cwd Posted December 22, 2007 Report Share Posted December 22, 2007 A piece from Bill Bonner's Daily Reckoning e-mail THE ?WOW? FACTOR by Bill Bonner Tacky, vulgar and trashy...say good riddance to the Great Rubbish Market of 2001-2007. Driving down Route 4 in Southern Maryland, we passed a sign advertising a new housing development. So many are the new houses weeding up in the greater Washington, D.C. area that one hardly notices another one. But the sign caught our attention: ?The Wow Factor?, it said, in large red letters. We looked beyond the sign to see what the ?wow? was all about. The houses were just like all the others built in the last 10 years ? with large, fraudulent fronts, laid up in brick, some with tall Tara-like columns...and front windows so large you bend down to look for a stone. You think they might be substantial, handsome houses. And then you see the vinyl siding and small, plastic windows on the side. They only look good from the front. And then only if you don?t look too hard. Charmless...soulless...hasty...slick...they are stacked hard up one against one another like Chinese TVs in a discount mall. ?The ?wow? has to come at the very beginning,? explained a real estate developer from Miami. ?You bring someone to a house...he?s got to say ?wow? in the very first two minutes...or you won?t make the sale.? A couple years ago, he was building $4 million dollar houses on a golf course in the Boca Raton area. What did you get for $4 million in America those days? A lot more than you got in the United Kingdom...but still nothing a person with a sense of dignity would want. The houses were crowded together and then covered in tropical plants so you couldn?t notice how tiny the lots were. Just as with the houses in Maryland, the facades pretended towards substance, but it was substance they most lacked. The fronts were built of stone and marble. Then, you opened the door and the entryway took your breath away. Wow. You felt as though you were in a Florentine palace...or an abandoned bank. The place had so much marble we thought we were inside a quarry. And the ceiling was a good 24 feet in the air...with wide, curved stairs winding to the upper deck; still there was something cheap about it...fake...like a Hollywood set. It was the kind of staircase Rhett Butler might have carried up a checkout girl. ?Wow,? we said. We had never seen a place so extravagantly hideous. ?Yeah...it?s all in the first impression. But so what? That?s what people want. And then it goes up in price...or, at least it used to. I made money. The buyer made money. It was a win-win situation.? Behind the first impression was a rather pathetically extraordinary house, the kind a sports star might build. It had, for example, a huge master bedroom, with a bathroom as big as Penn Station. We looked up to see if there might be mirrors on the ceiling over the bed. No...the new owner would have to put those in himself. Off to the left was a more practical feature ? a balcony; as the housing crisis deepens, a mortgage-stretched owner could throw himself off...and drown himself near the 18th hole. ?Are these places still selling?? we wanted to know. ?Nah...nobody can get financing...? In the heyday of the credit bubble, financing houses became as fraudulent as the facades. A recent study by Fitch?s found hanky panky in practically every one of the 45 subprime files it examined. Between 2000 and 2006, the FBI?s suspicious mortgage reports rose nearly 800%. The gumshoes estimate that mortgage fraud cost lenders as much as $4.3 billion last year alone. The homeowner lied about how much he earned or how much he had; the appraiser lied about the value of the collateral; or the mortgage company lied about the terms of the loan. Sometimes all of them lied to each other. And then, along came the Wall Street packagers who told more whoppers. Bundling up thousands of fraudulent mortgage contracts they somehow managed to get the stuff rated ?investable? grade, a lie so spectacularly in-your-face it practically knocked your nose off. First impressions were everything. Executives were paid hundreds of millions to perform cosmetic surgery ? trimming a little fat here...putting in a little silicon there. Billions poured into hedge funds too ? in which managers were paid enormous sums for hocus pocus investments that were no more than ?heads, I win; tails, you lose? bets with other peoples? money. And private equity was another hot trend. But what were the private equity surgeons doing except nipping and tucking? Balance sheets and earnings were pimped up...until the old girl could be put back on the streets. Everybody wanted a piece of the action. The gaudy, sensational, trendy, hollow, superficial ? it all moved up in price ? from the suburban ghettos of Calvert County, Maryland, to the A shares on the Shanghai stock market. And there was no point in arguing with the people who were buying this garbage; they were geniuses and had the money to prove it! Towards the end, you had to be a moron to make money, because it was the worst investments that moved up most. In the art world, for example, the Great Rubbish Market swelled up prices on corrugated tin and dead animals. The idea was to make a big impression ? fast. And nothing made a bigger impression than big money. Damien Hirst?s diamond encrusted skull was just a silly gimmick. But it wasn?t so much that the oeuvre itself caused the wow...it was that some numbskull had paid $100 million for it. What did the IPO come out at? How big was his bonus this year? How much did that house down the block sell for? How much is the stock up? Wow. What a surprise it must be when it comes to an end...and the headline numbers go down Link to comment Share on other sites More sharing options...
Takachi Posted December 22, 2007 Report Share Posted December 22, 2007 It's amazing to read the press, or the Stool for that matter, and see just how unimportant the individual has become in the movement of all these financial events. Such and such an agency downgrades XXX and so YYY entities and issues take on a negative pale so that such and such is now threatened. A market doesn't even have to open because the predisposed result has already cast the mold of public reaction. Its apparent that the great unwashed public is nothing more than a commodity out of whose pockets is extracted the digital dollars that are flung about the globe with reckless abandon by the captains of the financial model. The originators of these mountains of digibucks are never allowed to actually own them or manipulate them themselves, they are frightened riders like a 3 year old perched atop the brightly painted carosel horse destined to be thrown off when their 3 bucks worth of ride is over. I have maybe 250,000 to 300,000 of digibucks out there that I am given to understand that I own although I have never seen them. They were deductions from my check or numbers in an account, but they have no substance that I have been able to touch. Some day I'd love to build a money vault like Scrooge McDuck and swim in their paper and coinage just to know its real and tangible. Would a quarter million be enough to swim in? Could I have a diving board and a deep end? I don't even know how much is enough. At the end of the day, we who were born as true human beings have become mere commodities to be herded by the captains of the corporate city states of the global economy. Destined to play our part and say our lines as given in the morning casting call of the CNN newsroom. Except that one day 2000 years ago the only one among us who was ultimately worthy to be called good, came in a humble setting and said, "I'll show you how to live, and what it means to love, and bring you back to what you have lost!" Forgive me doc, for what is a financial comment and also not a financial comment. It just spilled out. As the rot of this whole thing rolls out I am overcome by the sadness of what we have lost of the sense of who we are and how we ought to move thru life Tak Link to comment Share on other sites More sharing options...
Slappy Posted December 22, 2007 Report Share Posted December 22, 2007 Great post, Tak. At this point the only thing we can hope for is that a cosmic justice prevails that hurts the criminals behind this mess as much as the many sheeple victims. But I wouldn't bet on it. BTW, A bunch of friends, family, and I are on for the NMA ( aka The Word ) concert in Philly on Friday night. I'll try for some pix, and if anyone else happens to be going, touch base with me. Link to comment Share on other sites More sharing options...
