Lesson One

Via Eschaton: Foreclosure Fraud For Dummies, 1: The Chains and the Stakes

Get A Job

Be here now. Go there later. AP (07.13.10), via Eschaton:

Job openings dropped in May from the previous month and layoffs edged up, fresh evidence that employers are reluctant to add workers."

"Job openings drop in May as hiring stays weak

"The department's report, known as the Job Openings and Labor Turnover survey, illustrates how competitive the job market is. There were about 4.7 unemployed people, on average, for each job opening in May."

Ya wonder if this has anything to do with the number of unemployed folks out there? Ya think?

Naw, they're just lazy, shiftless ingrates, is all.

Then again, maybe it's those chickenshit bankers: "One reason hiring is weak is that small businesses, which create about 60 percent of new jobs, are having trouble getting the credit they need to expand and hire more workers."

UPDATE: Another one of them pesky graphs. This fact-based stuff is getting rather tedious, eh?

UPDATED UPDATE: You can only get just so compassionate.

Moe Meet Ron

Our friends, the jolly bankers. NYTimes (070.28.08), via The Washington Monthly:

"Banks struggling to recover from multibillion-dollar losses on real estate are curtailing loans to American businesses, depriving even healthy companies of money for expansion and hiring.

Two vital forms of credit used by companies — commercial and industrial loans from banks, and short-term 'commercial paper' not backed by collateral — collectively dropped almost 3 percent over the last year, to $3.27 trillion from $3.36 trillion, according to Federal Reserve data."

Worried Banks Sharply Reduce Business Loans

"That is the largest annual decline since the credit tightening that began with the last recession, in 2001."

Sez Kevin: "Of course banks overshot on the way up and are overshooting on the way down too. That's what always happens. It happened with savings and loans, it happened with South American loans, it happened with dotcoms, it happened with housing, it always happens."

And Another

The Guardian (04.14.08):

"America's fourth largest bank, Wachovia, is raising $7bn (£3.52bn) through emergency fundraising as the subprime mortgage crisis in the US continues to reverberate through the banking sector.

Wachovia is raising the funds through public offerings of common and convertible preference stock after incurring a surprise $350m loss in the first quarter of 2008 compared with $2.3bn in profit a year earlier."

Fourth Largest US Bank Resorts To Emergency Fundraising

A surprise loss of a third of a billion dollars? Whoopsie!!

Not my fault. "Wachovia's chief executive, Ken Thompson, blamed the 'precipitous decline in housing market conditions and unprecedented changes in consumer behaviour' for the figures. The group bought Golden West Financial Corp, a specialist in these adjustable rate mortgages, just before the home loan market plunged."

Otherwise it wouldn't have been one of the worst deals in the history of banking. The Australian (04.14.08):

"Wachovia's current problems stem largely from its $25.5 billion purchase of Golden West nearly two years ago.

The bank’s executives initially trumpeted the deal as an ideal way to grab a foothold in California, where Golden West was based.

Wachovia To Get $8bn Capital Infusion

"While the heart of Golden West's business was non-traditional mortgages, Mr Thompson assured jittery investors that its tough underwriting standards and decades of experience meant that the company was well positioned to weather an anticipated slowdown in housing markets."

Then again.

And You Thought They Were Smart

Our Jolly Bankers in action. How to be a moron and make millions. Bloomberg (04.13.08):

"Citigroup Inc. and Merrill Lynch & Co. will reveal at least $15 billion more of subprime mortgage writedowns this week, the Sunday Times of London reported, citing analysts it didn't identify.

Citigroup will have $10 billion of writedowns, taking its first-quarter loss to about $3 billion, the newspaper said."

Citigroup, Merrill May Post $15 Billion Writedowns, Times Says

"Some analysts say the Citigroup writedowns may stretch to $12 billion, it said. Merrill may have a $5 billion writedown, taking it to a $2.7 billion loss, the report said."

The solution? Stick it to your best customers. NYTimes (04.13.08), via BigPicture:

"It was the nation’s lending institutions and mortgage originators that got us into this credit mess, but it is consumers, taxpayers and those companies’ shareholders who will end up shouldering most of the costs.

The latest example of this is in the mass freezing of home equity lines of credit going on across the country."

You Thought You Had an Equity Line

"Reeling from losses on their wretched loan decisions of recent years, lenders are preventing borrowers with pristine credit and significant equity in their homes from tapping into credit lines that they paid dearly to secure."

How do these guys find their way home at night?

We're In The Money

Well maybe not everyone. AP (04.03.08):

"The number of new people signing up for unemployment benefits last week shot up to the highest level in more than two years, fresh evidence of the damage to a national economy clobbered by housing, credit and financial crises.

