Steve Forbes has a massive brainfart: "Here's How to End the Panic". His solution? Just sweep the crap mortgages under the rug. Presto!

Panic?

What panic?

I thought everything was gonna be fine?

I thought there was no housing bubble?

I thought the subprime fallout was contained?

But come on Steve-O. Junking the nation's accounting standards as the solution to the problem? ARE YOU F*CKING OUT OF YOUR MIND?

Yeah, that'll instill even greater confidence worldwide in the ol' USofA. Just fudge the numbers! Cook the books! Brilliant! The numbers aren't bad if you just say they're not bad! Crisis over!

Monkeys I tell ya. Monkeys. And the world may never trust the United States again.

Here's How to End the Panic
Steve Forbes

The Bush administration must take two steps immediately to quickly halt the unending, enervating credit crisis: shore up the anemic dollar and, for the time being, suspend "marking to market" those new financial instruments, such as packages of subprime mortgages.

The Treasury Department and the Fed should get together with the SEC, the Comptroller of the Currency and other bank regulators and announce that financial institutions for the next 12 months will no longer write down the value of exotic financial instruments (primarily packages of subprime mortgages).

Instead, writedowns will occur only when there have been actual losses on those assets. If a mortgage defaults, a bank will then--and only then--recognize the loss.

Pretty simple question: When do the Feds raid Fannie Mae's (and their auditor's) offices and start arresting people?

Just asking.

I figure it's gotta be soon.

That'll be a fun day.

America just loves a good frog-march.

Now THAT'S what I call a real estate crash! Lennar dumps $1.3 billion of land for $525 million (60% off)

Nah, real estate prices never fall.

Nah, there was no real estate bubble.

Meanwhile, the lesson for everyone from today's Lennar firesale should be:

GET OUT! GET OUT NOW! GET OUT AT ANY PRICE!

And for anyone interested in catching a falling knife (I know, it's just soooo tempting to buy things during 60% off sales), just remember, there's no rule that says it can't fall more. Look to the fundamentals. Look to the historic ratios. We're regressing to the mean. And the mean is still a long, long way down.

And just think, that's a 60% fall in a matter of months. Can you say panic?

Lennar sells homesites valued at US$1.3B for $525M as it becomes "near assetless"

MIAMI - Home builder Lennar Corp. formed a land investment venture with Morgan Stanley Real Estate to acquire, develop, manage and sell residential real estate, with Lennar selling properties valued at US$1.3 billion to the venture for $525 million.

The acquired properties include about 11,000 homesites in 32 communities throughout the United States, consisting of raw land as well as partially and fully developed homesites in California, Colorado, Florida, Illinois, Maryland, Massachusetts, Nevada and New Jersey.

As of Sept. 30, the acquired properties had a book value of about $1.3 billion for one of the country's largest home builders.

Mark to Market

Want to experience mark to market?

Go out and try to sell everything you own by tonight for cash.

Everything.

That's mark to market.

Meanwhile, homedebtors, lenders, investors and bankers are still marking to fantasy. Why? Because the truth is too ugly for them to comprehend.

As if there was anything they could do about it.

Anyone want to bet how bad the mark-to-market write-offs at Fannie and Freddie will end up being?

Hint - it'll be in the hundreds of billions, and it'll make the S&L mess seem like child's play. Yet not one single dollar has been written off so far.

Some days you gotta wonder if these two agencies have competent (and not corrupt) public auditors. Obviously they didn't when they were cooking the books a few years back. And they DEFINITELY don't today.

Come on Deloitte. Come on PriceWaterhouseCoopers. Do your f*cking jobs.

Three little words for starters:

Mark to Market.

Anyone keeping track of how many billions of dollars have already been lost on the housing crash and mortgage meltdown? Deutche Bank adds $3 billion

Between the banks, lenders, hedge funds, homebuilders and other bagholders, the acknowledged housing crash losses are already in the tens of billions. Nah, there was no housing bubble.

But wait, there's more!

