As we discussed last week, the banking bailout bill is helping mega-bank takeover artists like Wells Fargo, Bank of American and others. As I predicted last week, the Paulson plan to give these predatory banks a direct cash injection to continue their bargain hunting, this week went into full overdrive without a word of dissent from regulators, Congress, or consumer groups. Paulson announced the Treasury would take a “stake” in nine mega banks with $250 Billion. The government would get some warrants in exchange and share in the upside down the road.

People are incorrectly calling this move a “nationalizing” of the banking industry. It’s not. It’s simply a signal to the smaller banks who won’t get any subsidy, “Watch your back, Jack!”. Even though the TED spread dropped toward the end of the week, it was nothing to write home about. So the banks are still suffering from the same “ailments” we had last week, but the media spin is different.

Suffice it to say, those banks not hand-picked by Paulson, are getting squeezed by no liquidity in the capital markets and now will have a vulture looking over their shoulder for the next mis-step.

I learned something new about the TARP system Paulson initially said the $700 billion would be used for…the buying of “troubled assets” from the banks. TARP rules state a bank can’t “flip” bad loans to the government…buy them at a discount from one bank and resell to Paulson for a profit.

That’s a no-no…as it should be.

However, there’s a loophole!

If the bank obtained the bad loan through a merger, acquisition (read takeover), bought them out of a conservatorship (what typically happens when a bank is shut down by the FDIC) ….these TARP “unjust enrichment” rules do NOT apply!

If this isn’t the biggest motive in all the world to gobble up more banks…I don’t know what is!

Unbelievable…

The unmitigated greed these guys have…the nine banking moguls who met with Paulson this week just got handed the keys to the kingdom.

And we all sat here barely noticing…doing nothing…saying nothing…probably not even sure it was what was going on or if it was wrong.

Well, I’m here to tell you exactly what’s going on…and it’s not only wrong…it’s evil.

We will all pay the price for a consolidation of power in so few hands.

Mark my words.

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Tags: $700 billion, bank takeover, banking, banks, conservatorship

Great. Taxpayers now own banks, investment houses, probably an auto company or two before long, and the British have shown that, despite having lost their empire, they still know a thing or two about handling a financial crisis that the U.S. and others can take lessons from…

But does this mean that people who were on the cusp of being kicked out of their homes are all of a sudden safe –if not sound–once again?

The wolf may not be at the door, but he is still lurking just around the corner, for sure.

We keep being told that these massive government measures are aimed at helping Wall Street as well as Main Street–and, to some degree, this is certainly true.

And yet, we still do not have a firm plan in place that has as its primary purpose the preservation of home owners facing foreclosure. The housing plan passed earlier this year by Congress still hasn’t had much of an impact. And, one can only wonder whether the government buying stakes in troubled banks will actually force them to amend the mortagage terms of their most troubled clients?

If banks are really going to use their new financial lifeline provided by taxpayers to extend a helping hand to home owners, why are they still so vigorously opposed to changing the bankruptcy laws to allow judges to amend mortgage terms to help people stay in their homes? Most experts think that is the best way to ease the housing crisis, so why are they trying to block it at every turn?

One can’t help but wonder whether the big banks will take the money and help themselves while giving the cold boot to the rear ends of cash starved homeowner/clients?

90 days?
Barack Obama is proposing a 90 day hold on any pending foreclosures, but is that really going to help much? Seems a bit like a band-aid being applied to a cancerous mole. But McCain’s notions don’t really seem better. So, on this front, it may just end up being a draw.

What should have Americans really worried, if they are not already, is the lack of political leadership across the board. Neither Obama nor McCain have exactly been ahead of the curve on this one. And, the Bush administration is apparently taking its bailout cues now from the U.K.–talk about Masterpiece Theatre!

The more things change, the more they stay the same?

