So What if We Had Just Listened To Mark Hanson (Mr. Mortgage)

It seems as if the news cycle is running about a year behind on just how deep and wide the credit crisis is. When the final story is written (if any of us survive to write it) we will take a look back at the folks that got it all dead wrong and run after them in angry crowd format with sticks and torches. So be it. But we will also eventually identify the people that had it dead right from the get go. One man that identified and warned about the sub-prime crisis early on in plain language was Mark Hanson, or "Mr. Mortgage" as he is oft referred to within inner circles.

Mark Hanson's discussions are so valuable for West Coast Real Estate that we felt it necessary to track him here at The Plastico full time with an RSS Feed on the right side of the page. You can stay literate on the housing market just by following his articles.

If you are a buyer or seller of real estate in California you need to hold your nose and read Mark's latest article where he takes a moment to rip the CA. Association of Realtors a new a**hole.

CA Association of Realtors Needs a Math Class…Perhaps Ethics as Well

Posted on September 29th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

In their latest attempt to paint a picture of the glass totally full of Cristal Champagne, CAR released a August home sales report on Thursday that made it seem as though the state had no housing-related issues whatsoever. This is exactly why I always scream ‘YOU CAN’T BELIEVE THE HEADLINES!

“Sales are now 85 percent above the monthly trough for this cycle, which occurred in October 2007, and for the first time this year are ahead of 2007 in year-to-date terms,” said C.A.R. President William E. Brown”.

I think CAR either needs a math class or should not be allowed to ever put out another press release. I have no idea what they are even saying here…

“The statewide sales figure represents what the total number of homes sold during 2008 would be if sales maintained the August pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales”

“Closed escrow sales of existing, single-family detached homes in California totaled 490,850 in August at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR® associations statewide. Statewide home resale activity increased 56.7 percent from the revised 313,310 sales pace recorded in August 2007. Sales in August 2008 increased 1.8 percent compared with the previous month.”

This would not bother me so much if three days before I didn’t put out a very well-researched August CA Home Sales Report saying:

“August was not good for the CA real estate market. Just one month after pom-pom’s were flying over how well the market did in July and bottoms were again being called across the board yet again, August, a peak sales month, delivered another blow. Total sales were off, organic sales were off, foreclosure-related sales rose, defaults rose and prices tumbled.”

The facts are that in August 2008 37,988 new and resale properties sold according to DataQuick. Last August, there were 33,429. There was an increase but nowhere near the 85% quoted above or the 56.7% quoted below. The sad part is in August 2005, 73,285 homes sold. Yes, there was an increase year over year from August 2007 to 2008, which could be viewed as encouraging. However, the number of ‘organic’ sales in August 2008 were only 21,172, as foreclosure-related sales made up 46.9% of the total sales. In August 2007, foreclosure-related sales were negligible. Therefore, in my book real home sales fell sharply from August 2007 to August 2008, less inventory was absorbed, prices tumbled, which is the most destructive and the foreclosure market remains the real estate market at least for now. Nice try guys.

Why we have no choice but to pass the "Paulson Plan"

The bailout package presented to Congress, which Congress defeated on Monday in order to punish America and the world at large, is absolutely essential to all of us. Let me explain the dire and urgent need for the plan to pass when it comes to re-vote this Wednesday.


The Problem:
We will deal with some of the culprits pictured above later. As of right now, banks across the country have stopped lending money to just about everyone.

Why?
Every financial institution in America is attempting to hoard cash to battle huge runs by their large account holders (especially those who have more than the FDIC insured 100K). Having unsuitable cash holdings has already shredded: Bear Stearns, Lehman Bros, WAMU, Wachovia, Merryl Lynch, AIG, Indy Mac, Fannie Mae, Freddy Mac, and more. Local and Regional Banks are all at risk of FDIC takeover as runs continue on their cash assets.

How the plan will help:
The 700 billion dollars can be used to create a transparent market to buy mortgage assets that have no current market and no current buyers. Private and Institutional investors have given up trying to buy mortgage assets originated in the past 5 years, therefore nobody knows how much danger banks are in that hold those mortgages because they can't be accurately valued (It takes a market to set a price).