The Labor Department reported Thursday that new applications filed for unemployment insurance jumped by a seasonally adjusted 38,000 to 407,000 for the week ending March 29."

Jobless Claims Hit 2-Year High

"The increase left claims at their highest point since Sept. 17, 2005."

For what it's worth, as of February, 2008, the average hourly earnings of production and nonsupervisory workers was (in constant 1982 dollars) $8.28. Which is exactly what it was in October, 2003.

Why does George Soros hate America? Bloomberg (04.03.08):

"Billionaire George Soros called the current financial crisis the worst since the Great Depression and said markets will fall more this year after a brief rebound."

Soros Sees Additional Market Declines After Temporary Reprieve

Why might George be worried? "Credit default swaps -- a way to bet on the creditworthiness of a company -- may be the next crisis area because the market is unregulated, and it's impossible to know whether counterparties can meet their obligations in the event of a bond default. The market has a notional value of about $45 trillion -- or about half the total wealth of U.S. households."

And if that shitpile slides South folks, we're all fucked.

We Know Nothing

WSJ (03.20.08):

"The collapse of Bear Stearns Cos. dealt a severe blow to investors, from big names like billionaire Joseph Lewis to thousands of employees of the brokerage firm.

But there's one group trying to contain their joy amid all the gloom on Wall Street: Investors who placed big bets against Bear Stearns.

Some Traders Win Big

"Large hedge funds -- including Harbinger Capital Partners, Greenlight Capital, Tremblant Capital Group and Paulson & Co. -- made millions of dollars as Bear Stearns's shares tumbled and various bearish positions rose in value, according to securities filings and people close to the firms."

Reuters (03.20.08):

"The Securities and Exchange Commission is investigating the events leading up to the collapse of Bear Stearns, specifically a surge in options contracts betting that the investment bank's share price would fall sharply, according to the Wall Street Journal

Citing people familiar with the matter, the paper reported the SEC probe focuses on a surge last week in 'put' options that came days before the firm's proposed sale to J.P. Morgan Chase & Co. for stock now valued at about $278.5 million, or $2.32 a share."

SEC probing options activity in Bear Stearns

Merely a coincidence, no doubt.

At The Bear Stearns' Building This Morning

Ha, ha. Via Calculated Risk.

Bear Stearns Implodes

Man, talk about a fire sale. Bloomberg (11.16.08):

"JPMorgan Chase & Co. agreed to buy Bear Stearns Cos. for about $240 million, less than a 10th of its value last week, after a run on the company ended 85 years of independence for Wall Street's fifth-largest securities firm.

Shareholders of New York-based Bear Stearns will get stock in JPMorgan equivalent to about $2 a share, compared with $30 at the close on March 14, the two companies said in a statement today."

JPMorgan Chase Buys Bear Stearns for $240 Million

It was either this or bankruptcy, "as clients pulled $17 billion in two days last week and creditors stopped renewing loans."

And it's gonna hurt. Wall Street Journal (03.17.08):

Many well-known investors, from billionaire Joe Lewis to Bruce Sherman, the head of Legg Mason Inc.'s Private Capital Management Inc. money-management firm, have seen the value of their stakes in Bear Stearns plummet.

The pain could be most acute for Bear Stearns's employees, who are steeped in a culture of personal ownership -- and hold about a third of the firm's shares outstanding."

J.P. Morgan Rescues Bear Stearns

Thanks again folks. It's been real.

And Jimmy? Hell, he could give a shit.

Who's next?

What, Me Worry?

Hey, Jimmy's money is already in the bank. What the hell does he care? Bloomberg (03.15.08):

"Bear Stearns Cos. Chairman James 'Jimmy' Cayne was playing in the North American Bridge Championship in Detroit over the past two days, the Wall Street Journal reported.

Cayne and a partner were placed fourth in a pair's event on March 13, the newspaper reported yesterday, citing the American Contract Bridge League's Web site."

Bear Stearns's Cayne Was Playing Bridge, WSJ Says

This isn't the first time he's been busy elsewhere.

A Little Piece Of The Shitpile

This is pretty pathetic. Bloomberg (03.11.08):

"Even after downgrading almost 10,000 subprime-mortgage bonds, Standard & Poor's and Moody's Investors Service haven't cut the ones that matter most: AAA securities that are the mainstays of bank and insurance company investments.

None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg."

Moody's, S&P Defer Rating Cuts on AAA Subprime, Hiding Losses

"A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent."

Hard to believe these guys were that stupid, eh?

Their response has been to absolutely panic. "Banks are even demanding collateral to support investments in Treasury bonds - which are backed by the US government."

See Ya

NYTimes (02.29.08):

"When Raymond Zulueta went into default on his mortgage last year, he did what a lot of people do. He worried.