The other day, I received in the mail an invite of sorts from WAMU–now Chase–telling me how I could, if I qualify, get a nice, cheap mortgage at incredible rates. Odd, isn’t this how we sort of got into this mess allegedly in the first place? I know, the bank will no doubt say that what has changed is that it will now actually try and make sure that it only lends money to those likely to pay back. But, one can’t help but wonder, what with the US government pumping billions into these institutions, whether or not they won’t quickly revert to their past practices? That WAMU letter I got would suggest that is a real possibility.

If it does start getting easier to get credit, then, it would stand to reason, those cheap homes now on sale all over the country should be bought up fairly quickly.

But homes prices are still expected to drop so , even if credit become more available, buyers may still elect to stay on the sidelines waiting…which would only bring home prices down more.

Also, some economists are now predicting–even with this massive bank rescue plan–that U.S. unemployment may rise to more than 8 percent this coming year! Not great news for the housing market, either.

Don’t let the current excitment fool you. We are not out of the woods. Not by a long shot.

Photo Credit: kyz

Tags: bailout, banking, banks, Economy, government bailout, mortgage, REO

I promised you last week after outlining my belief the “frozen credit markets” was a contrivance by Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson, I’d spill the beans on why the dynamic duo wanted to lay their hands on $700 Billion since it wasn’t needed to thaw out anything.

So here goes..and I warn you it’s a little radical…but given this weeks events, I’m even more convinced it’s true.

My Theory on the Fed’s Bailout

As we discussed last week, the TED spread is the measure everyone is using to show how frozen the credit markets are and to repeat, this measures the willingness of banks to lend to each other.

The current story is the banks that formerly lent to each other at .5% now won’t lend to each other at 4.5%…and the TED spread proves it. Paulson and Bernanke used this “fact” to extort $700 Billion from Congress for the expressed purpose of ‘buying the toxic loans’ (I never bought that “toxic loan” story. The banks already took the hit, so how does getting a few dollars for yesterday’s writeoff help?) which are causing banks not to trust banks. Once those bad loans are taken off the backs of the banks, the fear to lend bank-to-bank will disapper…frozen credit markets thawed…crisis averted.

There’s only one thing wrong with this story…it’s not true.

Did anyone bother to ask if there might be another reason banks don’t want to lend to other banks?

The real reason the banks still left with capital (ie. Wells Fargo, JP Morgan, Bank of American…a few other mega-banks) don’t want to lend to the those banks who need it is simply because they don’t want to.

Yep, that’s right…they don’t want to.

If you were them, one of the Big Three, why would you lend to a small regional bank when withholding the loan will most likely make the bank a takeover opportunity for you at pennies on the dollar once the FDIC closes them down due to (because they couldn’t raise the capital) failure to meet reserve requirements?

You wouldn’t. You’d let them go under.

Big banks are withholding loans so under-capitalized banks fail. Once the under-capitalized banks fail, invariably the FDIC brokers a buyout to one of the Big Three or another mega-bank. This is market consolidation at gun point, but it’s working. Two more regional banks failed today.

To support my hypothesis, over the last couple of days, Paulson has saber rattled about buying a direct stake in some banks (an idea he never mentioned as the bill was getting debated in Congress) seemingly frustrated by the lack of “thaw” so far. This means the few big banks are going to get Treasury money to continue their buying spree. Buying failed banks even at pennies on the dollar costs money and they just as well use Hank’s money (I mean your money) as their own.

What Hank doesn’t spend help big banks gobble up small ones, he’ll use to appease our foreign credit buyers. A little unintended consequence of an artificially raised TED spread is a stock market tumble and confused foreign central bankers.

Simply call a quick meeting of the G7 financial leaders to calm their worries…and that is taken care of. Watching the stock market fall has it’s up side. It lends further credence to the whole “frozen market” cover story and puts even more pressure on those banks on tilt.

The biggest consolidation of banking, investment, and mortgage power, after all this over, will rest with just a handful of companies…companies hand-picked by Ben and Hank. Call me a quack, but in a few years when you have only 4-5 companies to pick from to get a checking account…it will be too late.