Nobody is "marking to market" yet - they're all still "marking to fantasy". And they're only dealing with subprime, when we all know that trillions of dollars of true housing "wealth" has already disappeared if homedebtors' loans were truly "marked to market", and it's just gonna get worse. CEPR estimates $8 trillion for starters.

FRANKFURT, Germany (AP) -- Deutsche Bank AG said Wednesday it will write off about $3.12 billion in losses from the U.S. mortgage morass

Deutsche Bank said in a statement that it would take a charge of approximately 1.5 billion euros ($2.13 billion) on residential mortgage-backed securities, structured credit products, along with as much as 700 million euros ($991.6 million) on its leveraged loans and loan commitments.

The troubles at the German bank underscore the widespread impact of failed U.S. loans to people with weak credit, also known as subprime mortgages. Similar writedowns are hurting other big banks, including Citigroup and UBS, though analysts believe that investors and not account holders will feel most of the pain.

Anyone want to guess when Countrywide announces the mass layoff and a hundreds-of-millions of dollars "mark to market" balance sheet markdown?

Orangelo has dumped enough shares, and the cat's out of the bag, so now he's gotta be thinking Sarbanes Oxley, and staying out of jail.

So here comes the huge layoff (20,000?), office closures, and shocking cancer loan portfolio markdown (mark to market CFC auditors? anyone minding the store?)

I've got a feeling the news could be soon, real soon... and yes, I own CFC puts. Do you?

HousingPANIC Thought of the Day

I doubt most folks understand what "Mark to Market" means to them. But then again, most folks don't really understand much of anything, do they.

In finance and accounting, mark to market is the act of assigning a value to a position held in a financial instrument based on the current market price for that instrument or similar instruments. For example, the final value of a futures contract that expires in 9 months will not be known until it expires. If it is marked to market, for accounting purposes it is assigned the value that it would fetch in the open market currently.

Alt-A "Liar's Loan" mortgage king IndyMac reports today. Three words you may or may not hear: Mark to Market

Unfortunately the dolt running IndyMac didn't understand Econ 101 (or SEC regulations) when their cancerous loan portfolio starting going bust this spring. They could no longer sell their liar's loans on the open market except at a huge loss, so they held the cancer on their books, but didn't adjust their values ("Mark to Market") or substantially adjust their loan loss reserves.

Here's a pretty ignorant and arrogant statement from their CEO back in May on this. HP's question then was - where were the auditors? HP's question today is - where are the auditors? It really doesn't matter what the CEO thinks the cancer is worth - WHAT MATTERS WHAT THE F*CKING MARKET THINKS THEY'RE WORTH. Geeze, how dense are some people? Kinda like homedebtors thinking their home is worth X, when the market is telling them the home is worth 1/2 of X.

Yes, I'm short IMB. And I'd be shocked if they don't come clean today. Sarbanes-Oxley demands it. Truth or Jail? I'll update on IndyMac throughout the day... and you can listen to their conference call at 11am EST here

Michael Perry, chief executive of IndyMac Bancorp, is stubborn when it comes to delinquent loans.

He refuses to ditch them, even as they expand rapidly on the books of Pasadena-based IndyMac, which has two units based in Irvine and is the largest U.S. lender in a credit category dubbed "Alt-A," which is one level above the risky subprime niche. It turned in a company record of $90 billion in loans last year.

During an April 26 conference call with analysts, Perry said the company didn't sell a single dud loan in the first three months of the year because no one wanted to pay what he thinks they're worth.

"No way is IndyMac selling to a hedge fund for "pennies on the dollar," Perry said.

URGENT FLASH: Nautilus Capital issues panicked "liquidate your inventory now" recommendation. Systemic mortgage meltdown now firmly underway

And then the whole house of cards caved in...

Wow. Thanks Blown Mortgage for the tip. Here's the full warning letter

And again, remember these words HP'ers. Remember these words: MARK TO MARKET.

