Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Buy and Sell Signals, and Other Market Perspectives -- Ignore unavailable to you. Want to Upgrade?

To: GROUND ZERO™ who wrote (47846)	3/26/2013 8:30:43 AM
From: Fintas	1 Recommendation Read Replies (1) \| Respond to of 222226

Agree but let's also not forget a certain rep senator standing before a camera saying there is no such thing as naked shorting. Or a SEC chairman stating similar and then putting a ban on such. How does one ban something that doesn't exist? DUH. SMILE Yet regardless somewhere out there is a reporter or an analyst or some regulator who was sitting in some firm that KNEW. This crap didn't just happen. It took complicity from many. Fail to accept that and one doesn't accept that at some point someone can say NO. I've done it a few times in my life. And oh yes there are some negative consequences to saying NO. Yet in the end we all know what we are supposed to do. The question is will one do it. Many do NOT. Ask the guys teaching guys to fly without concern re landing. HUH? Just the way it is. Goes back a long ways to Ol Pontious Pilate and many bystanders. Today many want to enjoy the fruit and ignore the realities of Barney and gang as you point out. So what to do? Understand it and exploit it. I didn't say accept it. I don't. I write and discuss often to deaf ears. UGH Fintas

To: GROUND ZERO™ who wrote (47846)	3/26/2013 9:23:54 AM
From: robert b furman	19 Recommendations Read Replies (3) \| Respond to of 222226

