Friday, March 7, 2008

New - "Extreme Orange Mozillo Jerky!"

Who left the Orange in the microwave?

The Danger Must Be Growing
‘cause the Orange keeps on glowing
Mozilow shows no sign of slowing
In his robbing and his gloating…

This absolutely frightening picture accompanies the LA Times article, “House committee questions high compensation for CEOs involved in mortgage crisis” (AP – March07, 2008). If you don’t think it’s right to walk away from your mortgage, this might piss you off enough to change your mind:

"It seems that CEOs hit the lottery when their companies collapse," House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., said at the opening of the hearing. "Any reasonable relation between their compensation and the interests of their shareholders appears to have broken down."

Appearing before the panel were Angelo Mozilo of Countrywide Financial Corp., the nation's largest mortgage lender; Stanley O'Neal, formerly of Merrill Lynch & Co.; and Charles Prince, formerly of Citigroup Inc. All three companies have been major losers in the mortgage crisis.

Waxman noted that Mozilo received more than $120 million in compensation and sales of Countrywide stock last year while that company recorded losses of $1.6 billion. Merrill Lynch lost $10 billion in 2007, but O'Neal got a $161 million retirement package.

Republicans on the committee questioned the need for the hearing……

This takes us back to why these things (exploding bubbles destroying companies) happen. Shouldn’t company insiders know that a company is taking way too many stupid risks? This is what they do for a living after all. The answer is OF COURSE THEY KNOW. They know that when the company blows up, investors will lose a fortune. They also know that since the company is making tons of money off of the super risky gambles they’re taking, they will get paid a fortune until all hell breaks loose. So they don’t care. This is called The Agency Problem (which states that the interests of management might not be the same as those of the investors). And when all hell breaks loose, their punishment is to have a mountain of money dropped on them. Poor bastards.

There is no corporate governance or oversight in the US. Stockholders have no say because of the way management chooses the board which chooses the compensation committee which pays the CEO who sits on other boards which choose the compensation committees for other CEOs who sit on the first board,…ad nauseum. But since nobody cares, and these phony hearing will be forgotten by Monday, that is how it will always be. Enjoy.

For the one or two who do care, scream at you congressmen via email or other means. Tell these weasels what you think. The only thing they care about is their jobs, and if they think somebody is watching, they might ape doing the right thing for long enough to accidentaly improve something.

Write your Representative:

Write your Senator:

Tell them what you think of them. Be colorful. Send me your letters and I'll post as many as I can.

Simon Says

This is a funny video, and the performance is better than those of 90% of the American Idol contestants. Not breathy, nasal, or pitchy. They took the song and made it their own. I think one million percent that this video is going to Hollywood. Thanks for the link Russ Dogg.

Thursday, March 6, 2008

I Walk The Line

Hey Johnny, what do you think about the banks?

NY Times – (Feb 29, 2008 by John Leland) – “Facing Default, Some Walk Out on New Homes”

I know I gave the link to the article a couple days ago, but I wanted to post the text. It is worth reading and absorbing what the article is really saying, which is Americans no longer feel like they should be held to a higher standard than are American businesses.

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. “I was terrified,” said Mr. Zulueta, who services automated teller machines for an armored car company in the San Francisco area.

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. “They took the negativity out of my life,” Mr. Zulueta said of You Walk Away. “I was stressing over nothing.”

You Walk Away is a small sign of broad changes in the way many Americans look at housing. In an era in which new types of loans allowed many home buyers to move in with little or no down payment, and to cash out any equity by refinancing, the meaning of homeownership and foreclosure have changed, economists and housing experts say.

Last year the median down payment on home purchases was 9 percent, down from 20 percent in 1989, according to a survey by the National Association of Realtors. Twenty-nine percent of buyers put no money down. For first-time home buyers, the median was 2 percent. And many borrowed more than the price of the home in order to cover closing costs.

“I think I could make a case that some borrowers were ‘renting’ (with risk), rather than owning,” Nicolas P. Retsinas, director of the Joint Center for Housing Studies at Harvard University, said in an e-mail message.

For some people, then, foreclosure becomes something akin to eviction — a traumatic event, and a blow to one’s credit record, but not one that involves loss of life savings or of years spent scrimping to buy the home.

“There certainly appears to be more willingness on the part of borrowers to walk away from mortgages,” said John Mechem, spokesman for the Mortgage Bankers Association, who noted that in the past, many would try to save their homes.

In recent months top executives from Bank of America, JPMorgan Chase and Wachovia have all described a new willingness by borrowers to walk away from mortgages.

Carrie Newhouse, a real estate agent who also works as a loss mitigation consultant for mortgage lenders in Minneapolis-St. Paul, said she saw many homeowners who looked at foreclosure as a first option, preferable to dealing with their lender. “I’ve had people say to me, ‘My house isn’t worth what I owe, why should I continue to make payments on it?’ ” Mrs. Newhouse said.

