Deja Vu all over again

I just posted about Bear Stearns and rumors, and the very next news article I saw was about Lehman.  It’s from Reuters, and the headline is “SEC probing if short sellers hitting Lehman: source

In part, the article says:

Shares of Lehman have fallen more than 40 percent since the beginning of February, far more than the broader index, amid market rumors the company was wobbly.

Lehman has said on multiple occasions that it has enough money to fund itself, it has ample access to financing, and that customers are standing by it.

Now where have I heard that before?

gk

False Rumors

I just read a report from Marketwatch via FoxNews that kinda ticked me off.  The report says that Market self-regulatory organizations late Monday warned traders against circulating any “sensational rumors that might reasonably be expected to affect market conditions” as well as trading on material, non-public information.

Sounds good, except the article goes on to say Although the organizations did not mention any specific companies, Bear Stearns Cos. executives had complained unfounded rumors of liquidity problems triggered actual flights of capital, leading to the firm’s near collapse.

Let me get this straight – they’re saying that “unfounded rumors of liquidity problems” were the problem with Bear Stearns?  Get real people – they might have been rumors, but they were NOT unfounded! 

Bear Stearns DID have a liquidity problem, they were leveraged 37 to 1 in illiquid investments, so they couldn’t pay up when people wanted their money.  And yet they had the gall (what is gall anyway?) to say they had plenty of liquidity ($18 billion if my memory serves) just 2 days before going under.

If you tell the truth you wont have “unfounded rumors” circulating about your company.

gk

The good, the bad, and the clueless

It was quite a day today in the financial media.  I’ve read stories tonight about why it’s great for everyone that the Fed bailed out Bear Stearns, I’ve read stories about why it’s bad that the taxpayers are bailing out Bear Stearns, and I’ve read stories where I don’t think the author had a clue what he was talking about.

But one of the best of the bunch has to be an article at Minyanville.com about why the housing market is nowhere near a bottom yet.  On page 2 of the article John Mauldin has a good synopsis of the current situation.  He states:

• 8.8 million homeowners will have mortgage balances equal to or greater than the value of their homes by the end of March.
• 30% of subprime loans written in 2005 and 2006 are already underwater.
• Nearly 3 million homeowners were behind on their mortgages at the end of 2007, with 1 million at risk of imminent foreclosure.
• As of the end of last year, 5.82% (!) of all mortgages were delinquent, the highest level in 23 years.
• 0.83% were in the process of foreclosure, also an all-time high.
• When you look at just subprime mortgages, you find that 20% are delinquent (the number is rising rapidly), and almost 6% were in foreclosure.
• Finally, the average American’s percentage of equity has fallen below 50% for the first time since 1945.

That pretty much sums up the current state of the market, but he goes on to explain why it’s going to get worse.  I’ve said much of this before, but he says it better:

As an example, 5% of home sales in January of 2007 in San Diego were foreclosures. In January of this year, 34% of existing home sales were foreclosures. [emphasis mine, gk] This is going to turn into a monster wave as ARMs reset in the coming years.As T2 notes:

 

 

“Loans with teaser rates were never supposed to reset. Reinforced by many years of experience, both lenders and borrowers assumed that home prices would keep rising and easy credit would keep flowing, allowing borrowers to refinance before the reset. Now that home prices are falling and the mortgage market has frozen up, very few borrowers can refinance, which, as shown later in this presentation, is leading to a surge in defaults -in many cases, even before the interest rate resets!

 

Mortgage lending standards became progressively worse starting in 2000, but really went off a cliff beginning in early 2005. The worst loans are those with two-year teaser rates. As the subsequent pages show, they are defaulting at unprecedented rates, especially once the interest rates reset. Such loans made in Q1 2005 started to default in high numbers in Q1 2007, which not surprisingly was the beginning of the current crisis.”

 

 It’s an excellent article and I encourage you to check it out if you like knowing what’s probably going to happen over the next few years.

gk

Wall Street Chaos

Just had to pass this on.  Excellent write up of the financial issues facing Wall Street and (though I disagree with some of it) Allan Sloan does a good job of breaking down a complex subject.  Highly readable and highly recommended.

gk

Congress shall make no law

In reading some of the articles from major media sources regarding Obama’s “historic” speech, all I can say is thank God for the First Amendment!  To give you a sample of what I’ve seen online, take a look at this article from the San Francisco Chronicle.

The article says Obama’s “historic” speech has “elevated the discussion about the issue to the point where it has worked itself into the pews and pulpits of Bay Area churches.”

Now I don’t have a problem with churches espousing a particular political view, and I don’t have a problem with the government staying out of regulating what can be said in churches, but I do have a problem when churches want it both ways.  Churches want to be able to talk politics in church, but they also want to remain tax exempt.  Pick one.

Go ahead and endorse candidates and issues from the pulpit if you want – but you should lose your tax exempt status.  Stick to religion and there’s no problem.

I remember back in 1984 (when I still went to church) the Catholic church I attended issued “voter guides” comparing Reagan and Mondale.  The guide looked at various issues such as where the candidates stood on abortion, the death penalty, welfare, etc.  So far so good….