I really hope I’m wrong…

Photo Credit: SmileMyDay.com

Tags: bank, banking, Credit, credit markets, housing, lending, mortgage, paulson

Greetings from the metropolis of Cedar Crest, NM.

My ten year old son, Colt, loves football.  Colt’s football season came to an end this past weekend and he was devastated.   In an effort to pick up his spirits, I promised him that we would practice basketball this coming Monday.  My words of basketball did not keep the tears back….but he did realize that a new season of basketball was just around the corner.  Colt knew football would come to an end….just did not realize how quickly the last day would come….but we all knew it would come.

No truth in politics and YES…..that includes the politicians

As we go through this very difficult economic season, we hear the cries and shouts from all corners of the class ladder.  Turn on the TV or any AM radio station and you will hear the desperate voices…complaining and blaming.  With every complaint and every tear….there is a politician ready to listen and ready to wipe the tears.  But we all know there is no truth in politics…no matter what party you follow.  So when I see the bumper sticker with the face of a politician and the word “HOPE”….I laugh to myself.  Hope where there is no truth….how foolish are we?

We told you so…..

But….underneath the media stories and the political ads lies a small group of individuals that saw this coming.  These individuals are not all on the same page and do not all agree with each other…BUT…they saw it coming. I am not saying these people saw it coming a year ago or two years ago….but some saw it several years ago and some saw it decades ago.

These sophisticated and not so sophisticated individuals wrote articles and books of what is to come.  Others just created websites of the coming gloom and doom.  There were those that studied the cycles and based on history, predicted this economic down turn.  There were others that studied conspiracy theories going back hundreds of years ago.

No matter how they came to the same conclusion…..they all saw it coming.

The “I told you so” group

There are a handful of “I told you so” prognosticators.  Most of the have to do with the stock market, a few with real estate, the others with the banking system.  But if you are interested….here is how I started down this path…..

1) Prophecy by Robert Kiyosaki. Like most of you, as a budding entreprenuer, I started out with the series of Robert Kiyosaki books.  Rich Dad, Poor Dad got me thinking differently.  Robert’s book Prophecy…just got me thinking.  Mostly about stocks and retirement funds, the discussion on cycles was very intriguing to me.

2) The Next Great Bubble Boom by Harry S. Dent.  Again…mostly about stocks….but real estate is also mentioned.  This book freaked me out…a little.  But….Harry is almost on the money….so now it freaks me out a lot!  I think it is worth a read…I will probably read it again.

3) The Pirates of Manhattan by Barry J. Dykes.  This is a newer book but worth a read.  A little on the conspiracy theory (okay…a lot) but very interesting and a bit demoralizing.  If that hopelessness feeling does not hit you with this book…the next one might do it.

4) The Creature from Jekyll Island by G. Edward Griffin is the “king” of all conspiracy theory books I have come across regarding the banking system.  This is a great book if you want to understand banking system from it’s roots….but this is a text book…not an easy read…but the conspiracy stuff reads like a novel.  Per Griffin….everything that is happening today was part of a plan devised in early nineteen hundreds.  Griffin wrote this in the early 90’s.  To give you a better feel for the book…Congressman Ron Paul endorses it.

Did we not all see it coming?

We all knew the end was coming….but did we just choose to ignore it?  In some cases, I knew it was coming and took action.  In other cases….I ignored what was coming and I may possibly pay for it.  Either way….we are all going to pay for it….right?

Until next time….rob

Tags: banking, collapse, Economy, meltdown, mortgage meltdown

Greetings from the metropolis of Cedar Crest, NM.  Where my weekends are filled with  youth football, soccer…and then some.  As I yell at my boys from the sidelines to hustle and tackle and kick….the number 700 billion creeps into the forefront of my mind.  What in the heck is 700 billion?

What can one say about 700 Billion?

 
What does that number mean?  I cannot even fathom seven hundred billion.  I am used to using such a label on the number of stars in a constellation (I am sure I am off a billion or so).  How about the number of grains in a sand pile.   How about how old the earth is (okay…I am exaggerating now…right?)  How about the number of cells in one’s body?

