So maybe the Sub-prime mortgage crisis isn?t that big of a deal after all

[dmcowen674]

Originally posted by: LegendKiller
If opinions are like assholes, your "truth" is like one too and you can't find it with both hands, a flashlight, and Richard Simmons. Now shut up and let the adults discuss this stuff.

The truth is your fellow cohorts in the Industry have been scamming for the past 6 years and are starting to be called on the carpet for it:

8-10-2007 SEC probing Wall Street banks for hidden subprime losses

U.S. regulators are scrutinizing the books of Wall Street's largest investment banks amid questions they are hiding losses from subprime mortgages, people familiar with the inquiry said.

The Securities and Exchange Commission wants to see whether firms are calculating the value of subprime-mortgage assets on their books the same way they calculate those values for their brokerage clients, such as hedge funds.

Analysts and investors have raised questions whether there are unreported losses from subprime-mortgages and collateralized-debt obligations, or CDOs.

The regulatory checks are expected to include Wall Street's five biggest investment banks, starting with Goldman Sachs Group (NYSE:GS - News) and Merrill Lynch & Co. (NYSE:MER - News). Goldman Sachs and Merrill Lynch declined to comment.

People familiar with the inquiry, first reported by the Wall Street Journal Friday, played down the checks as routine.

Wall Street banks are in a sensitive period as turmoil in U.S. mortgage markets generate losses for investors and push some lenders into bankruptcy. Yet few investment banks have disclosed significant subprime losses in recent periods.

The scrutiny may also help pinpoint whether hedge funds accurately report their results to investors, the Journal reported, citing an unnamed source. Regulatory checks into how firms calculate values of certain assets could boost the accuracy of performance reports to investors.

Marking subprime assets to market is tricky since they aren't easily traded, the Journal reported.

In late June, the SEC said it was probing about a dozen CDOs, which are securities that invest in mortgages and other debt.

In recent months mortgage losses have surfaced at some large investment firms. Swiss bank UBS AG (VTX:UBSN.VX - News) was forced to shut down Dillon Read Capital Management less than two years after its launch following losses in mortgage markets.

Meanwhile Bear Stearns Cos. shares, and its reputation, were slammed as two of its mortgage funds suffered losses and filed for bankruptcy.

 

[mshan]

Saw commentary on tv that foreign banks, insurance companies, etc. don't hold the actual bundled subprime loans, but the derivatives of these bundled subprime mortgages.

Gotta wonder whether the real problem may end up being more much severe outside the U. S. and that instead of one domestic Long Term Capital Management like in 1998, this time we have a series of LTCM-type timebombs spread all around the globe.

 

[LegendKiller]

Originally posted by: dmcowen674
The truth is your fellow cohorts in the Industry have been scamming for the past 6 years and are starting to be called on the carpet for it:

Do you think that's supposed to harm me or somehow implicate me? Wow Dave, you're saying something I have said before and something I distance myself from as much as possible, great job! I have never taken part in an RMBS transaction myself and I tend to keep it conservative in all of my deals, so you can go fly a kite on that one. Those banks are no better or worse than many shady people in the world.

As far as scamming for the past 6 years, that's complete bullspit. I know far too many homeowners who only went into the deals to make money and are actually far more greedy than people I have interacted with on the street. They knew what they were doing, inasmuch as they thought they would become rich and ignored all risks.

I tried to warn a friend of that myself. Idiot took out 600k in mortgages with 2 houses while having 2 kids with 2 different dads, in highly bubbled areas in SoFLAm, only 30k income, in a hurricane hit area. I warned her of the problems and she refused to listen to my words of caution, because she thought she was going to make millions. She even went as far as to say the only reason why I was cautioning her was because I was jealous of how much money she was going to make. Whatever, she's now in foreclosure on both houses and I have no remorse.

Nobody can sit here telling me that this market was driven by people with only knightly ambitions of owning their house in an American dream, or other related ideas. Additionally, nobody can sit here telling me that the mortgage "professionals" who got many people in these mortgages were straight up in all cases.

A lot of people failed to do their jobs, from the purchaser all of the way up to the investor in MBS securities. Blaming one group individually is moronic and quite expected from a moron like you.