“You bought an adjustable rate mortgage and you’re mad the bank is adjusting the rate,” she said. “And sometimes the bank people who call these consumers aren’t really nice. Not that the bank has the responsibility to be your friend, but a lot are just so uncooperative.”

The same sorts of loans that drove the real estate boom now change the nature of foreclosure, giving borrowers incentives to walk away, said Todd Sinai, an associate professor of real estate at the Wharton School of Business at the University of Pennsylvania.

“There’s a whole lot of people who would’ve been stuck as renters without these exotic loan products,” Professor Sinai said. “Now it’s like they can do their renting from the bank, and if house values go up, they become the owner. If they go down, you have the choice to give the house back to the bank. You aren’t any worse off than renting, and you got a chance to do extremely well. If it’s heads I win, tails the bank loses, it’s worth the gamble.”

In the boom market, homeowners took their winnings, withdrawing $800 billion in equity from their homes in 2005 alone, according to RGE Monitor, an online financial research firm.

Since the Depression, American government policy has encouraged homeownership as an absolute good. It protects people from increases in rent and allows them to build equity as they pay off their mortgages. And it creates stability in communities, because owners are invested in their neighbors.

But new types of loans like interest-only mortgages and cash-out refinance loans mean buyers do not pay down their mortgages. And adjustable rate mortgages, which accounted for 39 percent of mortgages written in 2006, expose owners to rent-like rises in their housing costs.

The value of homeownership, then, has increasingly shifted to the home’s likelihood to rise in value, like any other investment. And when investments go bad, people tend to walk away.

“When people don’t have skin in the game, they behave like they don’t have skin in the game,” said Karl E. Case, a professor of economics at Wellesley College, who conducts regular surveys of borrowers as a founding partner of Fiserv Case Shiller Weiss, a real estate research firm.

Though many states give banks recourse to sue borrowers for their losses, Mr. Case said, in practice it’s not often done “It’s tough to do recourse,” he said. “It’s costly, and the amount of people’s nonhousing wealth tends to be pretty slim.”

Christian Menegatti, lead analyst at RGE Monitor, said the firm predicted more homeowners would walk away from their homes if prices continued to drop, regardless of their financial circumstances. If home prices drop an additional 10 percent, Mr. Menegatti said, 20 million households will owe more than the value of their homes.

“Will everyone walk out?” he said. “No. But there’s been a cultural shift. Buying a house used to be like entering a marriage, a commitment for life. Now, if you see something better, you go back into the dating market.”

When homeowners see houses identical to their own selling for much less than they owe, Mr. Menegatti said, “I wouldn’t be surprised to see five or six million homeowners walk away.”

For Raymond Zulueta, the decision to go into foreclosure, and to hire You Walk Away, brought him peace of mind. The company assured him that in California he was not liable for his debt, and provided sessions with a lawyer and an accountant, as well as enrollment with a credit repair agency. He stopped paying his mortgage and used the money to pay down other debts.

Consumer advocates and others question the value of You Walk Away’s service.

“We are more interested in servicers and borrowers coming to mutual resolutions through loan remediation,” said Kevin Stein, associate director of the nonprofit California Reinvestment Coalition. “Even though we are not seeing good outcomes, we’re not willing to throw up our hands and say people should walk away from their homes based on the advice of a company that stands to profit from foreclosure.”

Jon Maddux, a founder of You Walk Away, said the company’s services were not for everybody and were meant as a last resort. The company opened for business in January and says it has just over 200 clients in six states.

“It’s not a moral decision,” Mr. Maddux said of foreclosure. “The moral decision is, ‘I need to pay my kids’ health insurance or my car payment so I can get to work.’ They made a bad decision, but they shouldn’t make more bad ones just because they have this loan.”

Mr. Zulueta said he felt he had let down the lender, himself, and his family.

“But you got to move on,” he said. “I know in a few years my credit’s going to be fine. If I want to get another house, it’s going to be there. I’m not the only one who went through this. I know I’m working the system, but you got to do what you got to do. There’s always loopholes.”

It sounds like the You Walk Away folks have been reading my blog, which wouldn’t be surprising since I emailed them a month ago. I haven’t heard back from them so I cannot recommend their service. I would recommend that people who want to walk away call a lawyer who knows real estate law. Have the lawyer look at all of your loan documents and ask him if you will be on the hook for anything once you give the house back. It will probably cost about the same amount, and then you have a legal opinion behind you.

Tuesday, March 4, 2008

Bernanke sees more house price drops

Reuters – March 04, 2008


"In this environment, principal reductions that restore some equity for the homeowner may be a relatively more effective means of avoiding delinquency and foreclosure" than reducing interest rates on troubled home loans, he said.

Ok, so who gets the loan reduction? Everybody in the country with a mortgage? Only the people who are upside down? Only the people who can’t afford to pay? Only the people who are upside down, and can’t afford to pay? How about people whose houses have not decreased in value, but who took out negative amortization loans with no downpayment? I picture a class action suit with millions of people suing every lender who arbitrarily chooses certain groups of people to bless with equity, while holding the rest to their contracts. I also see share holders suing for the same reason. And I see a future where nobody wants to put any money down because the less they have in their houses, the better off they are. Take out Home Equity Lines of Credit and spend the equity on trinkets as quickly as possible, because when the music stops, you don’t want to be the sucker with equity in your home.