DrStool Posted December 22, 2007 Author Report Share Posted December 22, 2007 It's amazing to read the press, or the Stool for that matter, and see just how unimportant the individual has become in the movement of all these financial events. Such and such an agency downgrades XXX and so YYY entities and issues take on a negative pale so that such and such is now threatened. A market doesn't even have to open because the predisposed result has already cast the mold of public reaction. Its apparent that the great unwashed public is nothing more than a commodity out of whose pockets is extracted the digital dollars that are flung about the globe with reckless abandon by the captains of the financial model. The originators of these mountains of digibucks are never allowed to actually own them or manipulate them themselves, they are frightened riders like a 3 year old perched atop the brightly painted carosel horse destined to be thrown off when their 3 bucks worth of ride is over. I have maybe 250,000 to 300,000 of digibucks out there that I am given to understand that I own although I have never seen them. They were deductions from my check or numbers in an account, but they have no substance that I have been able to touch. Some day I'd love to build a money vault like Scrooge McDuck and swim in their paper and coinage just to know its real and tangible. Would a quarter million be enough to swim in? Could I have a diving board and a deep end? I don't even know how much is enough. At the end of the day, we who were born as true human beings have become mere commodities to be herded by the captains of the corporate city states of the global economy. Destined to play our part and say our lines as given in the morning casting call of the CNN newsroom. Except that one day 2000 years ago the only one among us who was ultimately worthy to be called good, came in a humble setting and said, "I'll show you how to live, and what it means to love, and bring you back to what you have lost!" Forgive me doc, for what is a financial comment and also not a financial comment. It just spilled out. As the rot of this whole thing rolls out I am overcome by the sadness of what we have lost of the sense of who we are and how we ought to move thru life Tak 633954[/snapback] Now posted on the front page of the WSE. Thanks, Tak! Link to comment Share on other sites More sharing options...
Jimi Posted December 22, 2007 Report Share Posted December 22, 2007 Seconded. Great post, Tak. Link to comment Share on other sites More sharing options...
Jorma Posted December 22, 2007 Report Share Posted December 22, 2007 it's true, click it Southern Californians Moving Into Depression-Style Tent Cities The unraveling of the region reads like a 21st century version of "The Grapes of Wrath," John Steinbeck's novel about families driven from their lands by the Great Depression. The noisy, dusty camp now numbers 200 people, including several children, growing as this region east of Los Angeles has been hit by the U.S. housing crisis. Steve, 50, who declined to give his last name, moved to tent city four months ago. He gets social security payments, but cannot work and said rents are too high. "House prices are going down, but the rentals are sky-high," said Steve. "If it wasn't for here, I wouldn't have a place to go." 633917[/snapback] I'm bullish on tent cities. Not only that I think tent cities are bullish. I'd say more but it's Christmas time. Link to comment Share on other sites More sharing options...
cwd Posted December 22, 2007 Report Share Posted December 22, 2007 A solution to the credit crunch? If you think back to what has happened, the picture becomes clear. Central banks have kept interest rates very low for many years. This has led many banks to seek juicy returns ? to protect shareholder value, as they say ? by taking unreasonable risks. This has also led to huge foreign exchange reserves accumulation all over the world. The great unwinding must now take place. Risky behaviour eventually means that losses occur here and there. The losses merely make up for huge past returns. For the interbank market to be revived, these losses must now be accepted. Fortunately, the cash that found its way into excess foreign exchange reserves is now available in the form of sovereign wealth funds. The circle can be closed. Financial protectionists will display outrage. It is never pleasant to see newcomers acquire significant shares of our biggest companies, but we must also accept that the era of easy money was a mistake. The fundamental basis of capitalism is that mistakes must be borne. Here we are. But please, bring this misery to its end. http://www.ft.com/cms/s/0/30fe6e44-af0e-11...00779fd2ac.html Link to comment Share on other sites More sharing options...
cwd Posted December 22, 2007 Report Share Posted December 22, 2007 SEC Probing Washington Mutual Friday December 21, 5:22 pm ET SEC Investigating Washington Mutual's Handling of Mortgage Loans, Home Appraisals; Stock Falls WASHINGTON (AP) -- The Securities and Exchange Commission is probing how Washington Mutual Inc., the nation's largest savings and loan, handled mortgages that were possibly based on inflated home appraisals No Kidding. It has become so obvious that even the SEC can't ignore it anymore. http://biz.yahoo.com/ap/071221/washington_mutual_sec.html Link to comment Share on other sites More sharing options...