 

[mshan]

Everyone in the subprime foodchain (except the people that actually took out the loan) probably made a ton of money on these loans till recently. Mortgage originators could get a 3% plus kickback (in addition to standard commisions on conforming loans) for closing on one of these loans, so I got to imagine that they were much more profitable for everyone else higher up in the food chain.

Some of these people were probably greedy like Legend says, others were honestly duped or didn't understand what they were signing because they trusted what the mortgage broker was telling them, and some people took the loan because someone (realtor, loan officer, other) said "Home prices keep increasing. Before this teaser rate resets, you will have enough equity in your home to refinance into a safer loan." And while home prices were going up, it was probably true.

They were gouging these subprime borrowers (alt A and probably prime borrowers too who were trying to buy much more house than they were truly qualified to purchase) under the guise of a low monthly payment (rather than how truly costly these loans are), but it was "ok" because while housing prices were going up, everyone made money. And I believe these pick a payment option arms were originally intended for very wealthy individuals who could use the money borrowed at this low teaser rate, invest it elsewhere to make higher returns, and just pay off or refinance the loan before the adjustable kicks in.

Hey Legend:

What do you make of that global panic on Thursday?

It seemed a little overdone and irrational too me on Thursday, but from listening to some commentators today, it sounds like there is a real risk of recession if Bernanke waits too long to drop interest rates.

Almost seems like the Fed could drop interest rates 50 basis points on Monday and the market could still tank. Seems like there is a systemic global risk to the financial systems that may not have completely manifested itself yet.

 

[dmcowen674]

Middle class is defined as people with $500,000 to $700,000 now?

WTFBBQ

8-10-2007 Mortgage Fears Drive Up Rates on Jumbo Loans

Turmoil in the U.S. home-mortgage market is starting to pinch even buyers of high-end homes with good credit records, in the latest sign of rising anxiety among lenders and investors.

Lenders now are jacking up rates on jumbo mortgages for prime borrowers.

These mortgages exceed the $417,000 limit for loans eligible for purchase and guarantee by Fannie and Freddie.

They account for about 16% of the total mortgage market, according to Inside Mortgage Finance, a trade publication, and are especially prevalent in California, New Jersey, New York City, Washington, D.C., and other locales with high home costs.

The higher costs for such loans will put further downward pressure on home prices in areas where homes typically bought by middle-class people can easily cost $500,000 to $700,000.

Even borrowers with good credit records who can afford a large down payment are finding rates surprisingly steep if they can't qualify for a loan that can be sold to Fannie or Freddie. Rates on prime jumbo loans have risen so fast that "nobody in their right mind would pull the trigger" and accept one now, unless they couldn't delay a home purchase, said Darren Weisberg, president of PFG Mortgage Services Inc., a mortgage broker in Lake Forest, Ill.

Some lenders are pulling the plug on whole categories of loans. Yesterday, National City Corp., a Cleveland banking company, said it has suspended its offerings of home-equity loans or lines of credit made through brokers rather than the bank's branches. The company cited market conditions.

 

[dmcowen674]

Originally posted by: LegendKiller

Originally posted by: dmcowen674
The truth is your fellow cohorts in the Industry have been scamming for the past 6 years and are starting to be called on the carpet for it:

Do you think that's supposed to harm me or somehow implicate me? Wow Dave, you're saying something I have said before and something I distance myself from as much as possible, great job! I have never taken part in an RMBS transaction myself and I tend to keep it conservative in all of my deals, so you can go fly a kite on that one. Those banks are no better or worse than many shady people in the world.

As far as scamming for the past 6 years, that's complete bullspit. I know far too many homeowners who only went into the deals to make money and are actually far more greedy than people I have interacted with on the street. They knew what they were doing, inasmuch as they thought they would become rich and ignored all risks.

I tried to warn a friend of that myself. Idiot took out 600k in mortgages with 2 houses while having 2 kids with 2 different dads, in highly bubbled areas in SoFLAm, only 30k income, in a hurricane hit area. I warned her of the problems and she refused to listen to my words of caution, because she thought she was going to make millions. She even went as far as to say the only reason why I was cautioning her was because I was jealous of how much money she was going to make. Whatever, she's now in foreclosure on both houses and I have no remorse.

