August 20, 2007

Want to see what "Cash is King" and "Flight to Safety" look like during a period of financial panic and fear? Here you go...

Reading the headlines is like reading "Manias, Panics and Crashes". If ANYONE doubts what happened, what's happening and what's going to happen, then you only have yourselves to blame. This is all just so damn obvious. The canary didn't make it. Meanwhile the lender of last resort, The Fed, is taking mortgage backed securities as collateral. Damn, this is gonna end ugly.

From MPC:

· The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

From reality today:

Aug. 20 (Bloomberg) -- Yields on U.S. Treasury bills fell the most in two decades on demand for the safest securities amid concern over a widening credit crunch.

Three-month yields dropped the most since the stock market crash of 1987 and more than in the wake of the Sept. 11, 2001, terror attacks in the U.S, as funds shunned assets that may be linked to a weakening mortgage market.

``The market is totally, absolutely, completely in fear mode,'' said John Jansen, who sells Treasuries at CastleOak Securities LP in New York. ``People are afraid that lots and lots of mortgage paper and mortgage paper derivatives of all sorts is completely opaque and they can't price it.''


Butch said...

This unprecedented move in 13-week T-bills means one of several things:

1. The Wall Street banks were tipped off that the Fed is going to pull a surprise rate cut.

2. The flight from the money market funds and into treasuries is in full-blown panic mode.

3. There is some huge (and negative news) coming out soon. Could be the bankruptcy of a major financial institution or hedge fund (or BOTH)

This is as serious as it can be. If you aren't already out of money market funds, stocks then it may be too late.

keith said...

It is now clear, however, that our financial and investment world is so tightly wound and levered that the likely fallout is going to be far broader than almost anyone, except an outspoken minority, expects. What had been a liquidity problem is now morphing into a solvency problem in a wide and surprising array of assets and companies, including money market funds, Canadian trusts, cash management funds, mortgage companies, investment bankers, etc.
Regardless of central-bank behavior, the price discovery in the credit markets will inevitably result in further wealth destruction, bankruptcies and an ever-increasing risk-aversion. The excessive use of cheap, mispriced credit is the source of the problem and providing more liquidity (as central bankers do) can hardly be considered a healthy solution. Our financial system is like an alcoholic who has had too much to drink -- the solution is not to serve up another round of drinks but rather to close the bar.

Anonymous said...

Another One Down

Capital One Cuts 1,900 Jobs, Closes Wholesale Mortgage Business

Anonymous said...

They're not marking to market because they cant

How low is zero?

Anonymous said...

"Risk Returns With a Vengeance"

area 51 said...

Whaddya mean?
Now is a great time to invest in Chinese property. I'm not lyin'.
Read this:

"Recent turmoil in global stock markets has made China property stocks more attractive, said Citigroup analyst Tony Tsang
"We don't see a bear market taking place in the economy and the physical property market in mainland China, which remain strong despite the recent weakness in the U.S.," Tsang wrote in a research note released Monday."

They are just trying to do a "I'm rubber you're glue" thing, trying to get US suckers to invest in their RE bubble. Ya know, pay back.....

They copy our products, so they think they can copy our bubble too. But we invented it, so their's is just a counterfeit like so many of their watches and purses.

It'll be cool to watch the newbie investor commie bastards melt down.

Anonymous said...

Home loan ills jostle commercial lending
Costs driven up; deals delayed

By Daniel Duggan

3:01 am, August 20, 2007

Problems from bad residential loans have seeped into the commercial real estate world, leaving brokers in the Michigan economy with yet one more worry.

A majority of the lending for commercial real estate transactions comes from the commercial mortgage-backed security market, also called conduit loans.

The loans are packaged and sold to investors as bonds. As the subprime lending issue has driven bond prices down, conversely, the cost of borrowing money has increased — leaving many transactions in a holding pattern.

“A number of my clients have stopped buying and are waiting to see what happens,” said Adam Rothstein, a partner at Detroit law firm Honigman Miller Schwartz and Cohn L.L.P., who specializes in national shopping center purchases, sales and financing.

CMBS loans are issued to buyers from firms such as Lehman Brothers, Morgan Stanley or Merrill Lynch, then packaged and sold as bonds, Rothstein said.

The cost of CMBS loans has jumped from roughly 100 basis points above the price of 10-year treasury bonds one month ago to 200 or even 220 points above right now, he said. Basis points are the movement of interest rates or yields expressed in hundredths of a percent.

With more expensive lending, either a buyer ends up with less of a return on his investment or a seller has to lower the price to get the deal done, said Steve Chaben, regional director in the Southfield office of real estate brokerage Marcus & Millichap.

In a hypothetical $20 million deal at an 8 percent capitalization rate, Chaben said, a swing of 100 basis points would move a 6 percent loan to a 7 percent loan. The annual payment in a 30-year loan would go from $1,151,000 to $1,277,000.

So, the buyer would see a roughly 11 percent rate of return deflate to an 8 percent rate of return, he said.

“So now we're facing a marketplace with a higher cost of debt,” he said. “That will impact value.”

The major worry for those working deals right now is the “re-trade,” where a buyer and seller have agreed on the terms of a sale but the lender increases the rate based on an “adverse market clause,” which is in most contracts, said Dennis Bernard, president of the Southfield-based Bernard Financial Group, a commercial mortgage-banking firm.