Next question is …how does someone come up with the number “700 billion” as the magic number to bailout our financial institutions?

Am I the only one that finds that odd…? “Oh….700 billion should do the job!”  What is the bank failure formula?

Either way…something must be done….right?  Either way….we are going to pay for it right?  By the time this blog is posted….congressional leaders will have approved a bailout plan of some sort….at least some of us hope so.

I am not sure where I stand on this….and I realize that it does not matter.  But what I do know is there will be a lot of opportunity for those who prepared for this.  Everyone else will be in survival mode.

What is the truth?

The urgency of our congressional leaders to act was strongly worded by Bernanke during a commercial break at the most recent congressional testimony……..

“Senators, we live in a world that has bonds and bad construction loans and those assets need to be bought by men and women with balance sheets. Who’s going to do it - you, Chairman Dodd? You, Senator Schumer? I have a greater responsibility than you can’t possibly fathom. You weep for Bear Sterns and curse the banks just trying to get their collateral; you have that luxury. You have the luxury of not knowing what I know: that Lehman’s bankruptcy, while tragic, probably saved firms and that my existence, while grotesque and incomprehensible to you, saves markets. You don’t want the truth, because deep down in places you don’t talk about at parties, you want me buying assets - you need me buying assets. We use words like “foreclosure,” “Discount Window” and “TARP.” We use them as the backbone of a life trying to defend something. You use them as a punch line. I have neither the time nor the inclination to explain myself to a group of media hungry politicians who rise and sleep under the blanket of the very liquidity I provide and then question the manner in which I provide it. I would rather you just said “thank you,” and went on your way. Otherwise, I suggest that you purchase a defaulted option arm and pay par. Either way, I don’t give a dang what you think the American taxpayer is entitled to.”

Well….700 Billion seems to be the magic number NOW……unfortunately….there will probably be another magic number in the near future.

Until next time…..rob

Photo Courtesy: Jakerome - No way, no how, no bailout.

Tags: $700 billion, bailout, bailout bill, bank, banking, mortgage bailout

This article is a stretch when it comes to being about real estate but, what happened to me yesterday at the bank was so dumb that it all makes sense.

I had hired three day laborers to help me with a small house project I have been working on and as I was driving them back to where they were picked up that morning, I realized that all I had on me was $100 bills. I needed $20 bills to be able to pay them the correct amount. I figured I would go into the next bank I saw and ask them to change out the $100 bills.

The next bank I saw was a Capital One Bank. I parked (rather than going to the drive-thru) and went in. The teller waved at me and said he could help me. I walked up and placed two $100 bills on the counter and asked if he could break them for me. His response was, “Do you know your account number?”

I was a little baffled and said, “What for?” The teller then told me, “Without an account, I can only change one of the bills.”

I know it must have only been a second or two but, it felt like time had frozen as I just stood there with a blank look on my face. I reached out with both hands to take back the two bills and said, “That’s alright, I will go to another bank and I will never use Capital One for anything.” As I walked out, neither the teller or the door greeter said a word.

The next bank I went into was Washington Mutual and the teller told me she would be happy to change out the $100 bills.

Wait… There’s more!

I drove back to the Capital One, snapped a few pictures with my camera phone and scribbled down the address before dropping off the guys and going home.

This morning I decided to have some fun and I posted the incident on the home page of my website. Then I looked up the number for that Capital One branch and called to speak to the manager. After a five minute hold the manager picked up and I asked if I could have the name and number of the regional manager that oversees that branch. The manager asked who I was and I quickly gave him my name and asked if he was currently online at a computer. He said he was so, I gave him the URL and he pulled the site up and was quiet while he read.

After a minute or so I said, “I have to admit that this is the first time in my life that a bank refused to make change.” He apologized for the inconvenience and went on to tell me that they like to keep a “cash reserve” for changing currency for their account holders. I started to laugh and asked if I could quote him on that. He did not respond right away so I told him to never mind that and could I have the name and number for the regional manager. He gave me what I asked for and decided to not call the regional manager to see what would happen.

