg entirely.

So it's a precipitous event that is also slow-motion, a chain-reaction like hitting one iceberg and almost going to the bottom but not quite and then sailing on for a while until you hit a different iceberg because after having hit the first iceberg you are still convinced that those little bitty chunks of ice floating on the waves don't have great big honkin' bergs under the surface because, like, how often does that happen?

And as Mr. Goldstone can tell you, few can predict who will be the next to feel the impact.

Um. Few complete uninformed idiots could predict this. I'd guess that an entire troop of moderately alert cub scouts could go take a look at some financial statements to see who else is overleveraged in the Alt-A sector and make a couple of pretty solid predictions, myself.

Whocoodanode? is alive and well.

by Tanta on 11/07/2007 08:21:00 AM

An Associated Press reporter has apparently been living in a cave for a few months:

NEW YORK - The malaise in the mortgage market is starting to spread to credit card and auto loans in what one analyst has dubbed consumer credit "contagion." It's an ominous warning signal for the economy.

"One analyst"? "Contagion" in quotes? I checked the byline; this seems to have been published this morning.

No one is calling this problem the next debt-related land mine yet, but it is important to watch what happens, especially as the holiday shopping season gets under way.

OK. Let me rectify this inexplicable failure of cliche:

This problem is the next debt-related land mine. You read it here first, kids.

We also savor the perfume of the new trend, odiferous metaphoricity:

"Firms that are now adding to the portfolio might have had a few whiffs of trouble brewing earlier this year and dragged their feet in adding to reserves because they were hoping that interest rate cuts might bail them out and give borrowers breathing room," said Jack Ciesielski, who writes the industry newsletter, The Analyst's Accounting Observer.

"Now, the odor is getting stronger, and it looks like adding reserves is the only course of action they can follow without presenting misleading financials," Ciesielski said.

by Tanta on 11/02/2007 09:44:00 AM

It has been a while since we measured distress level in the credit markets by a shallow survey of goofiness in the news. Since we have already noted solemnly the important news of the day--jobs report didn't smell bad--let us descend to news of the weird:

Mark to model? How about mark to flea market? "Prepare for the credit drama sequel" by stocking up on beaver pelts and glass beads.

Put on your blast goggles before you read this blinding flash of obvious: "Jump in foreclosure could hurt prices." Also, "contagion" is back.

But not to worry, it's not that contagious:

The soaring price of oil has yet to have a crippling effect on the economy, and inflation and unemployment figures remain in check, suggesting the economy is relatively healthy, despite the disastrous effects of the subprime collapse in the housing and lending arenas.

Bad bets on subprime mortgages have placed the financial sector in its current quagmire, not a lack of liquidity, and in the midst of sorting out the fallout from those decisions; it does not appear that Fed rate cuts are having the desired effect of propping up the flagging industry.

I don't know; what that means either, but fallout from the quagmire of the bad bets doesn't sound good.

by Tanta on 10/29/2007 09:24:00 AM

Remember all those witty ursine puns in July when the news was all Bear Stearns all the time? Sure you do.

Since it's likely to be all Merrill all day for the foreseeable future, we're going to have to have a talk with the headline writers at Bloomberg.

"O'Neal Ouster Makes Mess of Maternal Merrill Lynch."

"Maternal Merrill"? Is this the New Formality, or did someone's online translator have a bit of difficulty with "Mother Merrill"?

Let it be . . .

by Tanta on 10/22/2007 09:30:00 AM

Or "words," as the case may be. Take "Subprime crisis forces McMansions to take McBreather," a sad story of the housing horrors of Hinsdale, in which marketing time for properties in the $2MM range is now six to nine months, if you can believe that. (Note to reporters: that's hardly historically unusual for jumbo properties.) What I found amusing is how "subprime," the crisis thing announced in the headline, suddenly gets a set of scare-quotes half-way through the article:

Real-estate businesses are hurting. Uncertainty about the U.S. economy and tighter mortgage financing in the fallout from the "subprime" credit crunch have reduced buyers. . . .