Bernard said the loans he has arranged have not re-traded because his firm does $600 million to $700 million annually in mortgages and only works with reputable companies.

“But this is a time where people who went with lenders who aren't considered first-rate are finding that they're reneging on the loans,” he said.

One consequence of the lending environment is that banks and life insurance companies may get more business as buyers look for alternatives to conduit loans.

“Life insurance companies increased their spreads as well, but not like the conduits,” he said. “If conduits used to be 120 points over (10-year-treasury) and life insurance companies were 140, now you're seeing conduits at 200 and life insurance companies at 175 or 180.”

Comparing the current liquidity crunch to the economy in August 1998, Bernard predicts history will repeat itself and it will be four to six months before the lending market goes back to where it was before the subprime problems.

A step in the right direction came Friday, Bernard said. The U.S. Federal Reserve cut the primary discount rate to 5.75 percent from 6.25 percent, according to a government statement.

That move won't impact conduit loans in the short term, Bernard said, because they function independently of Fed rates. The move will help instill investor confidence, which will lead to lower lending prices.

“Hopefully, this dramatic step will bring stability in the CMBS market,” he said.

Chaben predicts the current lending problems will last 60 to 90 days — hopefully.

“If it winds up being a short-term problem, it won't slow things too much,” Chaben said. “If this is a long-term problem, it will be fairly dramatic, locally, where there are a number of other challenges already out there.”

Daniel Duggan: (313) 446-0414, dduggan@

Shakster said...

CuntryWiDE closes Full Spectrum,lays off ,and closes those offices,Capital One closes their mortgage biz,and Greenspan was eying Ben's Buns in that picture.

Mr.Mortgage said...

Lenders and Brokers:Only focus on conforming and full doc. Full article.

Anonymous said...

Last week I moved our money from a money market fund to U.S. Treasuries. And yes, I was in panic mode, just ask my wife.

Anonymous said...

FLUSH ALL that mortgage garbage through the the system!!!

Yeah baby yeah!!!!

Lost Cause said...

"Can't price it" == worthless.

wawawa said...

Watch how these people were treating Peter Schiff. Even one of them calls Peter “anti American”.

I am just speechless by the dimension of complacency & dishonestly in this country. If you speak truth, given unpleasant truth, then they label you whatever they want. So disgusting.

Anonymous said...

"NEW YORK (Reuters) - Capital One Financial Corp, a credit card and banking company, slashed its earnings forecast on Monday and said it plans to eliminate 1,900 jobs as it stops making mortgages through brokers."

Funny, I just closed my CapitalOne credit card a few days ago, after being a customer for more than 5 years. My Fico is on the 700's, never been late, have no debt, and they raised my rate to 20% last week. I told the agent that they were going to lose many good customers with that kind of policy, while keeping all the crappy ones going into foreclosure. Bingo! CapitalOne is one of the crappiest credit cards out there. They deserve to go out of business.

james said...

SO my 401k is mostly in their basic money market. BOut 35k. How dangerous is that? Fidelity is the company. ANy ideas?

Anonymous said...

Since the lenders can't mark to market ,I guess they could go into the rental business .Yes I know that lenders usually sell their real estate owned ,but what the hell.

Anonymous said...

Holy F***, it's here!!

Anonymous said...

Yo James,

I'm in the same boat -- its the Fidelity stable bond fund -- 4% or so. Its the safest option I have there. I also have access to FDIVX and SSMVX. Think about averaging in in a month or two, if there is anything left.

-Matt C

LovingthatBushguy said...

area 51 said...
"Whaddya mean?
Now is a great time to invest in Chinese property. I'm not lyin'."
Oh my god. I can't stop laughing...hahahahahahahahahahahahah..

k.w. - southern ca. said...

That's a very good article because
it proves what bullox the main media stream has been spewing out about "it's just a sub-prime mortgage problem".

The contagion has spread through-out the entire mortgage industry.

Anonymous said...
Holy F***, it's here!!

SPECTRE of Deflation said...

Another one bites the dust:

From AP: First Magnus Files for Bankruptcy
First Magnus Financial Corp. filed for bankruptcy Tuesday ...

The lender's total assets were estimated at more than $942 million and its total liabilities at nearly $813 million in the company's bankruptcy petition ...
First Magnus, which originated home loans and then sold bundled loans into the secondary loan market, stopped taking mortgage loan applications and fired 99 percent of its 6,000 employees Thursday.
''The company went out of business overnight,'' [company spokesman Gary] Baraff said . ''Three weeks ago we were at the apex of the company's history. Everything was falling into place for us, and we had remarkable momentum across the country. It was shocking to everyone that essentially the secondary market collapsed.''

First Magnus was caught in the credit liquidity crunch now causing a meltdown in the mortgage industry, even though it was not engaged in selling ''sub-prime'' mortgages that sparked the crisis in recent months.

james said...

I'm in the same boat -- its the Fidelity stable bond fund -- 4% or so. Its the safest option I have there. I also have access to FDIVX and SSMVX. Think about averaging in in a month or two, if there is anything left.

YEah, the problem is they jsut switched EVERYTHING over to a company retirement plan, which is no longer "mutual funds" its in things that "resemble" mutual funds. I dont trust any of it. THe mutual fund looks safest until I can figure out the risks.