Nobody can sit here telling me that this market was driven by people with only knightly ambitions of owning their house in an American dream, or other related ideas. Additionally, nobody can sit here telling me that the mortgage "professionals" who got many people in these mortgages were straight up in all cases.

A lot of people failed to do their jobs, from the purchaser all of the way up to the investor in MBS securities. Blaming one group individually is moronic and quite expected from a moron like you.

 

[mshan]

"Lenders now are jacking up rates on jumbo mortgages for prime borrowers."

I believe reason for this is that if someone in the secondary market decides to step up and purchase a bundle of jumbo prime mortgages, it's highly likely it will be worth less than they thought it was worth a day or two after they made that purchase.
So they have overcompensated and jacked up their rates to protect themselves from more downside risk than they anticipate.
Mortgages that will be insured and bought by Fannie, Freddie, FHA, and VA are still working fine. Other secondary markets are in a liqudity crunch because the investors who usually buy these bundled mortgages basically have a buyer's strike until they see a stable and predictable market for their investments.
Yes, they may be gouging these jumbo prime borrowers, but they are also protecting their investments in an uncertain and currently unpredictable market.





Credit squeeze reaches dramatic stage
Commentary: Central banks pour in cash, but underlying problem still alive
Friday, August 10, 2007
By Lou Barnes
Inman News


"Interest rates for traditional Fannie/Freddie/FHA/VA mortgages are still in the same place, roughly 6.75* percent for the lowest-fee deals. These loans are fully available, underwriting unchanged, funding for closing as reliable as ever.

The rest of the mortgage world ... jumbos about 7.25 percent; Alt-A for big-down high-FICO, 9 percent. NINE. In three weeks' time the clock has turned back to 1995.

Four things to keep separate here: a short-term crunch in the banking system; huge long-term credit losses by investors; a cooling economy still with an inflation problem; and a withdrawal of mortgage credit that will make a housing recession worse.

The credit crunch that began three weeks ago reached its end stage yesterday, the Euro-American banking system locked up altogether. Dramatic, but not dangerous: central banks are pouring cash into the system. Ice water will quiet a mob of hysterics, but will not solve the underlying problem.

Which is: massive credit losses in the aftermath of The Great Credit Party, 2000-2006 (R.I.P.). So far, market losses on mortgage and other derivatives merely anticipate the actual credit losses from default and foreclosure, whose magnitude markets cannot know until well into 2008.

So. What to do? The Fed has thus far done the obvious, liquefying markets. It should not cut its 5.25 percent interest rate until the economy cracks (I think that's a when, not an if); to do so prematurely would compound its inflation problem. However, liquidity and rate cuts are not enough to fill in a credit crater quickly (it took three years of Fed ease in the early '90s to replenish bank capital). Credit failures big enough to threaten the system require isolation and bailout (S&Ls); despite the extraordinary diffusion of this loss, the central banks will preserve the key institutions.

The big test: be certain that mortgage credit starvation does not turn a housing recession into a disaster in the bubble zones. Whatever those losses would have been based on mortgage availability three weeks ago ... are larger now. Today's Back To The Future mortgage world affects only new applicants, which means August sales, which means several weeks until we know the damage. "Hitting a wall" may be an overstatement, but not by a lot.

One good solution is available, suggested timidly by a few public officials: get the handcuffs off the Fannie and Freddie portfolios, and get them into the market as buyers -- and not just their traditional product, but any well-underwritten paper of any size or type. Right now. Immediately.

Won't happen, of course. Can't expect the same people who ignored the most colossal credit FUBAR of all time to get the fix right. There are a few good people who understand (Richard Syron, CEO at Freddie, for one), but from the top down, too few.

President Bush reacted to the Fannie/Freddie suggestion by parroting the right-wing line: maybe they could enter the market "... after they are reformed." The hard-heads who object to government-guaranteed mortgages forget the conditions that FHA and Fannie were created to resolve. Privatized markets are ideal, but philosophical zeal should not abandon California and Florida to a 1935 fate.

Presidential hopeful Hillary Clinton offered her mortgage fix this week: a national registry of mortgage brokers, disclosure of fees, a foreclosure time-out and a billion-dollar homeowner bailout fund. As the press asked questions exposing the absurdity of the plan (a billion bucks wouldn't get you beyond Detroit's city limits), the scene was surreal: she looked just like President Bush when sniped by surge skeptics, indignant and rigid.