Hanna said one way to view the U.S. property market was to picture it as "a pyramid, where subprime forms the base."

A credit crunch has tightened all mortgage lending because of probes of bankers, lenders and brokers amid the subprime crisis, limiting mid-tier borrowers from buying up.

"Now people at the bottom can't sell to move up a level and that also hurts people at the top of the pyramid," Hanna said.

Lenders are more reluctant to lend to people at the bottom of the market. But wealthier Americans with less-than-perfect credit -- some, for instance, with a hefty mortgage or two already -- are finding themselves in the same boat.

"Many of the people at the high end are CEO's and entrepreneurs who are used to getting what they want," said Bill McNamee, president of Pinnacle Home Mortgage, a mortgage broker focused on Chicago area high-end homes. "They don't like being told 'no,' but some will be forced to get used to it."

Nervousness after the summer's stock market volatility and fear of a recession have also played a role.

"High-end owners are staying put and adding on to their houses because they're afraid of what's happening in the economy," said Sandy Heinlein of Baird & Warner Real Estate in Inverness, a wealthy Chicago suburb.

Many owners are unwilling to risk buying a home for fear they may not be able to sell their existing one, she said.

Pat Turley, owner of Koenig & Strey GMAC Real Estate in the Chicago suburb of Glen Ellyn, said unrealistic expectations from both buyers and sellers have added to the slowdown.

"Some sellers have yet to accept they won't get the price they could have a year or two ago," Turley said. "And while it's a buyer's market, there is a limit to how low buyers can expect sellers to go."

A pyramid. Really? How big do these people think the subprime "starter home" purchase-money market is (or was, even at its height)? Perhaps those sudden queasy quotes around "subprime" involve an implicit recognition that the real "anomaly" in the market is the McMansion owners who perceive themselves as the top of the pyramid, but still want to sell and move up? Um, where are they going to go? Evanston? How wide does the top of a pyramid get?

And we think the problem is that "subprime" borrowers cannot "sell to move up a level"? Odd. I'm hearing that they cannot "sell to avoid foreclosure."

Some day this war is going to end, but until then, we are all subprime now.

by Tanta on 9/19/2007 11:30:00 AM

To supplement our regular reporting on MMI (Muddled Metaphor Index), we present our inaugural post on Mountain-Molehill Befuddlement Syndrome. MMBS is characterized by an inability to resist making a front-page story out of anything with 1) "mortgage-backed security" in it plus 2) one quote from some hedge fund guy (whose position is disclosed only in dollars, not in, like, who's getting shorted in the swap market). It's probably incurable, but we fight the good fight here anyway. Call us Quixotic.

Karen Johnson of the Wall Street Journal has a bad case of MMBS:

When fruit-spread purveyor J.M. Smucker Co. started buying mortgage-backed securities in 2004, they seemed like a safe way to diversify some of its investments.

Now, however, that asset class is in a bit of a jam.
Shares of banks and brokerages have fallen sharply since the markets cooled for commercial paper and other securitized debt that might hold mortgage-backed loans. But they aren't the only players with home-loan-related holdings.

In recent years, Smucker joined the ranks of other nonfinancial companies such as Garmin Ltd., Microsoft Corp., Netflix Inc. and Sun Microsystems Inc. by investing in what had been viewed as relatively safe investments that produced slightly better returns than cash and government bonds -- and could be sold quickly if needed. Many of these companies are cash-rich, looking for a secure place to park their millions. And none are expected to cash out any time soon.

The issue for investors is how these companies determine the "fair" value of their mortgage-backed securities in the current environment, and whether they are telling the whole story about how easily these assets can be liquidated -- and for how much.

"It concerns me from the standpoint of transparency, whether the cash stated on the balance sheet is a true representation of the cash available to the company," said Jeffrey Diecidue, a hedge-fund manager at UCA LLC in Short Hills, N.J., who has less than $100 million in assets.

Oh, man, this is just not sounding good. Jelly makers hiding the sticky details of MBS holdings. According to some guy who runs a little bitty hedge fund in "Short Hills."

You might as well get off the edge of your seats here, folks.

The amount of mortgage-backed securities owned by nonfinancial companies as a proportion of their total assets is low, and some, like Smucker, say they invest in only highly rated loans. But in the current environment, just saying investments have high credit ratings gives investors little comfort. As the traditionally staid commercial-paper market has shown recently, even triple-A-rated debt can be backed by subprime loans, causing investors to balk, prices to fall and trading to seize up.

At the end of July, Smucker had $41.5 million in mortgage-backed debt classified as noncurrent marketable securities available for sale, which are assets the company intends to sell for cash if it is needed for future operations. While that debt is just 1.2% of Smucker's total assets, it makes up 22% of the company's total marketable securities and 100% of its noncurrent marketable securities.

Hoooo-eee. $41.5 million. 1.2% of assets. You get bonus points here if you know that "noncurrent" in this context has nothing to do with performance. And double-extra bonus points if you have any idea why the metric of percent of noncurrent marketable securities means anything important, useful, or sinister. If you enjoyed the slide from "investors in Smuckers, Inc." to "investors in MBS," vis-a-vis who is balking about what, you win the whole PBJ.

Other companies with mortgage-backed securities, including Biomet Inc., Microsoft, Novell Inc., Netflix and Sun Microsystems, declined to comment. Semiconductor maker LSI Corp. didn't respond to requests for comment.

John Olson, chief financial officer of memory-chip maker Xilinx Inc., said the company buys only diverse high-grade securities and no collateralized debt obligations, or CDOs, which are debt pools that can carry triple-A ratings while still being backed entirely by subprime debt. "Fortunately, our treasurer was smart enough to know that CDOs aren't always what they say they are," he said. Mortgage-backed securities make up $24.3 million, or 2.5%, of Xilinx's $963.8 million in short-term investments.

Still, complicated investments have hurt other companies in the past. In 1994, for instance, Procter & Gamble Co. sustained heavy losses from derivatives on its balance sheet and sued its financial adviser, Bankers Trust, for selling these complex contracts to the consumer-products company.

So, the CFO guy says, we aren't holding the complicated ones and we aren't holding derivatives of the complicated ones. Therefore the very next paragraph says . . . "still."

For the moment, investors will pretty much have to take companies at their word when they say such mortgage-backed financial instruments are liquid and their stated fair-value estimates are based on market prices. Most nonfinancial companies classify their mortgage-backed securities investments as available for sale, meaning they aren't required to record changes in fair value on the income statement, which is followed closely by investors and analysts.

Instead, changes in fair value of such securities are recorded on the balance sheet in "other comprehensive income," which affects shareholders' equity but is less of a focus for Wall Street. Those disclosures will begin to change next year, when a new accounting rule kicks in for U.S. companies. This rule, which will first be required of companies with financial years beginning after Nov. 15, calls for companies to provide more information about financial instruments for which they apply fair, or market, values.

For investors like Mr. Diecidue, the rule can't come soon enough.

"The current market volatility in connection with these asset-backed securities presents a conundrum to the investors, because it's harder to know the true book value of a company," he says, referring to the measure of a company's assets minus its liabilities.

Well, you know, if you're worried about it, you could get out the back of the envelope and write down 100% of Smuckers' MBS holdings, which would reduce assets by 1.2%. Then you could go back to worrying about somebody who has substantial enough MBS holdings to get your knickers in a twist over.

Or maybe you could ferret out some "news" about corporate balance sheets that is somewhat less mortgage-obsessed? Nah . . .

by Tanta on 9/17/2007 10:11:00 AM

Today we reflect on the age-old question: if a business reporter is not contributing to the success of the tribe, can we put it on an ice floe and let it float out to sea?

IF you’re considering wading into the housing market as a buyer, seller or borrower, be prepared for choppy water and even an occasional rogue wave. Summer may be just about over, but hurricane season, at least in housing, continues.

Don't worry, this article has some good solid consumer advice for you waders:

What are your options if you’re worried about rising rates?

Risk-tolerant home buyers still might consider an ARM. The initial rates on these loans are often, but not always, lower than those for fixed-rate ones. On Friday the national average rate on a one-year ARM was 6.35 percent, according to HSH Associates, about the same as the rate for a 30-year conforming mortgage. Lenders also offer ARM’s with initial fixed-rate periods of one, five, seven and even 10 years.

Be aware that borrowing via an ARM means, in essence, betting either that interest rates will be steady or fall once your loan begins to adjust, or that you’ll be able to refinance.

That risk makes sense for people who are sure they will move before the adjustments begin. “If you don’t need that 30-year protection, there’s no point in paying for it,” said David C. Schneider, president of the home loans group at Washington Mutual in Seattle. “And you need to understand that you do pay for it.” Over the life of a loan, a higher interest rate can translate into tens of thousands of dollars in additional payments.

As is typically the case in financial matters, it pays to shop around when seeking a mortgage. At the moment, 30-year fixed-rate loans are a better deal than many shorter-term ARM’s, Mr. Gumbinger said.

“If you don’t need that 30-year protection, there’s no point in paying for it." This quote appears in the same article that notes that, given the lack of ARM discounting at the moment, you actually get that 30-year protection for free, whether you "need" it or not, by taking the fixed rate. Plus, we've seen a few glitches lately with that business of being "sure" you will move before the reset fun starts. I notice we never addressed the question of why you would pay transaction costs and take god-awful price risk to buy a house you are "sure" you will only be in for a few years.

Dudes, it's time to update the quote-bots. The old ARM quotes are inoperative. New ARM quotes have been issued. Clear your cache. Thank you for your cooperation.

by Tanta on 9/10/2007 09:38:00 AM

Not only is it impossible to write about Las Vegas's real estate problems without engaging in casino-talk, it also appears irresistible to talk about real estate speculation as if it were only a form of slot-machine playing but with bigger tokens. The former might merely be annoying, but I wonder if the latter mightn't be causing a certain conceptual problem. For one thing, it erases the complicity of those who asserted that real estate price appreciation is a matter of "fundamentals" and the land that they don't make any more of and demographics and so on (Hi, NAR!), leaving the impression that speculators thought it was all just a matter of probabilities and chance, like throwing dice. However good an idea it was to listen to NAR, the fact is that they and a lot of their stenographers in the press were claiming that RE appreciation was not random or chance. Treating those failed speculators as mere crap-shooters now, it seems, is kind of convenient for the "House" experts.

This reflection arises from this Chicago Tribune article on Las Vegas's RE woes, which also informs us that:

Gamblers willing to bet on a property or two were rewarded with almost immediate payoffs. The guy who sold Karen Lewis her house for $435,000 in June 2006 raked in a $200,000 profit after holding it less than two years, she figures.

"Houses were really cheap. Loans were really easy," said Lewis, who moved from California. "These were investors who didn't ever live here. Now, they're totally walking away." . . .

From her front door, Lewis stares across Arcata Point Avenue at the for-sale signs on two abandoned houses in foreclosure. The house next door stood empty for months as well, until a couple of out-of-town cops started using it for an occasional vacation getaway.

Between 15 percent and 25 percent of the homes in her 3-year-old gated community are for sale, she estimates, many behind on loan payments and an alarming number deserted, their lawns burnt out and trash untended.

Does anyone else want to know what "a couple of out-of-town cops started using it for an occasional vacation getaway" means? You know, I'm not sure I do.

by Tanta on 9/06/2007 07:43:00 AM

This CPDO thing is a great test of whether media reports make any sense, because they have nothing to do with mortgages or any other form of consumer debt or any gems of Western Literature or seventies rock classics. Therefore I know nothing about them except what I read in the papers.

According to Bloomberg,

Constant proportion debt obligations use credit-default swaps to speculate that a group of companies with investment- grade ratings will be able to repay their debt. A wave of credit rating downgrades for investment-grade companies may cause losses that CPDOs would struggle to recoup, CreditSights said in a report entitled ``Distressed CPDOs: We're Doomed!''

``If you assume defaults and downgrades come in bunches rather than being evenly spaced out, CPDOs' default rates are more what you would expect for low junk ratings than for triple- A,'' David Watts, a CreditSights analyst in London, said in a telephone interview yesterday. . . .

CPDOs were first created last year by banks ranging from Amsterdam-based ABN Amro Holding NV, the largest Dutch lender, to New York-based Lehman Brothers Holdings Inc. . . .

The securities earn an income by selling credit-default swaps, a type of insurance contract that pays a buyer face value if the borrower can't meet payments on its debt. CPDOs typically provide debt insurance on a basket of 250 investment-grade companies by using the benchmark CDX North America Investment- Grade Index and the iTraxx index in Europe. The indexes rise when credit quality deteriorates.

OK, that all more or less makes sense, I guess. It's a big world, so there would have to be some people who would take the other side of a bet on whether investment-grade companies will pay their debts. But then:

Moody's and S&P assign their top credit ratings to CPDOs because of rules designed to ensure they never have to pay a debt insurance claim.

Ooooh Kaaaay. Can someone help me with the economic purpose of a form of insurance that involves rules that insure that claims never have to be paid? Of course we all love a good risk-free investment, but, um, who buys this "insurance"? Why? Have we just stumbled onto a major problem with our finance-based economy, or should I just go back to bed?

by Tanta on 9/04/2007 09:16:00 AM

A consensus is emerging in some quarters that a lot of the bad borrowing decisions people appear to have made during the boom had to do with consumers being insufficiently informed. I, who have been doing internet searches on mortgage-related topics since the invention of the internet, and who have learned how to weed out the jillions of "personal finance advice" articles in my quest for actually useful information, am here to tell you that something doesn't add up.

One of these days I'm going to write a nice retrospective post on all the really spiffy advice all those advice columnists handed out to mortgage-wannahaves over the 2002-2006 period, just to see what a "well-informed consumer" might have been expected to have assumed about the world.

Today, though, I'll just content myself with this nice example of post-turmoil wisdom from MarketWatch, whose editors really ought to know better, but consumer-advice-filler-drivel is such a staple of the financial press model that it apparently will take the Second Coming to shock some folks out of it.

PALM BEACH GARDENS, Fla. (MarketWatch) -- You still may qualify for a mortgage, regardless of a shaky credit market. But you need to know the ropes because many lenders have tightened standards. So what should you do if you're buying a home today or you need to refinance? . . .

Five steps to a mortgage

Before applying for a home loan, consider taking these steps:

1. Pay down credit balances. That will make you look less risky and might help your credit score, suggests Tom Quinn, vice president of scoring for Fair Isaac Corp., Minneapolis. If you have good credit, it may be possible to raise your credit score by asking existing creditors to raise your credit limits. But ask the lender not to pull your credit report to do it. Credit-report inquiries or deteriorating credit can lower credit scores.

Is it really very helpful to tell people who think they need credit that they should reduce the amount of credit they use in order to get more credit? Bad news, folks: if you have $20,000 in credit card debt and $20,000 in your savings account and you use the money to retire the cards, you will be denied a mortgage loan because in the Brave New World the mortgage lender wants that $20,000 as a down payment. If your credit card debt is trivial, so is this advice. And for the love of God, can we stop talking about what makes you "look risky"? What, "risky" is just some subjective attribute, like "fat in horizontal stripes," that can be fixed by changing your outfit? After all this turmoil, we're still making people think that it's just a matter of appearances and easy steps. MarketWatch, for shame.

2. Get a copy of your credit report from each of the three major credit bureaus. Fix errors and get as much adverse information removed as possible. You're entitled to one free credit report annually from each credit bureau at www.annualcreditreport.com. Read six steps to correct your credit report.

I'll forgive the editors of MarketWatch when they produce empirical evidence quantifying the number of people whose difficulty getting a mortgage comes down to credit report errors. You get bonus points if you ask yourself how "fixing errors" became code, during the boom, for fraudulent "credit repair." You get double bonus points for asking how some people became able, easily and without cognitive dissonance, to tell themselves that their debt problems were "all a big mistake."

3. Check licenses of lenders you're considering. This may not be easy because state licensing requirements vary by state and lender. Banks and thrifts can be checked out at www.fdic.gov by clicking on "Institution Directory."

Do you yet know whether all depository lenders actually require state licenses? I didn't think so. Do you yet know how many imploded, bankrupt, and criminally-investigated lenders so far this year had perfectly valid licenses? I didn't think so.

4. Shop several lenders. Don't assume if you get one quote of an unusually high interest rate, all will be high. Negotiate lower rates and seek removal of unnecessary fees.

Do you know what "unusual" is? Do you know what fees are "necessary"? Please analyze and evaluate your "negotiating" strength in a credit crunch. You can use the back of this paper if you need more space. (Hint: it's called a "credit crunch" when you have no position from which to negotiate because you need a loan more than the lender needs to make one.)

5. Consider that interest rates and terms may change daily. Also, a low interest rate could mean more upfront points or added fees. Get all pricing information in writing before obtaining a written commitment for your loan. Get a commitment letter directly from the lender who's financing the mortgage, which may be different from the loan originator.

This one may be my favorite. You aren't likely to get a written price quote until your loan has been underwritten these days. That means that the written price quote is in the commitment letter. It still isn't a "rate lock" until you get a "rate lock agreement." Much, much more to the point is that a "commitment letter" commits the lender to lend at the specified terms. It does not commit the borrower to borrow. You are not obligated for diddlysquat until you sign something with "Note" at the top and "I promise to pay" somewhere in the first line. We have heard story after story about people who didn't think they could "back out" when they were confronted with closing documents that didn't look right. Helpful advice might involve explaining that issue.

I conclude that the authors of this article have never been any closer to the actual mortgage business than standing around taking up space in my lobby, eating my LifeSavers and reading my back issues of House Beautiful, before getting tired of that and going home to surf the web for stupid "consumer advice" articles from 2004 that can be rehashed into filler for today's column.

MarketWatch editors: Now do you understand why I get so "mercurial" when you do this?

by Tanta on 8/31/2007 06:57:00 AM

There's nothing like reading the New York Times' version of an anonymous White House official's version of what Bush is going to say but has not yet said about subprime lending at 6:00 a.m. to really start your day off. Oh, look, there's a white rabbit!

Seriously. Get this:

Administration officials, who asked not to be identified, briefed a handful of news organizations on the proposals to be announced by Mr. Bush at an appearance in the White House Rose Garden on Friday morning.

The main objective of the package, one senior official said, is not to affect the stock markets but to help low-income homeowners, many of them concentrated in certain neighborhoods in several distressed areas of the country, such as Ohio and Michigan.

“The primary focus is to help individuals who have an opportunity to stay in their homes to stay in their homes,” this official said. “The subprime mortgage situation is having a crushing effect on a lot of communities right now.”

Despite the assertion that affecting the markets is not the goal, one administration official said Thursday evening that concern about Wall Street’s reaction did affect the timing of the briefing. He said there was a fear that if the White House announced in the morning that Mr. Bush would be making an announcement on housing, there could be confusion as buyers and sellers of mortgage securities guessed what the announcement would be.

But secondarily, this official said, helping homeowners keep their homes and refinance or renegotiate the terms of the mortgages could have a stabilizing effect on the financial institutions that have these mortgages in their portfolios, and help them write down the value of the mortgages or sell them off at a loss.

“You can’t solve the problems in the financial markets unless you can make some progress on the retail end of it,” said this official. “This is also a step to get banks to start loaning again.”

White House flunkies require anonymity to discuss Bush's "announcement on housing"? There could be, like, reprisals if they used their names? They're like, what, bloggers?

It's better for the markets if a muddled version goes out Thursday night than if we just get the actual version during trading hours? Is this really what these people think the "efficient markets" theory means? Are we all really confident that the MBS market won't still be forced to "guess" what this means after the announcement?

