The Party's Over

I just want to ask a question
Who really cares?
To save a world in despair
Who really cares?
There'll come a time,
when the world won't be singin'
Flowers won't grow,
bells won't be ringin'
Who really cares?
Who is willing to try
to save a world
that is destined
to die?
When I look at the world
it fills me with sorrow
Little children today
really gonna suffer tomorrow
Oh what a shame
such a bad way to live

-Marvin Gaye, Save the Children


William Goldman said it about Hollywood: No one knows anything.

I think that holds true for the American public when it comes to EM08; it's so far-fetched, convoluted and rooted in history, the history of conglomerated corporate America, or ccA. ccA however, has the edge, and have gamed the casino in ways that make Steve Wynn look like a baby.

There's one prime reason, though, that ccA doesn't want you to know anything of the real truth as to its inner workings; as the late Tanta at Calculated Risk was fond of saying, and I paraphrase:

There's truth in the saying, "Knowledge is power."
That's why they never give you any.

This explains why a young person can emerge from 12 years of public or private schooling - and I'd bet in most cases even college/post-grad - and be economically illiterate, along with illiterate in terms of language, politics, art, history, other cultures....

My writing on the subject of EM08 had one angle on what I called the refs. At various times in our system of so-called "checks and balances," there are supposed to be standards enforced - checks - regardless of power and authority, much less image and reputation. So, the SEC are one team of refs; there's another for commodities, one for M & A, and so on. (Get this, sometimes there are multiple refs!)

When it comes to investing, one team of refs - the ratings agencies - played a crucial role in the so-called sub-prime mortgage disaster that led to EM08's first domino otherwise known as Fannie Mae & Freddie Mac being toppled. On a side note, isn't it interesting how we never hear anything about "Fannie Mac" anymore in the conglomerated mass-media?

That great young lion of a writer, Matt Taibbi, cited the rating agencies in a lengthy Rolling Stone piece deconstructing the history of economic bubbles, which I commented upon in July. In it, he said:

Take one $494 million issue that year, GSAMP Trust 2006S3. Many of the mortgages belonged to second mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation — no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody's and Standard & Poor's, rated 93 percent of the issue as investment grade. Moody's projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months. [emphasis, mine]

So, that Diana Golobay's article below talks about the option ARM loans about to reset is correct but nothing new, as I pointed out last December, despite the conglomerated mass-media's willful ignorance of the subject. The salient point is how Golobay never cites the irony of her source: Fitch.

The punchline? Fitch's was one of the refs - a ratings agency - in on the fix.

Housingwire.com, at:
http://www.housingwire.com/2009/09/08/134bn-of-option-arms-to-recast-by-2011-fitch/

$134bn of Option ARMs to Recast by 2011: Fitch
By DIANA GOLOBAY
September 8, 2009 11:46 AM CST

Option adjustable-rate mortgages (ARMs) are due to affect performance of US residential mortgage-backed securities (RMBS) in the next two years, according to Fitch Ratings.

Fitch Ratings determined $134bn of loans within US option ARM RMBS will recast in 2011.

Option ARMs historically present concerns over negative amortization, a process through which the loan balance essentially grows each month as borrowers elect to repay the minimum amount due.

An option ARM recasts when it reaches a balance cap typically ranging from 110%-125% of the original mortgage or 60 months of age, according to Fitch. The monthly payment obligation then increases from the minimum amount to a fully amortizing principle and interest payment.

This “payment shock,” a hike often 63% higher than the minimum payment, indicates a greater risk of default, Fitch said.

“Having not demonstrated their ability to make payments at the full rate, option ARM borrowers are at the greatest risk of default resulting from payment shock,” said Huxley Somerville, group managing director and US RMBS group head.

The majority of option ARMs Of $189bn of securitized option ARM loans outstanding, 88% have yet to recast. Of those, 94% negatively amortized through the use of minimum monthly payments.