We need a smart and brave bunch, like the '98 Committee to Save the World (made up of then-Fed Chair Alan Greenspan, then-Treasury Secretary Robert Rubin and then-Deputy Treasury Secretary Larry Summers) immediately to secure the mortgage supply. One man may have turned up: to add cash, the Fed usually buys Treasurys, but this time it bought mortgage-backed securities. Well done, Fed Chair Bernanke. Nice to know that you're scared, too.



Mortgage Shopping Resources:
- According to the most recent Mortgage Insider podcast ( http://themortgageinsider.net/...der-show-8-3-2007.html ), the true "par" wholesale mortgage rate for prime borrowers was 6.25%* last week.
(google "yield spread premium" and "bank service release premium")
- Excellent, more mainstream book on how to shop for a mortgage: http://www.amazon.com/gp/produ...33/102-7310916-5234569

 

[theeedude]

Good times are here again. Too bad this market is going to take forever to crash to the actual bottom.

 

[Jhhnn]

Amazing. Financial experts dancing on the head of a pin, trying with all their might to avoid the gist of it all- that current real estate prices are unsupportable, and that the securities based on them are way, way over valued, too...

The major players are trying to avoid taking the losses they deserve, as are homeowners, particularly those who've bought or refinanced to the hilt in the last few years...

With calls for fannie may and freddie mac to step in just thinly veiled attempts to facilitate a bailout... while it's important to prevent collapse of the banking system, that doesn't mean that the taxpayers should take a huge hit, either...

 

[mshan]

Subprime loan alternatives
Where credit-challenged borrowers can go for a mortgage loan - without the painful interest rates
By Les Christie, CNNMoney.com staff writer
July 24 2007: 9:02 AM EDT

NEW YORK (CNNMoney.com) -- After the subprime mortgage market collapsed, many products that were widely available have disappeared from the scene.

More than a score of subprime lending specialists have closed their doors. And many banks like Washington Mutual (Charts, Fortune 500) and Wells Fargo (Charts, Fortune 500) have cut back on or eliminated subprimes, leaving many credit-damaged home buyers scrambling to find a loan.
Bankrate.com (my edit: I believe these Bankrate.com rates are often teaser rates designed to get you call the advertiser so they can put on a hard sell; beware)
Current Mortgage Rates

Type Overall avgs
30 yr fixed mtg 6.24%
15 yr fixed mtg 5.89%
30 yr fixed jumbo mtg 6.96%
5/1 ARM 6.07%
5/1 jumbo ARM 6.47%
Find personalized rates:


But now that the collapse has shaken out some of the sketchier players, some familiar and more reliable alternatives to subprime are making a comeback -- but they do require some work.
Federal Housing Administration

According to Jerry Brown, a public affairs officer with the FHA, the administration wants to make it easier for low and middle income, credit damaged and first-time home buyers to get a foot in the door.

FHA loans originated during the Great Depression when foreclosure waves put hundreds of thousands of people onto the streets. They're offered by private lenders but insured by the government, reducing risk, so lenders are willing to make them at favorable terms.

FHA loans used to be more popular, but they were eclipsed by easier-to-obtain subprime products. Their market share fell from 18 percent of all home loans in 1990 to less than 4 percent by 2006, according to the National Association of Home Builders.

One reason is that the application process for an FHA loan is more tedious and requires more paperwork than that of subprime loans touted during the housing boom.

Today, there's a new push toward FHA. Assistant Secretary for Housing, Brian Montgomery, testified before a congressional committee in favor of modernizing the process for the benefit of "troubled subprime borrowers."

Requested changes include: Eliminating a 3 percent down requirement, which would enable more low income borrowers to qualify; increasing the maximum loan to reflect the increase in home prices brought by the housing boom; assigning rates by risk to enable borrowers with higher credit scores to receive lower interest rates.

The first step a prospective home buyer hoping for an FHA loan should take is to contact several lenders. It's important to comparison shop because the lenders offer different terms and rates, just as in conventional loans.

FHA loans with low interest rates can be approved with low down payments. Adjustable rate mortgages (ARMs), which can help buyers to get through the first, and often most difficult, year of ownership, are also available.