You are one of the few who really understand what brought on the 2008 credit crisis. It was legislators passing the multicultural community reinvestment act.This opened the doors to freddie and fannie accepting lower quality mortgages. Then investment banks got into market share gains of the real estate mortgage business.They bought false ratings from S&P ,bought unreserved insurance policies from AIG and sold mortgage backed securities to the wealthy who were chasing yield. A higher yield that was tripple AAA and insured what's not to like - it is safe. IT WAS SAFE - until the one premise it was built on collapsed - the value of American housing. The long and short of it all is, the politicians punished conservative banks who would not make mortgages to primarily minorities in primarily urban areas.They called it red shirting and fined the FDIC banks When they loosened standards - the investment banks got into the business because the fees were addictive. When you flood urban markets with trillions of money - you inflate the urban property values. The ilk of country wides,res caps (GM lost another loan to ditech),making mortgage loans to low credit scoring people who do not have 20% down (low down payments) -creates a new class of hot high yielding money that is AAA and insured - so the wealthy chase the MBS or RBS mortgage backed securities or real estate backed securities,and it all works - until 2006/2007. When the market rolled over those with poor credit and little down quit paying the mortgage - what the heck its cheaper that way.Better than renting - you don't have to pay anything. The politicians pass bills to slow down foreclosures and help those needy people. The wealthy do not renew their high yield AAA insured securities and it all comes back to AIG (the insurer who called the premiums profits with out reserving proper loss funds ( a requirement for US insurance companies - that's why the mbs insurance arm of AIG was in London).Then the investment banks that underwrote the junk ended up holding all the crap they had polished up and previously sold. Who were these fine investment banks? Merrill Lynch -run by a minority VP of GM who saw this gold mine.Merrill went bust and Ken Lewis bought it when he was Ceo of BAC. Bear Stearns - went belly up and Bernanke arranged a take over by J P Morgan Chase as he knew Jamie's fortress balance sheet could absorb it - Jamie bought the whole company at a below market price of the corporate headquarters - but accepted the imminent losses of those who lived for free or mailed in the keys to the inflated property. Country wide went bust and was bougth again by Ken Lewisof BAC - he came out of the ether and paid way too much and Bernanke told him he made the deal live with it and we've got a great TARP program that will recapitalize you as you take the losses.Lewis then lost his job for the too expensive acquisitions . Citi group was given Tarp to cover their capital that was lost. Lehman went belly up, and their were no large banks that would touch the broke investment bank after BAC all but took down the FDIC funds.This brought about the freezing of commercial paper GE borrowed 5 billion from Buffet ( so did Goldman).The always never understood notional value of derivatives threatened to blow up wit the BK of Lehman,but the system worked after all governments gave increased deposit insurance guarantees and central bank coordination happened globally for ther first time.The fed lead the guarantees and loaned money to even foreign banks as the Dollar IS THE ONLY RESREVE WORLD CURRENCY was clearly proven once again to all.Bernake greatest achievement in history over time I believe. That left 3 big investment banks Citi,Morgan Stanley, and Goldman Sachs.They took cover under the protection of he FDIC and there Bernanke saved them as he has essentially bought up all mortgages in the country(through Fannie and Freddie - still in receivorship today. The government has dropped interest rates for 6 years with a zero interest rate policy (ZIRP).Those who have made payments on 15 year mortgages have equity to sell and move up in now devalued real estate.30 year morgages are coming close to a break even now. In between those with money are paying cash for the depressed homes and are making rental units out of them.They now have laws that allow them to throw out delinquent renters who have finally been foreclosed on and are now what they always should have been renter class people with bad credit and no money down. Properties are at many year lows as valuations get bid up by investors and first home buyers that are smart and savers.As realestate reverts to the norm valuations more properties will come into the markets as the upside down (mortgage exceeds value of the home) is relieved by increasin housing values. When the world finds out a 2x 4 costs more in 2015 than in 2006 housing will be very expensive.New homes will be small and efficient.Big home will be very expensive to own but very nice vs new. This same transition was previously seen unfold in autos.small nice and expensive after they wore out from the peak SAAR years of 2004-2006. So what really has evolved? Many who would not have been given credit got it and have made good by their contract to pay - even if the loan exceeds the value of the house.This is the experiment's silver lining to me. Those with no sense of obligation to a lender, have confirmed themselves to be renter class people. The investment banks that creatively engineered fee based loans and creatively sold them to wealthy yield chasing savers, have all gone bust and been absorbed by the original conservative mortgage makers - the FDIC banks. They were losers of the real estate motgage market share for about 10 years and it all came back to them - they are now all bigger and some even are in the equity business BAC with Merrill Lynch (sadly the most conservative of all brokerage houses but like GM the real estate loans took them both down). The long and the short of it, is the politicains passed laws to give their (mostly minority) constituencies cheap easy mortgage money.This allowed them to become home owners.Home owners of real estate that became inflated by the flood of money that chased homes. Homes that were inflated in price, by the flood of money which chased it -the result of investment banks and their creative MBS/RBS securities. The government created a program to help lower income/savers. The program inflated the value of the real estate collatrealized by the securities. This caused a huge valuation bubble which collapsed when adjustable rate mortages went up,as rates went up and monthly payments were not so easy - thus the foreclosure spike. When governments start insuring things and wanting money to "here" or "there" for political reasons and not that of prudent sound money management policy - a long or short term bubble is due.NOT IF BUT WHEN. Outrageously politicans have never accepted blame on this self induced bubble - instead they blamed the Banksters. Make no mistake Bernanke is the Fed chairman.He'll not cry about how his FDIC banks are now back in the drivers seat and the surviving investment banks are also under the control of state and federal audits the realm of the FDIC. The government is essentially the depository of all mortgages as Fannie and Freddy are in receivorship.They continue easy money and low credit scores mortgages.The FDIC banks make the fees and sell the mortgages to the government - continuing the silver lining of home ownership to the poor. In truth all home owners have been hurt by this bad government policy.Those with equity have refinanced and reduced their payment and have benefitted in that way. Those with out a mortgage have seen a loss in value of their homes.Markets go up and down and just because real estate peaks does not mean you should sell your house - however some have and the nimble did very well in that market swing/cycle. Savers and those retired have lost their income as ZIRP has crippled income from any savings instrument. These are the innocent victims of ZIRP imo. A forced transition to higher risk instruments - "equities that pay dividends" has brought "risk on" equities to the levels of the pre-crisis crash". The equity valuations are still very conservative based on inflation adjusted views and earnings PE valuations and on historically much improved balance sheets and improved cash flow basis'. The safety of bonds has been chased to generational lows.A rotation out of bonds to equities is much anticipated for bondholders who did not ladder out or do not truly intend to hold until maturity. If / when we get accelerated growth, rates will move up,demand for credit will once again grow, businesses will expand as demand grows,employment will too - yes it really will too, as we all have short memories (smile). To me the biggest worry is the student loan bubble - the next government induced bubble.Student loan debt exceeds credit card debt - which until the credit crisis was a worry back then also. Student loan debt has always been a thorny problem.Last redone by the legislators, it was not forgiven by bankruptcy.Additionally scary, is most parents must cosign the debt.So when the next generation benefits from the inheritance of their parents paid for property, the proartion of the inheritance will pay back the government before they get their share. The elderly will have put on their kids another big bubble of sovereign debt and student debt. This new generation is uniquely qualified with skills much greater than this boomer. I'm glad to see that as they are They have also been saddled with a big load. I trust they are up to it, as maturity makes worker bees of us all.It did to the boomers - but I must admit we had it very good in a relative way. In many ways we blew it too. That's is after all, just life - just want to go on record as to how some of this mess got there at least from my perspective. Bottom line the government never helps, it just makes bubbles that take years to recover from. That is the lesson of this rant. LET THE MARKETS PREVAIL - THEY ARE BRUTAL, SWIFT, AND ALWAYS THE BEST ADJUSTMENT TO A GOVERNMENT WELL INTENDED,SELF INDUCED MARKET MISALIGNMENT. MAY THE NEXT GENERATION KNOW THAT FIRST - AS THEY CAST BLAME ON US OLDSTERS. IF THEY DO - THEY'LL MAKE IT JUST FINE!! Bob