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HenryTo
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diesel
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 Posted: Wed Mar 26, 2008 4:53 pm Post subject: |
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It's a disaster. The consequence will be that housing prices will decline further than otherwise becuase:
1. There will fewer buyers qualifying for mortgages. Lenders will have to account that the government might re-write contracts on borrowers with bad credit.
2. People in houses who really have no hope of getting out of a financial mess won't take care of their house.
3. There will be less money to loan, as it will be tied up on unproductive loans that are not allowed to clear.
Markets work when markets clear. What is happening here is the borrowers and certain people who risked lots of money on the idea that home prices wouldnt go down don't want the markets to clear.
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diesel
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| Posted: Wed Mar 26, 2008 7:05 pm Post subject: |
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The investment implications going forward are obviously to overweight companies with lots of free cash flow and underweight companies that have lots of debt as in this environment they will lose the ability to compete going forward. I like US growth stocks trading at value prices with international exposure with tons of FCF. 
An example would be CSCO. Some growth drivers are:
1. Worldwide telecommications infrastructure is being replaced due to the rapid adoption of broadband and VOIP
2. Demographics i.e. younger audience uses network infrastructure more intensively
3. Virtualization of networks
4. Trend of working from home office/telecommuting
5. Movement to SANs etc.
6. Big increase in videoconferencing
CSCO has little debt, good income and sales growth, has a great moat in there brand, installed equipment base, technical leadership etc. At a forward PE of 19 its growth at a reasonable price IMO.
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rffrydr
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| Posted: Wed Mar 26, 2008 7:52 pm Post subject: |
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There was no bailout. BSC shareholders, including all employees, lost their asses. BSC doesn't exist anymore. The bond holdings are owned at distressed levels, already show a profit for the "american taxpayer" and are guaranteed in triplicate. In order for us to loose, there needs to be a full blown run on the rest of the investment banks.
On the homeowner depends on what label you want to put on it. The original Dodd proposal was simply to buy securitised mortgages on the open market and repackage them back to homeowners at cost. The duration on these things is less than seven years and it achieves what the market cannot do (Super SIV to wit). Of course 30cents on the dollar would suddenly become 75 cents and... well no more buying necessary. --The market is the bailout 
There are no free markets and nowhere is this more clear than in the "american dream" market. We subsidize backstop this just like freeways and dams: for the public good.
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rffrydr
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HenryTo
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| Posted: Wed Mar 26, 2008 11:14 pm Post subject: |
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UBS on the Barney Frank plan:
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Frank FHA plan won't help many subprime loans-UBS
Wed Mar 26, 2008 2:36pm EDT
NEW YORK, March 26 (Reuters) - Proposed legislation aimed at refinancing troubled mortgages may shut out two thirds of the loans it aims to fix due to restrictions on borrower eligibility, according to UBS Securities.
The plan led by Barney Frank, chairman of the House of Representatives Financial Services Committee, would permit the Federal Housing Administration to offer $300 billion more in new guarantees to refinance distressed mortgages that banks and mortgage holders have agreed to write down.
But terms that borrowers must meet, such as caps on loan size and debt-to-income levels, limit the scope of the plan, the analysts, led by Laurie Goodman, wrote in a research note dated Tuesday.
About $73 billion in subprime mortgages would benefit from the program based on the UBS analysis on loans contained in securities. Including loans not in securities, the total rises to $104 billion, or about 463,000 loans, UBS said.
The Frank plan and another submitted by Congressman Christopher Dodd appear to be on a "fast track" in Congress despite opposition to homeowner bailouts by the Bush Administration, UBS said.
While a bailout is necessary to buoy the housing market, "we feel many authors of these proposals fail to appreciate the difficulty in meeting" key criteria, such as excluding 'bad' homeowners that exaggerated income, had faulty appraisals or lied about the use of the property," they wrote.
"If all the 'bad' borrowers are eliminated, the program will not help enough homeowners to significantly impact home prices," they added.