The FHA ARMs reset yearly at no more than 1 percent higher than the original rate, and can rise no more than 5 percent above the original rate, keeping them affordable for borrowers.

Another advantage to FHA loans, according to Brown, is the credit counseling that comes with, which the agency recommends. They also requires lenders to help borrowers in trouble instead of simply foreclosing on their homes.

FHA's mortgage programs typically have no maximum income limits for qualifying; many high-income borrowers have FHA loans. But, as Brown pointed out, FHA loans target low and moderate income borrowers and offer little advantage over prime rate loans. Few high-credit-score borrowers choose to go through the more complicated process of obtaining them.
Veteran's benefit

Another government guaranteed loan with attractive terms is a Veteran's Affairs loan. The borrower has to be a veteran or the surviving spouse of one who died from a service-connected condition. Loans are available for up to 100 percent of the purchase price.

Many veterans who don't qualify for a subprime loan may still be able to get a VA loan, according to Nathan Long, Chief Executive of Mortgage Research Center, a VA approved lender. VA loans are often made to borrowers with a couple of dings in their credit histories.

"Even severely credit damaged borrowers can qualify for a VA loan after only 12 months of clean credit history," said Long.

Rates are extremely competitive. A 30-year fixed carries about the same rate as a normal prime rate loan, currently about 6.75 percent, according to Long.

It's an even better deal than that, because 100 percent of either the purchase price or the appraised value of the property (whichever is lowest) can be financed without separate mortgage insurance, which adds a point or two to the rate of a prime loan for the final 20 percent of the principal.
Community development

A little-know loan product is the "census tract" or Community Reinvestment Act (CRA) loan. According to Steven Habetz, a mortgage broker with Threshold Finance in Connecticut, the CRA requires banks starting business in a new area to help meet the credit needs of the entire community. That translates into loans to low and moderate income borrowers.

And with the current boom in retail banking expansion, there's a lot of liquidity looking for low income borrowers.

"Things have gotten very competitive," said Habetz, " and many banks are looking to make these loans. They may subsidize them by a half percentage point or more and a large portion of most urban areas are eligible for them."

The loans can boast low interest. Habetz said, "We can do a 30-year fixed at 5.75 percent right now for a couple of points." (Points are fees paid up-front to lower the interest rate for the entire term of the loan.)

Borrowers with credit scores of 600 can qualify for these loans. And you don't necessarily have to buy in a low-income area to be eligible.

"If your income is 80 percent or less of the median for a county, you can qualify, wherever the house is located," said Habetz.

Even if your income is too high to ordinarily qualify, but the house you're buying is in the low-income census tract, you can get a loan. Habetz pointed out that in many of Connecticut's small cities, such as Bridgeport, the entire town is defined as a low-income tract.

To see if the house you're interested in buying is in one of these areas, go to the Federal Financial Institutions Examination Council and click on "Geocoding/Mapping System." Type in the property's address and hit search.

On the resulting page, hit "Get Census Demographic." The page that appears will have a box identifying the tract income level. If the income level is low or moderate, the property is eligible for the loan.

http://money.cnn.com/2007/07/2...x.htm?section=money_pf

 

[Jhhnn]

I'll put the efforts to bring in the FHA and the VA in the same genre as those to put it off on Fannie Mae and Freddie Mac- to put eventual losses off onto the taxpayers. It's the only way that investors and over extended homeowners can avoid huge short term losses- maintaining unsustainable prices awhile longer while keeping the commissions and fees flowing to mortgage brokers and real estate agencies...

Making it easier for poor risk buyers to get FHA and VA loans just makes it easier for the taxpayers to take it in the shorts... anybody who can't figure that out really isn't thinking...

 

[mshan]

I don't think that article was recommending bailing out subprime borrowers who should have never gotten a loan in the first place.

I think it is just saying that there still are loans still available for credit worthy people (i.e. they will be able to pay their monthly mortgage payments) looking to take advantage of the current downturn in the housing market to buy a home even if they don't have an 800+ FICO and 20% down.

