Want to know how low housing might go?? Merrill Lynch just found out!!

Merrill Lynch today finally found a buyer for some of their CDO’s. Remember, this market has basically LOCKED UP, NO ONE is buying this stuff because every 6 months the “COLLATERAL” is worth less and less. For those that don’t know what a CDO is, it’s simply a Collateralized Debt Obligation. In other words…MORTGAGES!! It’s a fancy term Wall St. invented, but in reality it is just a LOAN/MORTGAGE backed by collateral (Real Estate)

So what did Merrill get for their CDO’s???

22 CENTS on the DOLLAR!!!

The interesting part of this is 22 cents is now what the market has valued this “paper” at. If a bank is holding $10 BILLION dollars in CDO’s it is now worth almost 5 TIMES less than it was when those banks purchased the debt. That DEBT isn’t just a piece of PAPER, in most cases, it’s a REAL PIECE OF PROPERTY!!!

In case anyone isn’t clear how the banking system now works here’s a quick refresher. Mortgage money originates from Wall St.
Mortgage companies, local and regional banks originate mortgages but most (not all) simply SELL those mortgages to bigger banks on Wall St. They make a percentage on the sale and recoup their original capital then make another loan. The Wall St. banks hold the “paper” (CDO’s) then they create “INVESTMENTS” out of this paper. The Wall St. banks sell some of those “investments” to pension funds, insurance companies, but they KEEP a large portion of those CDO’s for themselves.

The market has just valued a big giant pile of HOUSING at 22 cents on the dollar!!! It IS housing, not the mortgages that has been valued because as defaults on those mortgages continue, the investors who purchased those CDO’s for 22 cents are now hoping that the underlying value of the COLLATERAL (real estate) they just purchased will be worth AT LEAST 22 cents!! Again…there’s a LOT of people out there who thought buying this stuff at 75 cents on the dollar was GODD INVESTMENT?? Obiviously they lost their shirts. At 22 cents these guy’s are probably OK. But remember…in every case, housing has CAUGHT UP to these numbers and eventually continued it’s downward slide. When guy’s were buying this stuff at 75 cents on the dollar, other people were saying housing had hit bottom!!!

This has happened numerous times in the last 2 years. Prices for these CDO’s started out at 75 cents on the dollar, and prices for homes continued to fall. They then hit 50 cents on the dollar, but prices for the collateral (homes) STILL continued to fall. Now we have hit a new low…22 cents on the dollar!!! Is it a bottom??? We’ll see.

The next phase of this DISASTER is just now waking from a decades long sleep…

JOB LOSSES will start to increase. Ask any local business man how they’re doing?? I know there are pockets of strong business out there. But as a whole, we are in very tough economic times, and they WILL get worse. How do I know this???

The next President of this country on DAY ONE in office will be looking at a HALF A TRILLION DOLLAR DEFICIT!!! The amazing thing to me is we have been robbing Peter to pay Paul for so long in this country NO ONE even cares about the deficit. BUT…very soon, a whole bunch of FOREIGN COUNTRIES WILL start to care. We have a rich uncle. He’s been loaning us money for YEARS, and just like a spoiled little brat we think we’re ENTITLED TO IT NOW!!!

WE’RE NOT. See how people who bougfht homes they couldn’t afford to keep are now losing them??? Welcome to the future folks. This will be the USA if we don;t get our heads out of our @sses and QUICK!!

This is a WORLD WIDE economic SLOW DOWN. ANYONE who thinks that we are going to slide by is fooling themselves.
Even LANDLORDS are feeling the pain. Remember the old theory???
Hey, people have to live somewhere!!! If the economy gets hurt they’ll lose their homes and have to rent from me!!
Oh really? Homeless people don’t pay rent. I’m seeing families DOUBLING UP in 3 bedroom apartments. 2 families living TOGETHER in ONE apartment!!! The adults take two bedrooms and the kids all pile into the 3rd. If that trend continues, we have a BIG problem because that means a LOT of the exsisiting apartments out there will be VACANT!!!

A very strange thing is happening in this country. People are losing their homes at never before seen rates, and rents are actually DROPPING!!! Too many unsold homes desparately looking for ANYONE to rent them so the homeowner gets some relief from a mortgage that is killing them.

The guy’s on Wall St. created this mess by loaning money to idiots who couldn’t finance a ham sandwich never mind a home. Now they just told us all what they think all that underlying “COLLATERAL” is worth.

22 CENTS on the dollar!!!

The writing is on the wall boy’s. Don’t be one of those who 5 years from now says…“HOW DID I NOT SEE THIS COMING???”