How it screws up your perfect little life:
RIGHT NOW small and large business can not get loans needed to buy seed for farm, inventory for retail, or personal loans of all types - like the one you need so you can send Betty Sue to diesel mechanic school. The Christmas retail season will be met with pink slips instead of product in stores. The credit crunch will force huge layoffs in huge numbers because business in America and around the world will seize up along with their credit. Then the real pain will begin as demand for everything disappears along with your job. This will badly hurt every person in America from unborn (or un-aborted) fetuses to illegal immigrants to Wall Street CEO's.

The misconception: "This is just 700 billion for Wall Street Fat Cats" - Joe Sixpack.
The plan does not bail out Wall Street. Trust me - they have been in pain all year. This plan should cost taxpayers nothing and will return a profit if handled with basic care. This plan will help stop foreclosures as the Federal Gov buys distressed assets and holds them until they appreciate in a few years. This plan allows taxpayers to actually dupe Wall Street into buying these assets back in the future at higher prices then the current bargain value. Joe Sixpack can turn a profit and he can do it with money taken from rich people who pay nearly all of the taxes to the Federal Gov. to begin with. That is the briefest I can do it. Now- stick with The Plastico for updates, more importantly don't eat at Baja Fresh anymore because they keep shrinking their freaking burritos and cutting them in half is not fooling me whatsoever. Seriously, this looks like a bloated taquito.

Quote of the day; Dillon Radigan CNBC

Dillon Radigan: 8:50 AM PST (CNBC):

"Traders across the world are demanding a market solution to this problem. We collectively, 300 million Americans (Banks and Individuals) have about 46 trillion dollars worth of houses that we own as a group. It is possible that those houses are only worth 45 or 44 trillion dollars. We don't know because there is not a public market for the bonds that back our homes. The traders are demanding the rollout of a market for these assets.

How do you do that?
The Federal Reserve could use public money and demand public disclosure in an electronic market that lets everybody from the capitalists in our own country to those around the world, Dubai, China, and all the rest - to bid on these assets. The consequence of doing that would be meaningful markdowns for certain banks in America. In order to avoid the cascading effect of that, with the fear that would precipitate in the banks, the traders suggest that you should clear these trades through the federal reserve so that in the event that a bank must fail as a result of the new marketplace marks on these bonds the federal reserve can supervise an orderly disposition of those assets and allow the healthy banks with capital to resume lending.

Until we acknowledge that we are long 46 trillion in houses (and they may not be worth that) and can define the market for the assets so that we know how much we owe and allow the capitalist system to bid on it - the traders will not be satisfied nor will anyone who believes fundamentally in free markets. That's the umbrella here. The housing stock in America may be worth too much."

A Brief Explanation of Today's Nightmare on Wall Street

AIG (American International Group) is a huge insurance company - it lost 60% of its value today. It has lost 180 billion dollars of market value since it's high many months ago. Over 100,000 people work for AIG in about 100 countries.

Why AIG matters:

The trouble is not with hurricane damage or property loss that AIG insures - the problem is with credit default swaps that AIG insures and that are likely to go under and have been going under. In short: AIG insures things like corporate bonds - those bonds are defaulting and AIG will have to pay up with capital they don't have at the moment. AIG needs time to tap into assets that they do have - if their credit rating falls far enough (meaning they cant raise enough cash vs. the debt they that they are being called to insure) then they will be become insolvent and they will go bankrupt as soon as tomorrow (Tuesday). This would be an absolute total catastrophe for the US economy and it can't be allowed. Nearly every bank has exposure to AIG; it's that simple. Just moments ago the S&P put AIG on 'credit watch negative' and time is very short - just hours in fact before AIG is ruined.

AIG needed 40 billion dollars yesterday in immediate cash help; they did not get it. At the end of the day today CNBC reports that they may need more like 75- 100 billion dollars because of what is happening in the next paragraph. The Fed Reserve has no plans at the moment to approve a bridge loan to AIG.