 

[piasabird]

So these are the ignorant uneducated borrowers that got a loan and did not have the sense to make it a fixed rate loan. They took a chance and now they have to pay for it. Such is life. Maybe some of these banks need to be forced out of business if they keep issuing loans to people who cant pay the loan.

The sad fact is that the banks dont own the loans they sell them to some other type of institution and get off scott free. There is not enough pain for the banks.

 

[GrGr]

"Not so bad......"

This sub-primes mess has caused a global banking crisis. Today the Feds had to step in and throw tens of billions of dollars into the breach to prevent a complete meltdown. The European Central Bank has pumped in over $ 130 billion to prevent panic "the largest amount ever provided in a single operation, exceeding the amount added after Sept. 11, 2001, attacks." (WaPo)

This is a MAJOR financial crisis make no mistake about it. The US isn't Zimbabwe. When the US screws up the rest of the world gets seriously hurt.

 

[mshan]

Sadly, the massive infusion of liquidity by banks all around the world really seem like they are just a temporary band-aid that doesn't fix the underlying problem.

All of these institutions around the world need to come clean, take their lumps, and move on.

As many commentators on tv have said, Wall Street can accept losses. They will reprice stocks accordingly, but if they don't know how deep the rabbit hole goes, then we have a problem.

 

[Jhhnn]

From your linked article, mshan-

Today, there's a new push toward FHA. Assistant Secretary for Housing, Brian Montgomery, testified before a congressional committee in favor of modernizing the process for the benefit of "troubled subprime borrowers."

Duh!

 

[mshan]

Unfortunate political pandering.

This is one case where I hope Bush stays strong and vetoes any of these thinly veiled bailout schemes.

 

[heyheybooboo]

If you guys come up with any REITs or mortgage lenders around you going under post me a link here . . . . I'm workin' on a list . . .

U.S. regulators are scrutinizing the books of Wall Street's largest investment banks amid questions they are hiding losses from subprime mortgages, people familiar with the inquiry said.

Ouch!

Originally posted by: LegendKiller
I tried to warn a friend of that myself. Idiot took out 600k in mortgages with 2 houses while having 2 kids with 2 different dads, in highly bubbled areas in SoFLAm, only 30k income, in a hurricane hit area. .

What type of financial institution would make a loan anywhere close to this? That company deserves to go bankrupt and its investors broke . . . .

Edit: Hey, Killer . . .

You wouldn't happen to work for the Red & Blue bank? Blue & Green? Burgandy & White?

 

[mshan]

Goldman, Lehman, perhaps?

They weren't the actual lenders, but they, along with others, bundled these toxic waste up for investors all around the world and may have some exposure on their books too (hedge fund managers that are getting margin calls from these brokers probably went to the SEC and said that they are demanding that these CDOs get marked to market, but don't apply the same standard to their own subprime exposure). Their stocks are down, but I don't think anyone thinks they will go out of business (question is how much these undisclosed losses will effect their earnings going forward)


I think these CDO's may not be worth the 100 that they are supposedly worth, but I also think that they are that they are not worth zero because the actual properties are collateral.

People in real trouble may be foreign institutions that own derivatives of these CDOs and have lots of leverage applied. So even small markdowns in value, when combined with massive amouts of leverage, can essentially make their investments worthless. That's why I say that we not have one domestic Long Term Capital Management this time, but a whole series of Long Term Capital Management timebombs spread all around the world.

 

[heyheybooboo]

Originally posted by: mshan
Goldman, Lehman, perhaps?

They weren't the actual lenders, but they bundled these toxic waste up for investors all around the world and may have some exposure on their books too (hedge fund managers that are getting margin calls from these brokers probably went to the SEC and said that they are demanding that these CDOs get marked to market, but don't apply the same standard to their own subprime exposure).


I think these CDO's may not be worth the 100 that they are supposedly worth, but I also think that they are that they are not worth zero because the actual properties are collateral.

People in real trouble may be foreign institutions that own derivatives of these CDOs and have lots of leverage applied. So even small markdowns in value, when combined with massive amouts of leverage, can essentially make their investments worthless. That's why I say that we not have one domestic Long Term Capital Management this time, but a whole series of Long Term Capital Management timebombs spread all around the world.

I got the biggest French bank - Paris-based BNP Paribas SA. They halted withdrawals from three investment funds that hold mortgages yesterday.