In a declining housing market, he owed more than the house was worth, and his mortgage payments, even on an interest-only loan, had shot up to $2,600, more than he could afford."

Facing Default, Some Walk Out on New Homes

Free enterprise. Gotta love it. "Then in January he learned about a new company in San Diego called You Walk Away that does just what its name says. For $995, it helps people walk away from their homes, ceding them to the banks in foreclosure."

"Last week he moved into a three-bedroom rental home for $1,200 a month, less than half the cost of his mortgage. The old house is now the lender’s problem."

A Trillion, Anyone?

Bloomberg (02.29.08):

"Financial firms are likely to face at least $600 billion of losses as the crisis triggered by the collapse of subprime mortgages batters banks, brokers and insurers, UBS AG analysts said in a report today.

Financial institutions have disclosed more than $160 billion of writedowns and credit losses. Banks and brokers stand to lose $350 billion, according to estimates from UBS's global banking team."

Financial Firms Face $600 Billion of Losses, UBS Says

We're more fucked than we thought. "'We have to recognize the risk that the economy will suffer more damage than what consensus suggests,' wrote Geraud Charpin, head of European credit strategy at UBS in London."

Ooopsie!!

This is rich. Bloomberg (02.22.08):

"Joe Lents hasn't made a payment on his $1.5 million mortgage since 2002.

That's when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents's mortgage note and dropped attempts to take his house."

Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish

"Subsequent efforts to foreclose have stalled because no one has produced the paperwork."

This may turn into a very big problem for our JollyBankers. "Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages."

Proof? What's up with that? A lender's attorney is exasperated. "Requiring banks to produce the paperwork at a foreclosure hearing is a nuisance, said Jeffrey Naimon, a partner in the Washington office of Buckley Kolar LLP."

"'It's a gigantic waste of time,' Naimon said. 'The mortgage may have transferred five, six, eight times. It's possible that you don't have all the pieces of paper, but it was enough to convince the next guy in the chain. There's no true controversy over whether the owner owns the loan.'"

Well then. Shouldn't have a problem proving that, huh Jeff.

Free Enterprise

Hey all you taxpayers!! Your help in bailing out the Jolly Bankers is greatly appreciated. And no, this isn't socialism. Portfolio.com (03/2008), via The Big Picture:

"Since the onset of the subprime crisis last summer, the White House has repeatedly rejected the notion of a government bailout, either for homeowners facing foreclosure or for the banks and mortgage companies that made the now souring loans.

'There's no bailout with government money, none whatsoever,' Treasury Secretary Hank Paulson emphasized."

Massive Bailout Planned for Banks

"But even as the administration has stuck to its laissez-faire stance in public, behind the scenes a covert bailout has been under way, with a number of public and quasi-public agencies quietly dispensing vast sums to financial institutions saddled with worthless or near worthless mortgage securities."

And while you're at it, buy your own damned health insurance, you ingrate.

When All Else Fails

The Jolly Bankers want you to pick up the tab for their greed and stupidity. Free market capitalism at its finest. WSJ (02.14.08), via Calculated Risk:

"The banking industry, struggling to contain the fallout from the mortgage debacle, is urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government.

One proposal, advanced by officials at Credit Suisse Group, would expand the scope of loans guaranteed by the Federal Housing Administration.

Worried Bankers Seek to Shift Risk to Uncle Sam

"The proposal would let the FHA guarantee mortgage refinancings by some delinquent borrowers."

Boy. The joke would really be on you if they got this through, eh?

No

Our friends, the jolly bankers. Now they won't loan anything to anyone. Bloomberg (02.13.08):

"The Federal Reserve's interest-rate cuts last month have failed to lower borrowing costs for many companies and households, increasing the chance of further reductions from the central bank.

Companies are paying more to borrow now than before the Fed reduced its benchmark rate by 1.25 percentage point over nine days in January, based on data compiled by Merrill Lynch & Co."

Bernanke Stymied as Rate Cuts Fail to Lower Borrowing Costs

After throwing money at anything that breathed over the last five years, "(b)anks and investors are [now] demanding greater compensation for offering credit as losses mount on subprime-mortgage securities and concerns grow that ratings of bond insurers will be cut."

Speaking of the bond insurers, Warren's really turning the screws on 'em. NYTimes (02.13.08):

"Warren E. Buffett volunteered on Tuesday to rescue Wall Street from its latest looming crisis.

But Mr. Buffett, the billionaire investor known as the Oracle of Omaha, made clear that his offer would not come cheap. And even then, jittery investors were unsure that his plan would work."