And what if this version isn't, actually, muddled? What if Bush really is going to propose a mechanism for lenders to refinance loans that can be sold at a loss? And what if that "stabilizes" things because heretofore banks with lending portfolios have been unable to make refinance loans at a loss, but once the President tells them they can, they'll lend more? This could, like, totally revolutionize Econ 101.

Fortunately, I've already got my diploma, and they can't make me take Econ 101 again. I think I will just wait for the, uh, official announcement before attempting to post anything more on the subject. I wouldn't want to move the MBS market in the wrong direction or anything.

by Tanta on 8/29/2007 08:42:00 AM

It appears that Barack Obama has had the gall to suggest funding homeowner bailouts with fines from predatory lenders instead of the taxpayer's dime. You know what that means:

The proposal is among the most radical yet from a leading Democrat and comes as Washington tries to respond to a growing wave of foreclosures and a crisis in credit markets.

Yeah, too crazy. Just like that tobacco settlement thing . . . totally radical. Next thing you know they'll be playing the Internationale on the Senate floor.

Fear not, lovers of that which is not radical: the Maestro has blown in/been blown in/benefitted from the blow in/blown it/whatever:

The ill winds blowing out of Wall Street could have one well-known beneficiary: Alan Greenspan. The credit crunch of the last few weeks has put the former Fed chairman back in the news. Some pundits have suggested that Greenspan would have responded more energetically than Ben Bernanke has, while others have charged that Greenspan bears much of the blame for the market troubles because of the cheap-money policies implemented during his tenure. Just in time to take advantage of this buzz comes Greenspan's book, The Age of Turbulence: Adventures in a New World, which hits the stores on Sept. 17.

If you need me on September 17, I'll be at Barnes and Noble buying a copy of Zen and the Art of Motorcycle Maintenance.

by Tanta on 8/28/2007 08:01:00 AM

The official story on Bank of America and Countrywide is, apparently, still in flux. That's always the trouble with mythologizing in real time; events often catch up with one in troublesome ways. Mythic narrative, of course, is only comprehensible in "ageless" terms. A story with a shelf life of a couple of weeks may invoke grand narrative structures and heroic motifs, but that, as we say in literary land, is short-term financing.

David Weidner at Marketwatch struggles with conflicting stories about BoA and its CEO:

NEW YORK (MarketWatch) -- Sentiment is growing that Bank of America Corp.'s Kenneth Lewis may have won a place in the pantheon of great Wall Street titans by using his financial clout to help the country avoid economic ruin.

If you found yourself at this point wondering who the hell else was in that pantheon of great Wall Street titans who saved the country from economic ruin, you'll probably have noticed that we had to go back to 1907 to find one. I'd say, if you're not familiar with the story of J.P. Morgan and the Panic of 1907, you might want to brush up on the details. This may well become mythological motif du jour for some while, so you'd best be prepared.

Me, I just skip to the last paragraph:

Maybe there's a modern-day Morgan out there. We can all pitch in and buy him a railroad.

I suspect we're going to get so worried about pitching in to buy Joe Spendthrift an affordable mortgage that we'll allow ourselves to get suckered into buying some Morgan a railroad, but I undoubtedly read too much.

by Tanta on 8/23/2007 09:31:00 AM

Sorry I'm up so late this morning. This, however, is probably the best Bloomberg headline I have ever seen.

Bernanke Using `All Tools' to Calm Markets, Dodd Says

by Tanta on 8/21/2007 07:32:00 AM

CNN, "Housing Woes Hit High End":

For years jumbo rates were only 0.25 of a percentage point above those of "conforming" loans -- those below the cutoff (now $417,000). In recent weeks that spread has exploded to 0.75 of a percentage point or more. BankRate.com reports that the average tariff on jumbo loans soared to 7.35% nationally in August, and many mortgage brokers are reporting figures that exceed 8%.

Tariff? It's like we have . . . two Americas or something . . .