The government has no answers. This is scary. This looks like a solution that might be forwarded by some halfwit citizen who is interviewed on the street by the talking head on the nightly news. The government would do the country a great service by not making really stupid suggestions. As a matter of fact the government would do the country a great service if the message was “you got yourself into this, you get yourself out,” the same message that any decent parent tries to teach his kids. The Fed could still supply liquity to prevent unnecessary bank runs, but that’s it. Stop making the problem worse by sowing confusion and false hope. The way it is being handled, this problem could be the end of the US as a world leader.

Monday, March 3, 2008

News of March 03, 2008

Sorry I’m under the weather. The bug finally got me. Here is some of the news of today.

Bloomberg - U.S. Stocks Drop, Led by Financials; JPMorgan, Citigroup Fall

Fortune - Margin calls thrash Thornburg again

Reuters - Buffett says U.S. in recession, stocks not cheap
"By any common sense definition, we are in a recession," Buffett said. "Business is slowing down. We have retail stores in candy, home furnishings and jewelry. Across the board, I'm seeing a significant slowdown."

Reuters - Housing crisis puts off first-time buyers
The good part of the popping bubble is that some people will actually learn that gambling with their home and mortgage is bad.

Saturday, March 1, 2008

No Bailout!

As short sighted and crooked as the Bush administration has proven itself to be, I find myself uncomfortably agreeing with them on their resistance to a giant mortgage bailout to help increase the profits of the banks that made billions by creating these loans in the first place. Americans have become very fat, and very soft. We cannot handle any discomfort or risk. We want to roll the dice like big gamblers, and then we want the government to give us all of our chips back if we lose. That is the path toward national bankruptcy. Every oily politician wants to spend our money to help people who do not deserve help. Politicians only care about themselves. We do not have to let them get away with it.

The entire premise of these bailout proposals is that the borrowers in trouble got conned. Well this is America. You have the right to get rich, and you have the right to get poor. You do not have the right to free handouts from the government. You cannot change the rules of the game because this time the outcome is uncomfortable. Too bad. If you want to take out Extreme Loans then maybe you’re going to get rich off of your real estate genius, and maybe you’re going to end up broke, but you made the choice, you signed the contract, and the consequences are yours alone. I haven’t heard anybody crying about how they were conned into making $300,000 on a house that they sold at the top. It’s only the losers who want handouts who cry.

If you can’t afford your payments, then you can’t afford your payments. That’s it. Nobody is going to save you. The bailout talk is giving false hope to millions of people, and is causing them to delay making a final decision. That delay is costing them money. If you earn $60,000 per year, you cannot afford a $250,000 mortgage let alone a larger one. If you are using credit cards to pay your mortgage, you are crazy. If your house is worth less than your mortgage, walk away. Stop waiting for a bailout, and give your house back to the bank.

And I have no idea why anybody cares about the banks. There is no possible scenario under which I would care if BofA vanished. What I would like to see is for the top executives of the banks to be thrown in jail. There was obvious theft. If the government is being asked to dump hundreds of billions of dollars into the banks, then it’s obvious that somebody stole, or caused to be destroyed, hundreds of billions of dollars. Robbing somebody of $200 at the ATM will send you to prison, but stealing the entire banking system is OK? No. Prison time. In this day when somebody gets arrested for a high profile crime, they are charged with 20 different crimes from one act (which seems like it ought to violate the constitution), so I’m sure somebody can come up with a list of crimes with which to charge these executives. They were not only gambling with investor money (which is perfectly fine), and breaking lending rules if not laws, but by requesting public bailouts, which they are already receiving in the form of lower interest rates and government subsidized loans, it is clear they gambled with public money. For costing the American tax payers hundreds of billions of dollars, lots of people should go to jail.

Friday, February 29, 2008

Short The Banks

The Let It Sink way is going to become The Way. It doesn’t take a lot of examination or thought to realize that walking away from an upside down house is going to become the norm. After decades of having pro-business economics and Darwinian capitalism shoved down their throats, Americans have finally figured out that it can finally benefit them somehow. In this case, if they look at their mortgages in the same way that the banks do, which is as amoral business agreements, then rather than beating themselves up about obligations and failure, they will do a little bit of math and dump the houses right in the bank’s lap. This is absolutely going to destroy many banks in the US and around the world. They have always depended on people acting out of moral obligation, while the banks themselves acted out of pure self interest. Now that the playing field is being equalized, many banks will die. Good riddance.

Today’s New York Times has an entertaining article about how the ridiculous loans that banks originated to boost their profits in the short term have made walking away all the more attractive to home owners.

Facing Default, Some Walk Out on New Homes,” (NYTimes - John Leland – Feb 29, 2008)