cwd Posted December 22, 2007 Report Share Posted December 22, 2007 I wonder how big a bonus these clowns will pull down? December 20, 2007, 12:29 pm How to Invest in MBIA and Lose $20 Million a Day Posted by Dana Cimilluca Would that the days of simple leveraged buyouts were back. The short, unhappy life of Warburg Pincus? planned investment in bond insurer MBIA shows how difficult it is for LBO firms to make money now that there is no longer a market for the debt they used to use for company takeovers. That cheap debt, of course, not long ago could be counted on to help net such firms returns of 25% a year or more. Warburg just 10 days ago agreed to invest as much as $1 billion in MBIA, whose stock already had been hammered by the subprime mortgage crisis. As part of the deal, Warburg agreed to spend $500 million for MBIA stock at a price of $31 a share. The stock has slid steadily since then and is down more than 20% today on news that MBIA?s exposure to risky mortgage debt is much larger than some had realized. With the stock currently trading at about $21, Warburg is looking at a paper loss of roughly $160 million. Given that there have only been seven full business days since the deal was announced midmorning on Dec. 10, that amounts to more than $20 million a day. The deal hasn?t closed yet so Warburg technicallly hasn?t lost a dime, but it is on the hook for at least $500 million ? at $31 a share ? and there is no ?material-adverse-change? escape clause. The deal is expected to close in January http://blogs.wsj.com/deals/2007/12/20/inve...y/?mod=yahoo_hs Link to comment Share on other sites More sharing options...
cwd Posted December 22, 2007 Report Share Posted December 22, 2007 More on the POS. WaMU. Saturday, December 22, 2007 Fastest Downgrade Contest Our friend P.J. at Housing Wire did the world a big favor last night by sorting out the details of Fitch's giant $5.3 billion heap o' RMBS downgrades yesterday. Go here for the handy list of what deals were included in that. What jumped out at me, of course, was that $783MM WaMu deal. This little puppy (2007-HE3) was closed on May 10, 2007. That's a whopping seven months before the first downgrade. (It's too young, of course, to have noticeable realized losses, but the 60-day delinquency is up to 9.17% already, for loans originated primarily in the first quarter of this year. Wowsers.) http://calculatedrisk.blogspot.com/ Link to comment Share on other sites More sharing options...
cwd Posted December 22, 2007 Report Share Posted December 22, 2007 for Shorty My father always said optimists buy gold and pessimists but guns! Merry Christmas Dave Lewis | Homepage | 12.22.07 - 12:05 pm | # For a realist, buy both. Link to comment Share on other sites More sharing options...
Dharmaeye Posted December 22, 2007 Report Share Posted December 22, 2007 for Shorty My father always said optimists buy gold and pessimists but guns! Merry Christmas Dave Lewis | Homepage | 12.22.07 - 12:05 pm | # For a realist, buy both. 633968[/snapback] I already have Ammunition seems to double every 18 months, another good investment. Link to comment Share on other sites More sharing options...
shorty Posted December 22, 2007 Report Share Posted December 22, 2007 just give every man, woman and child $10 Billion each in cash, then we'll all be rich In an interview with the Wall Street Journal this week, former Federal Reamserve Chairman Alan GaSSpain said that easing the payments on shaky mortgages might be more damaging than simply giving struggling borrowers money to pay their debt. Link to comment Share on other sites More sharing options...
mdporter Posted December 22, 2007 Report Share Posted December 22, 2007 Hey guys, I haven't been around this week. Santa brought me an early Christmas present. Introducing Emma Loise Porter, born December 18 at 1:15pm. 7 pounds 11 ounces. I am a very happy guy! Link to comment Share on other sites More sharing options...
Dharmaeye Posted December 22, 2007 Report Share Posted December 22, 2007 Hey guys, I haven't been around this week. Santa brought me an early Christmas present. Introducing Emma Loise Porter, born December 18 at 1:15pm. 7 pounds 11 ounces. I am a very happy guy! 633971[/snapback] Congratulations on the best Xmas present Link to comment Share on other sites More sharing options...
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