The number of loans eligible for Frank's program is probably even lower than estimated because other factors, such as the requirement that borrowers be current in payments for the past six months, were not yet factored into calculations, the UBS analysts said. (Reporting by Al Yoon; Editing by Andrea Ricci) |
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rffrydr
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| Posted: Thu Mar 27, 2008 8:01 am Post subject: |
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The "Covenants" strike once again.
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HenryTo
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HenryTo
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| Posted: Sat Mar 29, 2008 9:01 pm Post subject: |
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The Administration is drawing up a proposal right now. There will be some kind of bailout - at least much more effort than we have seen so far from the Administration:
http://www.bloomberg.com/apps/news?pid=20601087&sid=azBulg0s6UcI&refer=home
| Quote: | Homeowners would have to agree to stay in their homes, be able to afford the new payments and have lenders who sign off on the changes, the Post said. The proposal was recently submitted to the Office of Management and Budget for review and approval, the Wall Street Journal reported yesterday.
The concept is similar to elements in legislation proposed earlier this month by U.S. Representative Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee.
Policymakers at the Department of Housing and Urban Development, which oversees the Federal Housing Administration, are developing ideas, White House spokesman Fratto said, declining to comment on details. He said the administration isn't ready to ``put forth a proposal right now.''
The Post cited an unidentified official as saying the plan under development won't likely be announced before Bush returns from his trip to Europe next week.
Bush has also urged Congress to pass legislation that would enable the FHA to be more competitive in the mortgage market and help stem the rising number of foreclosures through its mortgage insurance and refinancing operations. House and Senate Democrats have offered competing plans. |
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HenryTo
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| Posted: Mon Mar 31, 2008 10:51 pm Post subject: |
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Nothing is off the table for the Fed:
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/31/cnfed131.xml&CMP=ILC-mostviewedbox
Fed eyes Nordic-style nationalisation of US banks
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 2:06am BST 01/04/2008
| Quote: | The US Federal Reserve is examining the Nordic bank nationalisations of the 1990s as a possible interim solution to the US financial crisis.
.....
While the responses varied in each Nordic country, there a was major effort to avoid the sort of "moral hazard" that has bedevilled efforts by the Fed and the Bank of England in trying to stabilise their banking systems.
Norway ensured that shareholders of insolvent lenders received nothing and the senior management was entirely purged. Two of the country's top four banks - Christiania Bank and Fokus - were seized by force majeure.
"We were determined not to get caught in the game we've seen with Bear Stearns where shareholders make money out of the rescue," said one Norwegian adviser.
"The law was amended so that we could take 100pc control of any bank where its equity had fallen below zero. Shareholders were left with nothing. It was very controversial," he said.
Stefan Ingves, governor of Sweden's Riksbank, said his country passed an act so it could seize banks where the capital adequacy ratio had fallen below 2pc. Efforts were also made to protect against "blackmail" by shareholders.
Mr Ingves said there were parallels with the US crisis, citing the use of off-balance sheet vehicles to speculate on property. All the Nordic banks were nursed back to health and refloated or merged. |
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HenryTo
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rffrydr
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| Posted: Wed Apr 02, 2008 7:47 pm Post subject: |
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He better:
| Quote: | Fannie and Freddie accounted for a record 75 per cent of new mortgage financing at 2007's end - twice the share they held at 2006's end when the private-label mortgage securitisation industry was booming.
Stressed mortgage lenders increasingly accessed funding from the FHLBs in the second half of 2007, pushing government-chartered mortgage finance to about 90 per cent of the market by the year's end, Ofheo said. |
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HenryTo
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| Posted: Wed Apr 02, 2008 7:54 pm Post subject: |
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| As recent as 2003, the GSEs still made up about 80% of the mortgage market. I expect them to stay at this level (or even the 90% level) for the foreseeable future. |
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rffrydr
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HenryTo
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