Performance is already troubled among option ARMs. Serious delinquencies — loans more than 90 days past due, in foreclosure or real estate-owned proceedings — rose to 37% from 16% in the past year.

The risks associated with payment shock drove Fitch to rate a small number of option ARM transactions, approximately 5% of all option ARM transactions.

How to Act in a Pet Store

This is just plain great. It says a lot about common decency, assumptions, expectations, self-entitlement, privilege, perception...

I love the pin-to-the-journalists'-balloon attitude.

Well-written and just eloquent in her/his use of "the spanking word," I'm an instant fan.

From the blog, Calculated Risk

Saturday, March 10, 2007
Media Inquiries Policy

by CalculatedRisk on 3/10/2007 05:18:00 PM

From CR: Regular readers will immediately recognize that the following piece was written by Tanta. I'd like to add that I have an excellent relationship with several prominent reporters (you know who you are), and I look forward to continuing our offline discussions via email and phone calls. I've never sought any personal publicity, although I'd be happy if you quoted from the blog (with a reference). For those reporters hoping to have a similar relationship with Tanta, please think of Tanta as the Man in Black from the "Princess Bride":

INIGO: Who are you?!

MAN IN BLACK: No one of consequence.

INIGO: I must know.

MAN IN BLACK: Get used to disappointment.

Dear Inquiring Minds:

Calculated Risk is a hobby blog, created and maintained by a retired executive, with occasional assistance from a former bank officer and mortgage lending specialist who is currently on extended medical leave. Both of these people get endless questions, answers, hat tips, links, analysis, and overall inspiration from a very diverse group of commenters, regulars and occasional de-lurkers, all of whom are beloved except some of them.

CR regularly gets emails and comments from paid reporters who wish to know if CR or Tanta would like to be interviewed, or would simply like to answer one or several questions that the reporter has about economic or housing or mortgage issues. Because, so far, the answer has always been something on the order of “no,” we would like to explain to you why this is the case. (CR Note: I have no problem discussing general economic and housing issues offline).

Calculated Risk is a blog. That means that it is a medium on which CR, Tanta, and the commenters are free to publish the things they want to say about subjects in which they are interested and to which their expertise is relevant. It is possible that there are bloggers out there who are publishing blogs with the secret hope that they will be discovered by the Big Paid Media and get interview requests, so that they may see their names next to a short, context-free, undetailed, possibly memorable or pithy but usually just crudely-edited quote in the newspaper. Some people may have ambitions that go beyond that, such as becoming a freelancer for Big Media companies, in order that they may get paid in the high two figures to produce short, simple-minded articles that Big Media won’t fact-check any more than they fact-check anything else. There may even be bloggers so delusional innovative that they still have hopes that the Big Media, print or online, will quote directly from their blog postings and provide links (text or hypertext, as the format allows) so that Big Media’s readers can be directed to the blog for further information. It’s a big internet, we’re not all alike, and neither CR nor Tanta intends to be speaking for any bloggers other than themselves here. Suffice it to say we are not in the above categories.

Dear reporters, we quote your stuff periodically, giving credit both to the reporter and the publication, under fair use terms. We have no objection to your returning the favor. If you have an editor who will not allow that, and you think that the problem can be solved by getting one of us to drop our online personas, give you our real names, and say the same thing to you over the phone, so that you can get your editor to accept it as something other than just blogging, which everybody knows is untrustworthy ranting by anonymous nuts, you are making a faulty assumption about the relationship among us, our birthdays, and yesterday. Neither CR nor Tanta wishes to play into a set of assumptions that render what we say on the blog as unworthy of coverage by the Big Media, but what we might say on the phone to Intrepid Reporter as good dirt and straight skinny.