FT, "Money Market Funds Abused, Claims Founder":

Most investors, Mr Bent says, are unaware that some of the largest money market funds are putting their cash into one of the riskiest debt investments in the world - collateralised debt obligations backed by subprime mortgage loans.

"That is clearly inappropriate," Mr Bent says. "It really reflects poorly on what we are here to do. The sanctity of the dollar is key."

He adds that cash management must be viewed as a separate business and requires a certain skill. "In the current market environment, lots of money fund portfolio managers are acting as credit analysts when they are not. In fact, they wouldn't know if the underlying credit risk bit them on the behind."

Actually, I think they wouldn't recognize credit risk if it inappropriately jazzed their returns for several lucky years. Now that it's got its teeth firmly embedded in their gluteus maximus, they seem to be catching on.

WaPo, "For Wall Street's Math Brains, Miscalculations":

Short for "quantitative equity," a quant fund is a hedge fund that relies on complex and sophisticated mathematical algorithms to search for anomalies and non-obvious patterns in the markets. These glitches, often too small for the human eye, can present opportunities for short- and long-term trades that yield high-profit returns.

The models replace instinct. They try to turn historical trends into predictive science, using elegant mathematics seemingly above the comprehension of your average 401(k) participant or Wall Street fund manager.

Instead of veteran, market-savvy traders waving fistfuls of sell slips, the elite quant funds employ Nobel nerds with math PhDs, often divorced from the real world. It's not for nothing that they are called "black-box" funds -- opaque to outsiders, the boxes contain investment magic understood by only the wizards who conjured it up.

Sigh.

In any period of market correction--let alone a full-blown crisis--you can always, always count on the mainstream press to trot out anti-intellectual drivel like this. I don't want to do a reductio in the other direction, but you know, a lot of our current problems were caused by lenders who didn't read the numbers off a paystub, or couldn't measure the riskiness of 50% of pretax income being devoted to debt service. For some reason, when we have an elephant in the room, we want to go after those "too small for the naked eye" quant nerds first. Why is that?

by Tanta on 8/20/2007 08:54:00 AM

Happy Monday, everyone. Gather 'round while Uncle Bill Gross uses a metaphor from a children's book to explain to the unhip old farts what the young wizards have been up to.

Goodness knows, it's not a piece of cake for anyone over 40 these days to understand the maze of financial structures that now appears to be unwinding. They were created by youthful financial engineers trained to exploit cheap money and leverage, who showed no fear and who have, until the past few weeks, never known the sting of the market's lash.

Don't be fooled by the piece of cake: it really involves fungus (after the Waldo part), so sorry about your breakfast.

by Tanta on 8/14/2007 01:58:00 PM

Forbes reports on "A Wicked Credit Crunch" (as opposed, I guess, to one of those benign ones):

Led by seismic subprime holdings, the roiling debt markets are casting a pall over the entire real estate sector. And so they should. Before central banks around the globe acted in unison to inject liquidity that lubricates the mortgage machine, published reports put the total number of unsold loans sitting in financial institutions' warehouses waiting to be resold at around $260 billion in the U.S. and another $200 billion in Europe.

You do have to wonder, if "liquidity" is the lubricant, what's the fuel?

Please feel free to use the comments to this post to discuss DDAs versus mattresses filled with gold. You'll want cash-management advice from complete strangers who spell funny. Trust me.

by Tanta on 8/08/2007 08:04:00 AM

Boy howdy, things had really calmed down there for a while on the purple prose front. It's been a few days since I've seen anything like this:

The credit default swaps market is an immature market, prone to irrational swings as a sudden spike in uncertainty can breed fear among traders. Such fears have spread like wildfire as evidence mounts that credit defaults in the so-called subprime lending market are spilling over into consumers with stronger credit histories, calling into question the reliability of credit ratings on which investors have relied.

Who among us cannot relate to the image of the CDS as the hormonally turbo-charged adolescent, moodily breeding--

Uh, no. Let's not go there. Stick to fears spreading like wildfire as defaults spill over like water--

No. No. We'll go with uncertainty spiking as evidence mounts.