I'll check on Goldman . . . . thanks!

 

[Jhhnn]

Please, mshan- Assistant Secretary for Housing Brian Montgomery is just another Administration sock puppet in the context of the issue. They're floating a trial balloon with plausible deniability, seeing if it'll fly...

Dems are playing the game, too- neither side wants the political donor class to take an ass-whupping, particularly not in an election year...

Bush won't veto anything that benefits his true constituency...

 

[mshan]

Goldman and Lehman ain't going out of business.

Markets are very volatile and I get the impression that it's very dangerous even for professional traders.

If you think you are going to short these stocks and make money, you are going to get your head handed to you!!!

Smarter move would be to invest in a mutual fund with true deep value or contrarian growth style and whose shareholder base doesn't have a lot of fickle, hot money in it.

Dollar cost average down on days the market tanks, don't worry about fluctuations in mutual fund price over the short term, and be very very happy in 5+ years for now.

Mutual funds that come to mind are Selected American Shares (SLASX or SLADX; large value fund that has expertise in financials), or Vanguard Capital Opportunity VHCOX / Primecap VPMCX (these are contrarian growth managers who have a record of outperformance over long periods of time). I'm sure there are lots of other quality candidates, though it is probably wise to stay away from financial sector funds because they don't have much maneuveurability if markets rotate away from favoring financials.

Time and compound interest are wonderful things, so even if these funds aren't the best performing funds on the market, if they can minimize downside risk - basically capital preservation, they can outperform the market in terms of how much money you have down the road, even if they aren't on the cover of Money Magazine, etc. as best performing funds for a given year. e. g. if a fund were to drop 50%, gain after that has to be 100% just to get back to baseline.

 

[mshan]

"Bush won't veto anything that benefits his true constituency..."

Well then, we will see if he walks the walks...

(I think Chuck Schumer is more in bed with these financial institutions, so I hope you're wrong, though I suspect you might be right)

 

[LegendKiller]

Originally posted by: heyheybooboo
If you guys come up with any REITs or mortgage lenders around you going under post me a link here . . . . I'm workin' on a list . . .

U.S. regulators are scrutinizing the books of Wall Street's largest investment banks amid questions they are hiding losses from subprime mortgages, people familiar with the inquiry said.

Ouch!

Originally posted by: LegendKiller
I tried to warn a friend of that myself. Idiot took out 600k in mortgages with 2 houses while having 2 kids with 2 different dads, in highly bubbled areas in SoFLAm, only 30k income, in a hurricane hit area. .

What type of financial institution would make a loan anywhere close to this? That company deserves to go bankrupt and its investors broke . . . .

Edit: Hey, Killer . . .

You wouldn't happen to work for the Red & Blue bank? Blue & Green? Burgandy & White?

Nah, I work for the Red and White bank. We are big, but more quiet. A few years ago my bank learned a tough lesson about subprime mortgages, in Europe. After that they tend to be much more conservative, which I like.

As far as who would lend that kinda money, I am sure it was some shady broker. In fact, I think it was a guy who was also working as a car dealer part time, figures.

I don't think you'll see any bank bust. BNP Paribas, Satander, and others, are pretty well protected since they have massive commercial/retail banks. The ones that'll get hit hard are the undiversified investment banks with smaller to no retail arms. You can take your guess on which those are. They won't go under but EPS in Q3 will most likely be very small, flat, or negative for many as their books take massive mark hits. Underwriting fees in these areas will be hammered and the marks will also keep going for quite a while.

People think hedge funds will come to the rescue, but I think that a lot are still in trouble. Lots of leverage, little protection.

Another area that people have forgotten to mention is securities arbitrage. Expect to hear about that in the news sometime soon. Lots of money made off of that and it's now gone.

 

[mshan]

"As far as who would lend that kinda money, I am sure it was some shady broker. In fact, I think it was a guy who was also working as a car dealer part time, figures."

Agreed.

Boiler room stock broker also?



"Another area that people have forgotten to mention is securities arbitrage. Expect to hear about that in the news sometime soon. Lots of money made off of that and it's now gone."

Are these the computer model driven Quant hedge funds that people on tv are reporting may be in trouble and are getting margin calls and forced selling to cover anticipated redemptions?