The problem was that the voter guide made it crystal clear which candidate the Catholic Church wanted to have as president.  From reading the voters guide, it was obvious that the Catholic Church was endorsing Reagan.

They have obviously gotten a bit smarter regarding the political processsince then, as the Catholic Church now has a guide to allowable political activity published on their website.  I would hope that any church (of any religious denomination) would do something similar.  If they cross the line, then they are no longer tax exempt.

You can’t have it both ways – either you stay out of politics (in return for the government staying out of your business) or you go into politics and the government gets to go into your business.

This distinction is not a theoretical argument – it’s what separates this country from all others in the world.  We were the first to GUARANTEE religious freedom to our citizens.  Look at what’s happening today in Tibet, Iraq, even Denmark to see what happens when the government is allowed to interfere with religion.

But you can turn that argument around too – look at what happens when religion gets involved in politics.  Iran, the Balkins, Afghanistan, and most of the Middle East are repressive regimes where you can be legally killed for worshipping – or not worshipping – at the wrong altar.

I posted my views on the Second Amendment a few days ago, and my views on the First Amendment are similar.  The Constitution does not in anyway restrict the rights of the people – it delegates certain rights to the government.  Read the First Amendment:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Seems pretty clear cut to me.  I wonder if the monks in Tibet wish they had something like that as a guarantee….

gk

Plastic Fantastic

Wow, I know the NY times is not a fan of deregulation (in any form) but they’re piling on in the past few days.  Check out this editorial calling for more federal regulation on credit cards.

As an example of why more regulation is needed, they provide an anecdote of a stupid man in Chicago.  Here’s a quote:

At a recent news briefing in Washington, a Chicago man told about what happened when he charged a $12,000 home repair bill in 2000 on a card with an introductory interest rate of 4.25 percent. Despite his steady, on-time payments, the rate is now nearly 25 percent. And despite paying at least $15,360, he said that he had only paid off about $800 of his original debt.

Despite paying at least $15,360, he’s only paid about $800 of the principal?   The only way this is possible is if he’s been paying the minimum for the past 8 years.  If that’s what he’s done, he’s a moron! 

I suppose we should look to the government to bail him out too? 

Straight Talk

I ran across an interesting article in the NY Times today.  Gail Collins obviously believes in cradle to grave socialism, but she writes well. 

She sarcastically lambasts McCain for wanting the current crop of hustlers to fail on their own, and she doesn’t seem to understand the consequences of what she’s advocating.  If people (and companies) are bailed out for their bad choices, they will continue to make bad choices.  Even worse, others will be encouraged to make bad choices, thus compounding the problem in the future when more people need help.

This is no different than Medicare/Medicaid, food stamps, subsidized housing, welfare, etc.  Let people fail – and let them bear the consequences of their failures – and they improve their decisions in the future.  Bail them out and they’ll continue to need help forever.

gk

Now we've got a problem!

Ok, things are getting bad in the economy – sub-prime, housing, credit, Social Security and Medicare crisis’ – all sorts of problems that we’ll work through eventually.  But this could cause the whole house of cards to come tumbling down.

According to the story there’s a severe shortage of hops, an essential ingredient in the making of the drink that makes civilization possible – beer.

What happens when brokers and traders can’t relax with a beer (or 6) at the end of a long day?  How long will workers continue to work if they can’t unwind with a brew with their buddies? 

This calls for government intervention in order to prevent our whole civilization from disappearing.  I bet something like this happened to the Assyrians and Egyptians….  They invented beer and rose to greatness, but if they ran out of hops, they would have sunk faster than Atlantis.

I haven’t heard a speech by any of the presidential candidates explaining how they’d handle this calamity.  Why the silence?

gk

Oregon gets it right

According to a story on FoxNews, Oregon is charging a couple with manslaughter after letting their 15 month old daughter die.  They’re another couple of religious fanatics who thought that God would make their daughter well if they prayed for her.  But they also anointed her with oil, so maybe that counts as medical treatment….

I think Oregon should charge them with murder, then execute them.  There’s no excuse (except self defense) for killing someone, and if you take a life, you’ve forfeited your right to life, liberty, and the pursuit of happiness. 

Carl and Raylene Worthington are just as bad as any serial killer.  If they ascribe everything that happens to God, did they ever wonder who made their kid sick? 

gk

Hammering Hank Paulson

Say it ain’t so Hank!  According to the news reports, Paulson will propose sweeping new regulatory powers for the Federal Reserve on Monday.  Here’s CNN’s story.  Here’s a link to the executive summary from the Federal Reserve.

I haven’t had a chance to read the whole thing yet, but according to CNN, the proposal would:

• Give the Federal Reserve authority to look at the financial status of any institution that could affect market stability;

• Merge the Securities and Exchange Commission with the Commodity Futures Trading Commission;

• Give stock exchanges more room for self-regulation;

• Consolidate bank supervision into one regulator.

One of the most dramatic changes would extend the powers of the Federal Reserve — designed to regulate the commercial banking industry — to oversight of virtually the entire financial industry.

This is NOT a good idea…

gk