An hour later I got a call (on voicemail) from the regional manager. This is what the message said, “Hi Mr. Watkins, my name is ____ ______, I am calling from Capital One Bank, I wanted to reach out to you, I received a call from one of my managers at the south Garland location. I understand that there was an opportunity that we had to provide you a little bit better service yesterday from one of our tellers and I wanted to get more details on it. If you could please give me a call at 214-xxx-xxxx, thank you.”

I’m sorry but, I just can’t keep myself from laughing when I think about how dumb this petty little situation is. To know that the manager must have immediately called his manager to forewarn them that someone had posted information on the internet about them refusing to make change for two $100 bills. I’d like to think that the regional manager called to get me to remove the embarrassing details from my site rather than attempt to convince me that this was really poor customer service on the teller’s part.

Less than three hours after Washington Mutual made change for me, I heard they went under. The first thought that came to my mind was, “Why couldn’t it have been Capital One?”

Its sad to see the government starting to bail out some of these lenders when really they should be calling them out for making such dumb mistakes.

Tags: bank, banking, capital one, customer service, washington mutual

Trust, value, respect for one another, confidence, a person’s word plus a laundry list of other descriptives comprise not only our social fabric but our national financial landscape. If it were otherwise, we’d all need to walk around with pistols strapped to our leg.

That is my segué into a nasty trick Wall St pulled on a few million investors. You may be one and not even know it. The investment at the root of the trick goes by the acronym ARPS.

ARPS stands for auction rate preferred shares. I like the sound of auction preferred shares. Don’t you? It has a flair and bon vivonce about it almost unequaled in Wall St fictions.

You should also know these things called ARPS go by the names of other cash and cash alternatives. You should also know these were mainly, and still are, found in money market mutual funds.

History of Cash and Cash Alternatives

Other cash and cash alternatives have been around for a good number of years. At least 20 years by my research. They were simple little instruments that were safe and paid like clock work.

There was little or no risk to an investor’s principal because like the letter A – auction – said, the major players in the game conducted an auction in which they set the interest rates. All above board because it was done with the blessing of the SEC and, mind you, done in the public arena.

I use the verb were in the above paragraph in its strictest sense because this past February Goldman Sachs, Citigroup, Merrill Lynch and every other brokerage house quit bidding. This nasty trick immediately evaporated liquidity. I mention these three houses because they were the ones who created the auctions.

The lack of liquidity means people with money in this fund cannot take their money out. The fund is still carried on the holder’s statement at par (face) value because the underlying Triple A rated bonds are still in the fund’s portfolio and these bonds are still paying interest but the money simply isn’t available to the fund’s owner. In other words, the owner is not getting a dime from their account.

I bet if you are like me, you are incredulous and either can’t, or refuse, to believe what you just read. If you have money in one of these funds, you are nodding up and down and screaming out loud to anyone who can hear not to invest a cent in these boat anchors.

Of course Wall St still charges its fees and expenses just as if nothing has happened. There is a lot of speculation as to why the brokerage houses quit bidding but that doesn’t help the fund’s owners one bit.
The government has stepped to the plate to relieve the fiasco in the CDO and SIV markets but hasn’t done a darned thing to help ARPS owners. There is a lot of speculation as to the why of that non governmental action but that doesn’t help the fund’s owners one bit either.

I think there is something rotten at the U.S. Treasury. Just an opinion but if one looks at the man at its helm one sees deep Wall St roots probably still being watered by the good ole boys sitting in the leather chairs in the board room.

Joe Citizen is denied access to his funds but the creators, promoters and hucksters behind CDOs get a nice bailout. By the way, did anyone notice not only the Merrill-BoA “merger” but the $85 billion dollar bailout this last week… not to mention the MASSIVE $700 million bailout?

Tags: bank crisis, banking, cash