Do you, can you, understand the implicit insult in that? You want to talk to us because of what we have written on this blog, instead of simply engaging with what we have written on this blog. You are saying that blog entries we have written, at our own inspiration, on our own time, for our own intellectual purposes, backed up by our own research, are not good enough for you to use as source material (properly credited). It only “counts” if you get to ask the questions, form the story angle, edit the material, and put names on it. This is the message we’re getting from you, and the only reason that our answer to many of your inquiries is “no” is that we are—CR at least, is—too polite to make it “no, and go take a hike with the horse you rode in on.”

Some of you are also, if we may say so, operating out of a sense of entitlement that takes our breath away. Here is the entirety of an actual email we received from an actual reporter of a print publication (names omitted to protect the egregious):

I am working on a story about Wells Fargo and subprime lending. I am trying to determine if Wells Fargo bears any sort of risk to the subprime shakeout. You covered this topic on Feb. 16 after John Stumpf presented to the CFSB conference.

I have the same questions many of your bloggers did. What is co-issuing and does that really remove WFC from any risk from these loans?

That is the entire message except for the name and newspaper of the sender. CR and Tanta, who have both worked in large corporations for non-trivial amounts of time, can testify that we have rarely gotten emails like that even from our bosses, who were paying us in dollar-denominated instruments and therefore reserved the right to ask us to do some work. Tanta has herself received email requests for research and information from the CEO of her company that managed to include “please” somewhere near the beginning and “thank you” somewhere before the end. She has also received email requests from business associates who were not actually providing her paychecks, but who were sources of business for her company and thus part of what made her employer profitable, that included not only “please” and “thank you” but such phrases as “if you have the time” and “I realize you aren’t paid to do this, but” and “please let me know what I can do for you in return.” Stuff like that.

Let us say that we cherish those reporters who are regular readers of ours and insightful commenters on the blog, enthusiastic participants in a new medium, interlocutors rather than overlords. We hope any representative of the Big Paid Media will join us in our journey of discovery—just click on the “comment” link at the bottom of a post, make up a handle for yourself, and type away! Feel free to make suggestions for future posts; everyone else does. Feel free to share your own information; everyone else does. Feel free to get flamed if you get uppity; everyone else does.

At the end of the day, please try to understand that we’re doing this for fun. We are not being compensated except for the modest ad revenue that covers the costs of hosting the blog and doing some subscription research that pays salaries for Real Reporters. Insofar as you are sending us inquiries because you think we sound like professionals and have brains in our heads, we’re flattered. However, like you, we just want people to read what we have written. We are not here to hawk our services as comment-bots for some reporter on deadline, nor are we interested in anyone’s investment strategies. This blog is not about helping anyone else make money in the stock or bond or real estate market. Commenters are free to discuss such issues, although they are subject to being banned or having their comments edited if they appear to be disseminating insider information, or trolling for suckers to buy some product or service, or just hijacking threads to endlessly request investment advice that will not be given, unless such comments are sufficiently entertaining to the rest of us and provide useful opportunities for clever snark. The definition of “appropriate comments” is at the whim of the blog host, and there is no avenue of appeal. This guideline extends to emails sent to the blog host, which may or may not be read or answered as the blog host’s time, energy, and idiosyncratically fluctuating level of enthusiasm for reading emails allow. (CR Note: I try to read and respond to most emails) If you do not receive an answer to your email, it may be that we are simply without the time to get to it. It may be, as in the example above, that we do not trust ourselves to answer without blowing our cool in ways that are not conducive to a pleasant retirement or tranquil recuperation. Yes, this means that you are dealing with some hobbyists who really don’t care if this sounds “professional” or not. That is what we have been trying to tell you all along by our choice to be bloggers instead of professional research organizations. We apologize if our strategy was insufficiently transparent.

P.S.: If you are a Nigerian Prince, or anyone else, in need of a bridge loan in order to secure Endless Riches that you would like to share with us, please provide us with your SSN/TIN, checking account number, ABA/routing information, home address, and photographs. We promise not to share that information with anyone other than one or two acquaintances of ours at the DOJ. TIA, as we say on the blogs!
Posted by CalculatedRisk on 3/10/2007 05:18:00 PM