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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: NOW who wrote (235167)	4/11/2003 5:29:14 PM
From: patron_anejo_por_favor	Read Replies (2) \| Respond to of 436258

Mark-to-Market's a fun read tonight, only because he skewers one of my perennial favorite, Countrywide "Credit" (from CapitalStool.com): capitalstool.com Mark’s Market Commentary – April 11, 2003 CountrySlide’s (CFC) 10-K report is out. A virtual cornucopia of financial and derivative exotica. The company made about $840 million last year. But check out the rollercoaster ride the income statement had to take in order to reach that annual profit. Mark’s translation in italics. $3.6 billion in “gain on sale of loans and securities”. Front-loaded fees for selling piles of overextended mortgage paper to the GSE’s. $792 million in net interest income. Profits by spread trading Al Green’s ultra-cheap Repo Blast paper into mortgage-backeds and other piles of debt masquerading as AAA-rated money. $2.0 billion in “loan servicing fees and other income from retained interests.” Front-loaded fees for servicing the loan portfolios it has on its own books as well as portfolios sold to others. Future foreclosure, litigation, and workout expenses not included. No profits from retained interests (i.e. Special Purpose Vehicles in Bermuda and Cayman Islands). See loss below. $1.3 billion loss from amortization of servicing rights. Depreciation of airball item on balance sheet (mortgage servicing rights). $3.4 billion loss from impairment of retained interests. Loss from Special Purpose Vehicle investments. $1.8 billion gain from servicing hedge gains. Riverboating profits from trading derivatives. So in a nutshell, CFC was able to squeak out an $840 million profit after combining huge front-loaded airball gains, spread trade profits, derivatives riverboating, which offset giant losses from retained interests and operating expenses. Now lets look at the major assets the balance sheet. $15.0 billion in mortgage loans and mortgage-backed securities held for sale. $8.7 billion in trading securities. $6.0 billion in securities purchased under agreements to resell. $10.9 billion in investments in other financial instruments $6.0 billion in loans held for sale $4.7 billion in other assets And anybody want to guess the largest item on the liability side? $22.6 billion in Securities sold under agreements to repurchase (Al Green Repos). The consolidating financial statements in the back of the report roll up the main company (Countrywide Home Loans, Inc.) with 31 other subsidiaries. Anyone wanna guess which subsidiary is the biggest? You guessed it. Countrywide Capital Markets, Inc., with $23 billion in assets. Notice how there is no description or footnote for “Other Assets”. Now you see the picture. CountrySlide is nothing more than a giant hedge fund, with a mortgage business on the side. Can you imagine flipping and trading billions of paper and only having $840 million at the end of the day to show for it? Can you imagine trying to hedge off all that balance sheet exotica, while trying to trade hedges at a profit at the same time? How much of a percentage swing in $1.8 billion in hedge gains or a $3.4 billion loss on impairment of retained interest would it take to erase $840 million? Or turn it into a giant loss? Just a simple example of Al Green’s Service Economy Productivity Miracle. Powertrading within the Paper Pyramid, each trade dependent upon the maintenance of confidence that there is always a sucker on the other side of every trade. Always a Kopin Tan specialist willing to make a market in all kinds of exotica, no matter how complex, no matter how illiquid, no matter how absurd. Why are there always suckers available? Because Al Green has eliminated the possibility of systemic risk. And Wall Street is full of gamers who think they can make a quick buck on any type of poker chip, because if the poker chips catch on fire, rain buckets always appear and new poker chips are helicoptered in. And every Arena Participant trading these fireballs thinks he can unload his first, before anybody else does, before 4500 Commodity and Program Robots sell theirs. By the way, the Commodity Robot guest (Ed Young) on last night’s Tom O’Brien program said his models went long on the stock indexes yesterday. Did that Robot reverse the trade today? How do the gamers on vacation feel about AutoPilot getting whipsawed? Listen tonight. He’s on as a guest again. tfnn.com Don’t forget Roger Arnold. He’s becoming my favorite. tfnn.com Roger also does a weekend show here, but archives are not available until Monday: businesstalkradio.net Moe Ansari is another good technician. Unbiased, goes long and short. businesstalkradio.net Alan Newman's Commentary on War And the board’s favorite: Jim Puplava. netcastdaily.com Have a good weekend, Riverboaters…..