Buffett Offers Aid on Bonds, but at a Price

Warren promised to "stand behind, or reinsure, policies that [MBIA, the Ambac Financial Group and the Financial Guaranty Insurance Company] had written on $800 billion of municipal bonds, a move analysts called a shrewd attempt to take advantage of the companies’ problems. His holding company, Berkshire Hathaway, is willing to commit $5 billion to the task but wants the insurers to pay it a steep premium. Berkshire will refuse to take any risks associated with mortgage-related securities, the riskiest debt that the companies insure."

The insurers don't have the financial wherewithal to even guarantee the safe stuff. WSJ (02.13.08):

"Current upshot: If the rating agencies downgrade the bond insurers, they effectively downgrade thousands of municipal bonds, meaning many holders no longer would be legally eligible to hold them. That's where we are today.

We're not so sure the result would be the financial catastrophe that some forecast. The market might well recognize the value of the downgraded bonds despite any downgrades. But some believe a downgrading of the insurers would beget forced selling, a collapse in muni prices, and insolvency for many institutions and perhaps for towns and cities that couldn't roll over their outstanding debts."

Warren the Munificent

If the alternative doesn't pan out because our jolly bankers are just too freaked, Warren's proposal begins to look very much like an offer they can't refuse.

And what an offer it is! "In a letter dated Feb. 6 to Lazard, the investment bank that is advising MBIA, Ajit B. Jain, president of reinsurance for Berkshire Hathaway, proposed that MBIA pay Mr. Buffett’s company 150 percent of the premium it earns for insuring its municipal bond portfolio. Typically, insurers cede a share of their premiums, not more than they earn."

Warren lays it on the line: "'When I go to St. Peter I will not present this as some act that will entitle me to get in. We're doing this to make money.'"

More, More, More

Financial Times (02.10.08):

"Senior global policymakers have raised projections for the size of subprime-related credit losses in a move that implies financial institutions will have to increase write-offs.

Speaking after the meeting of Group of Seven finance leaders, Peer Steinbrück, German finance minister, said the G7 now feared that write-offs of losses on securities linked to US subprime mortgages could reach $400bn.

Subprime losses could rise to $400bn

"This is sharply higher than the $120bn credit losses that Wall Street banks and other institutions have revealed in recent weeks – and also far bigger than the US Federal Reserve’s estimates for subprime losses last year of $100bn-$150bn."

It's still "unclear where much of this subprime pain would eventually emerge", mostly because our jolly bankers are loath to admit they've screwed the pooch.

Tut, tut, says Peer, who along with his buddies "appealed to financial institutions to provide 'prompt and full disclosure' of losses, to restore confidence."

Our man Hank, who really, really wants the Japanese and Europeans to "stimulate their economies by fiscal packages", said he wasn't "disappointed [they] had rejected the idea", but went on and "implied that other countries would not escape a US downturn, describing decoupling as a 'myth'".

Pretty subtle, that old Hank.

Still, he continues to insist he's not "[urging] his G-7 colleagues to use fiscal policy to boost domestic demand in the way the U.S. has." On the other hand, "Treasury Undersecretary David McCormick earlier this week called on other nations to 'take prudent steps to strengthen their economies' demand components.'"

And as they say, a nod's as good as a wink to a blind bat.

We Gotta Million Of 'Em

Neutron loans, they call 'em. Bloomberg (02.07.08), via Eschaton:

"Joe Ripplinger took out a $184,000 mortgage in 2006 and makes his payments every month.

Now he owes $192,000."

Exploding ARMs Roil Bernanke's Drive to Calm Markets

"The 66-year-old Minneapolis house painter has a payment-option adjustable-rate mortgage. It allows him to write a check for $565 a month even though he owes $1,300. The difference is added to the mortgage, and when his total debt reaches $212,000, or after five years have passed, he said his monthly minimum could jump to about $2,800, which he can't afford."

Neutron loans? "'We call them neutron loans because they're like a neutron bomb,' said Brock Davis, a broker with U.S. Express Mortgage Corp. in Las Vegas. 'Three years later the house is still there and the people are gone.'"

Well Be That Way Then

Fitch throws the towel back at Ambac. Bloomberg (01.18.08), via Calculated Risk:

"Ambac Financial Group Inc. became the first bond insurer to lose its AAA rating after Fitch Ratings downgraded the company.

Ambac Assurance Corp. was lowered two levels to AA and may be reduced further, New York-based Fitch said today in a statement. The downgrade 'reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction,' Fitch said.

Ambac Insurance Loses AAA Ranking at Fitch Ratings

"Without its AAA rating Ambac may be unable to write the top-ranked bond insurance that makes up 74 percent of its revenue. Ambac may have to quit the business or sell itself, said Robert Haines, an analyst at CreditSights Inc., a bond research firm in New York."

"The downgrade throws doubt on the ratings of $556 billion in municipal and structured finance debt guaranteed by Ambac."

Ewwww. Lot of dough, eh?