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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Riskmgmt who wrote (11357)	9/19/2008 10:14:10 PM
From: robert b furman	Read Replies (1) \| Respond to of 71475

Hi risk, I totally agree. It is the character of the american people that I remain steadfastly confident in. If that was just the only consideration -these toxic CDO's would be the deal of a century. The problem is these CDO's is they are the biproduct of social engineering -in a socialist view to give home ownership opportunities to those that are poor. If you recall banks where fined and sued because the "redlined communities". As in don't make loans in those zip codes - they're all broke,low income and have poor payment track records. Banks avoided these neighborhoods like the plague. Actual poor payment habits identified them as losers - stay out. The the politicos start sueing them and fining them for racial profiling = "redlining". Enter the investment bank.We've got the answer. CDO's - Collateralized Debt Obligations. You know this is a poor High risk market - you go in there ,make loans,we'll package them, sell them to Freddy Mac or Fannie May or better yet,sell them to the wealthy who want a government backed loan that yields higher than a treasurey. Heck that sounds good - government backed ! Then you have a portfolio of high credit risk loans that pay 8% (so says the bank) and real estate rates drop to 6%. Much like a treasurey bond that pays 6 % and yield 8% - it sells for above par to get the 6 %. So the investment banks guarantee the yield (6%) as they sell the CDO above par (call that a fee for doing the deal) and oh buy the way don't worry - it's backed by the government - your money is safe. Well here comes the fed "we must defuse the real estate bubble and rasise rates. Arms adjust. Mortgages get expensive and foreclosure grow.Then foreclosures really grow as houosing values deflate. People with bad credit and no money down walk away from a loan when they have to payoff a mortgage that exceeds it percieved value. They already have bad credit - they have nothing to lose. Why pay more when you can walk? Makes logical sense. As time goes on these Government guaranteed poor credit loans -imposed by politicians serving their constituencey,come home to roost with the investment banks as they expire. As the toxicity grows,no one renews. The cash goes out and bullshit CDO's go on the balance sheet. Mark to model accounting gets replaced by mark to market and Merrrill Lynch sells billions 20 cemt on the dollar. Years of politically imposed CDO's come onto the balance sheets after fees and margins have been paid out in big wall street bonusses and the nightmare of huge liabilities and poor assets don't inspire confidence. The run gets it on in earnest. So now we wipe out stockholder equity in Bear and Lehman - the two big players. Merrill sells first and has enough other assets to survive - but not be viable into the future and goe to Bank of America on a stock dilution offering. As a side note - I just have to love the larceny of this.How many companies have gone to Merrill for a secondary - bared their books,only to have suffered from a short raid after the broker coughs up capital,often less than what they recieve after engineering a short position after putting together the secondary. Never get on your knees - they might just kick you like a cripple. Sweet poetic justice in my book. Now that leabves us Morgan Stanley and Goldman. Hank use Morgan to analyse the books and Goldman has the teflon touch. Makes one understand why they are so good.First they are good and they have the inside scoop to the governments solution. Lord knows these guys would NEVER frontrun a position.<smile> The scandal is the politicians gave money to poor credit risks. The American entrepeneurs figured out a pitch that sold trillions of crap at a goevernment guaranteed "pitch". The oitch was on an asset that would have value - property int the USA. Then it all went to crap when the fed cooled the market with rate increases. When it is all done and over the politicians will blame speculators in Wall Street and they passed the laws that defied common business sense - to appease their constituencies. The bubble made all of the constituencies pay more for inflated housing and now they all suffer the debt load. Those with character will pay the price - and they should be bitter about the short term sccam their reps engineered. The other dead beats are still deadbeats and they walk from their commitment. Real estate will be dead for 6-8 years except those areas where real people with real money and ral credit and ral down payments will still compete to live in the beautiful spots. A failed social plan,designed by politicians,that wiped out some salespitching Investment Banks,and saddled decent poor folks with a too high mortgage,cause they built a bubble - all in an effort to be popular with their constituency. The good pay too much as the deadbeats stay deadbeats. What's new about that - any good banker worth his salt saw it coming. Any good banker - is buying bad bank assets for simply the issuance of paper. When it is all over the wise and proper will be stronger and the deceitful and snakeoil salespeople have made short term oney and hunting for the next pitch. What else is new? Oh yea the government is paying 30 cents on the dollar for CDO's (50% higher than the lick Merrill took). Jump omn the bargain.30 cents on a dollar for strilized money as the government waits out the cleansing. When a mortgage goes bad, and the house on the land is in need of repair the land is still worth something even if you bulldoze the housre.My bet is 30 % isn'r far off.To those who pay for where they live it is 100%. In the long run the taxpayers will win ,but I don't think we'll hear much about the time value of money.<smile> JMHO Bob