Loan sale pricing is not going to improve in the foreseeable future; in fact, it will probably get worse. Unless you are prepared to hold the loans to maturity, our advice is to liquidate your inventory now. You may not like today’s pricing, but you will like tomorrow’s even less.

As everyone in the industry now knows, most mortgage loans ultimately wind up on Wall Street in a securitization trust. The securitization market thus plays a vital role not only in pricing in the secondary market, but also in establishing underwriting criteria. An illustration of market-driven tighter lending standards was provided by today’s announcement that subprime 2/28 ARM loans will no longer be purchased by many investors. This is a direct result of recent changes by the rating agencies (Standard & Poors, Moodys, etc.), who determine the subordination and overcollateralization levels necessary for the different risk grades (or “tranches”) of the securitization trusts. If you have any such loans in your inventory it is probably too late to sell them except in the scratch & dent market.

Separately, several recent events are having a significant adverse effect on loan pricing, of all credit grades. The bankruptcies of a number of large subprime lenders (the latest being Alliance Bancorp, last week) is well known, but what is not widely understood is that their portfolios are being dumped on the market in huge volumes by their creditors. Similarly, a pair of highly-leveraged mortgage hedge funds managed by Bear Stearns recently collapsed, causing near-total losses to their investors. Their portfolios are being liquidated, but the sales apparently are not going well; rumor has it that only a small portion has yet been sold, and at a significantly higher discount than anticipated.

These massive sales are depressing pricing across the board. Prices on the ABX indices (used by mortgage bond traders to manage risk) have declined severely in just the last week. The trend lines for the AAA and BBB- tranches (the highest and lowest risk grades, respectively) are shown in the graphs above. Note that the AAA line, which was stable for so long, has now collapsed. Investors in these highest-quality bonds, who once thought they were immune to credit quality issues in the underlying loans, are now not so sure. The BBB- tranche, which is necessary to support pricing for all the higher grades, is trading for half of what it was in January.

What this all means to lenders is that loan prices are dropping precipitously, and you should complete any pending sales (premium as well as scratch & dent) as quickly as possible. If you have received a bid on a pool but have not yet decided whether to accept it, check with your investor; the bid may no longer be there. If it is, hit it now.

I will say this - as a social psychology experiment, it will be interesting when the banks, pension funds and hedge funds begin to fail

Here's an article today in the Financial Times that pretty much puts a dagger in the heart of any "analyst" who is stupid enough to think the housing crash and Great Credit Unwinding were going to end after only a few days.

We're just getting started. Here come the hedge fund, pension fund and bank failures, whether they know it or not.

Liquidity underthreat as banks' capital is about to be slashed

The bright, liquidity-driven prospects for the stock market, versus the hard landing for the US economy, have been a puzzle all year. Prolonged weakness in the economy without some stock market weakness would be odd. Yet the implication of a hard landing, lower interest rates, has even boosted stock prices, given the predominance of debt-driven private buy-outs in setting prices.

The Bear Stearns hedge fund fiasco removes the paradox. Banks' capital is about to be slashed, and with it excess liquidity in the global system.

Look at mortgage-backed collateralised debt obligations -- pools of debt assets, in which investors take stakes with different levels of risk. Suppose those held by banks were valued at "market" rather than "model" levels (a fancy new euphemism for illusionary historic book values). Their capital would turn out to be lower. Preservation of capital ratios against loans would require fewer loans: liquidity would have imploded.

A bunch of hedge funds may have problems, but that is the tip of the iceberg for "Titanic" Wall Street. Who holds the toxic tranches? Answer: the originating banks and syndicating investment banks for the most part.

With this mortgage-backed crisis we could simultaneously see market-price liquidity implode just as banks are forced to shrink their books by capital losses. It was always likely that the chief source of problems (as in any downswing) would be the chief area of excess in the previous boom - in this case the mortgage market and mortgage-backed securities.

Psst.. hey buddy. Remember these three words: Mark to Market

May not mean much to you today. Will mean everything to you tomorrow.

Nuff said.