Today is monumental in the history of Wall Street and for the nation. The drop in the Dow was the most in 7 years but that in itself was not the story at all. Lehman Brothers was one of the largest and most respected investment banks in the world. It no longer exists. Bear Stearns is no more. Merril Lynch has been saved by Bank of America. However, Bank of America already bought out Countrywide for way too much money and is likely to be in more trouble with short sellers. Goldman Sachs the darling of Wall Street, sometimes thought of as the best company in the world by people in the investment industry, has lost 19% of its value today and about 40% over the past couple of months. Washington Mutual lost 35% today. Morgan Stanley fell 14% today. Billions of dollars disappeared into thin air on Wall Street today. Fear and uncertainty are rampant.

The Fed meets tomorrow and whatever they do will be important; it is unlikely that they will react with rate cuts because oil prices have fallen and a strong dollar is a priority to continue that trend. When the Federal Reserve cuts interest rates - inflation is more likely to rise with all else remaining equal.

You may also wish that one of the four people running for executive office in America had significant economic or financial experience; none of them do. To make it all worse both Obama and McCain are sending exactly the wrong message to try to convince dumb people to vote for them - they want more regulation; more "transparency" on Wall Street. The only chance to save key institutions at the moment may be to use huge cash reserves that private equity firms would be happy to invest. The problem: Current regulation requires any entity owning 25% or more of any bank to be regulated like a "bank". No private equity firm would subject themselves to those rules; therefore their much needed cash is off the table and on the sideline. Regulation is prohibiting the market from working and government is too big and far too slow to help resolve the situation. It's not the end of the world yet; it is just another very bad day. The only question left: how many times can the sky fall?

Really big Monday Morning Roundup

It's been a busy weekend; this is the shit that hit the fan the hardest/wetest:
The final rout is on for investment banks on what is now being referred to as "Bloody Sunday"...

Lehman Brothers Holdings Inc. (LEH:US): The once fourth- largest U.S. investment bank said it intends to file for bankruptcy after Barclays Plc and Bank of America Corp. (BAC:US) abandoned talks to buy the crippled firm. The embattled investment bank says it will seek Chapter 11 protection and reorganization after frantic weekend of negotiations fails as all potential acquirers back away, feds refuse to commit public funds.

Merrill Lynch & Co. (MER:US): The Famous Bull is no more. Bank of America cemented its status as the largest U.S. consumer bank by agreeing to acquire Merrill Lynch, the world's biggest brokerage firm, for about $50 billion.

Washington Mutual (WAMU:US): The nations largest saving and loan has been so far unable to strike a deal with anyone despite rumors that JP Morgan was a bidder (JP Morgan already swallowed up former powerhouse Bear Stearns in a hasty government aided bailout). WAMU was not on the Fed's "to big to fail" list - so apparantly they are going to fail in one way or another very soon.

American International Group Inc. (AIG:US): The insurer struggling to avoid credit downgrades is seeking a $40 billion bridge loan from the Federal Reserve as it tries to sell assets.

So who might fail next?? According to the short interest, here is the current order of trouble if this nightmare continues beyond Washington Mutual: Wachovia, Wells Fargo, Goldman Sachs, Citigroup, Bank of America, JP Morgan.


All things considered the DJIA futures suggest a 300 point drop at the opening bell which sounds very optimistic.

Now - how about that California budget crisis thing:

California leaders say they have a budget deal
By Steve Wiegand

Senate Republican leader Dave Cogdill, left, and Senate President Don Perata, speaking on the Senate floor last week, both said today that agreement on a new state budget has been reached, pending the OK of both party's caucuses. Perata said he is "100 percent" certain the deal is done.

Legislative leaders said today they at last have a compromise deal on an 11-week-late state budget that calls for no tax increases, no borrowing from local governments or other state special funds -- and which makes no one happy.

Emerging from a weekend meeting in the office of Senate GOP leader Dave Cogdill, the quartet declined to give specific details of their compromise plan, saying they wanted to talk to their respective caucuses first. MORE from the Sac Bee

Blah Blah Blah.... Ok - we all need something less serious... How about Tina Fey as Sarah Palin: