Standard & Poors announced today that it is putting more than $12 Billion worth of bonds tied to sub prime loans on watch. Following the announcement the U.S. dollar fell to new lows against foreign currencies.
Christopher Whalen from Institutional Risk Analytics said “When a ratings agency puts an ENTIRE class on watch, it forces credit officers to re-evaluate EVERYTHING. This could be one of the triggers we’ve all feared”
Hate to keep posting this stuff, I really do, but man, pay attention people. Your watching a train wreck starting to happen.
I enjoy reading your postings because they are informational, but you are right man do you EVER have good news for us? :biggrin
I think I’m the one for good news, right pete? Email me and I will give you an inspirational message in your email every morning!! Just kidding. Pete is obviously somebody that knows what he is talking about and very informative. I agree 100% with his tactics right now, buy low, sell low. Exactly what we are doing. Don’t buy it unless it’s a steal! Then make it better than anything else in it’s price range, then list it lower.
I could use some good news in my neck of the woods. South Eastern New England.
I live in a small state (the smallest) Last week we had 250 foreclosure notices in the local newspaper. 250!! To give you guy’s an idea of the scope of this thing LAST year at this time we had exactly 22!!! That is MIND boggeling to me.
I’m sick of posting this stuff believe me. But I gotta tell you, I read some of these posts and people are just not seeing it. Did anyone read the Phenix post??? We’ve got Dee from Texas saying that it is not going good there. She’s being HONEST. Then the very next post we have a realtor telling everyone how GREAT it is there. You HAVE to read it. I’ve read some rosy outlooks but MY GOD!!!
What is the train wreck that could happen?
I am trying to learn as much as possible.
When these sub-prime loans became popular Wall street provided the money. What basically happened is these loans were “packaged” into what Wall St. called CDO’s (collateralized debt obligations) These “packages” contained normal mortgages, sub=prime and sub A mortgages, these things were purchased and sold to HUGE brokerage firms, mutual funds and pensions. At the time it looked like a no brainer. The real estate market was rising SO FAST that even if a small percentage of borrowers defaulted the APPRECIATION of their real estate would cover the original mortgage amount. The problem IS they had NO plan for a sub-prime MELTDOWN. But it’s here.
So let’s review…rising homes values fuel this lending spree, everything is good because prices are FLYING HIGHER, but as ALWAYS every good thing must come to an end. Prices actualy started falling, and in some places FAST. Now these instituations which hold these CDO’s are finding out that the homes those loans represent ARE NOT WORTH the original mortgage amounts, and sub-prime foreclosures are overflowing and no one knows were that leaves these assets. One thing is FOR SURE, they ain’t worth what they paid for them.
The REAL problem is NO ONE knows WHAT THEY (the CDO’s) ARE REALLY WORTH!!! They don’t trade in an open style market. Last week a HUGE pension fund notified Bear Stearns
that they wanted their MONEY OUT NOW. Bear Stearns had to sell bonds to the tune of $3.2 BILLION to cover the reclaimation. They did not sell those CDO’s in an open market because initial interest set the market price at about …
30 CENTS ON THE DOLLAR!!!
That $3.2 BILLION represents less than 1% of the money in these CDO’s and S&P today said they are watching another $12 BILLION that may be down graded.
The ramifications here can not be understated. Do some of your own research. It’s literally a HOUSE OF CARDS.
There are a bunch of other factors that Petemfa didn’t mention. One of them is that our economy is dependent on consumer spending. Consumers are just about the only thing holding this house of cards up. Since we don’t manufacture things here anymore, we have shifted to a service economy. A service economy only functions when consumers are spending. The consumer is just about played out. The American Consumer currently has a negative savings rate, meaning that we are spending more than we earn. During the recent real estate boom, the consumer was making up this deficit by refinancing their rapidly appreciating real estate (their homes). That is now over and the consumer is starting to fail. Home prices are dropping and wealth will decrease. Since the consumer has refinanced at inflated prices, they will be upside down as their property values drop. Throw in that all of those ridiculous teaser rate and interest only loans will be adjusting to fully amortizing loans. We are in for an avalanche of foreclosures. The result is that the party is over. Once the consumer crumbles, we’re in trouble.
Now, consider that the rest of the world owns over 3 TRILLION dollars of United States debt. Of course, that 3 Trillion dollars is just worthless IOUs. When the Chinese finally wake up and stop financing us, we’ll be in a LOT of trouble.
All this is just a small part of the picture. It looks ugly to me, but I don’t know what we can do about it except to buy low - VERY LOW!