Oh really? Homeless people don't pay rent. I'm seeing families DOUBLING UP in 3 bedroom apartments. 2 families living TOGETHER in ONE apartment!!! The adults take two bedrooms and the kids all pile into the 3rd. If that trend continues, we have a BIG problem because that means a LOT of the exsisiting apartments out there will be VACANT!!!

You got that right! We’re seeing that here in Ohio also. People are doubling up to pay the bills and we’re not even at the crisis point yet. So far, vacancies are low here and rents are stable or slightly declining. The tipping point will be in a few months when the heating bills (that have nearly doulbed since last year) start coming in. What’s their choice for these people - put gas in the car; stay warm; or eat? A huge number of people WILL fail when this happens. It’s the next BIG shoe to drop.

Another HUGE shoe will be when Israel attacks Iran. I doubt if Israel wants a pacifist socialist running the US and they may be waiting until just before the election to attack Iran. Regardless of the timing, Israel MUST attack Iran soon or face destruction.


I agree Mike,

It’s like watching a mentally unstable neighbor construct a pipe bomb in his back yard. You either step in before he finishes it, or you get hurt when it goes off. Not a lot of alternatives for the Israel’s. Do you try to reason with your mental neighbor??? Or just take his ability to finish the bomb away from him?? I know what I’d do.

Heating costs this winter, in my opinion, will break the backs of anyone “on the edge.”

Pardon my ignorance fdjake, but I’m not sure what you’re saying exactly. That everyone should start dumping their property’s at $0.22 on the dollar and get out while they can?

I’m hoping the DOUBLING UP doesn’t get too out of hand to the point where it’s killing landlords. Perhaps there will be an increase in entitlement mentality. This could prompt people to get on Section 8 and then they can afford an apartment/ home without sharing. Secton 8 may have to increase its income requirement. Who cares when their “RICH UNCLE” is paying the bill. Its definitely concerning me. It gives even more importance to the rule of buying at big discounts, having reserves, and keeping debt low.

Just to clarify…

The investment fund that just purchased $8 BILLION worth of Merrill Lynch CDO’s paid for the UNDERLYING ASSETS!!!


These guy’s bet REAL MONEY that real estate prices will continue to fall, and they think that fall could STILL be substantial.

Think about this…

If Merrill Thought housing was at a bottom WHY WOULD THEY SELL CDO’s for 22 cents on the dollar???

They sold because they thought 22 CENTS was FAIR VALUE!!!

These markets are ahead of Main St. housing prices by about 1 full year.
What you need to realize here is that 22 cent price just set the new market value for ALL remaining CDO’s. This is a market driven event. We all know what happens to home prices when 3 houses on a given street go into Foreclosure auctions. Those NEW auction prices KILL the comps in that neighborhood. Well Wall St’s Merrill Lynch just had a foreclosure auction for their CDO’s, and the market spoke…

The buyers think those underlying assets are worth EXACTLY 22 cents on the dollar from the PEAK!!!

fdjake, Is it possible that the 22 cent price is more of a realistic price to begin with? Was the “Peak” an overhyped unrealistic value? Is it also possible that the pendulum swings too far to the lower values before they find the “back to earth prices”? Finally, how long do you think this “correction” will last?

Hey thanks for clearing that up jake. Basically what the market is saying then is that we’re still not at bottom, so purchases at market value now will still continue to depreciate over the next year at least.

I think you guy’s are right on the money.

The “peak” was a ridiculus over bought hyped up market. So as pointed out, the 22 cent price was a reallistic value. I also believe that the market for real estate is not at a bottom. One of the tell tale signs of that bottom will be when banks start “blowing out” there foreclosed inventory. We’re starting to see the start of that, but we aren’t close to the REAL BARGAINS!!

For very well educated people, bankers may be the dumbest folks on the face of the earth. The banks will unload, and THAT will mark the absolute bottom of this cycle.

This has all happened before. Nothing ever changes because PEOPLE don’t change and people ARE the markets. That goes for housing, stocks, cars, anything that is bought and sold. Look at the people who gave away their SUV’s to car dealers inorder to buy Honda Civics??
Gas prices are failing like a rock today. These people RE-ACTED, they didn’t THINK about their situation. Why in God’s name would you hand the keys to a 2006 Ford Explorer over to a Honda dealer and take $5000 as a trade, when you paid $30,000 for the Explorer 2 years ago??? This is EXACTLY what a few of my friends did. Watch what happens to the price of oil in the next 6 months. My best guess is we’re headed back to $70/barrel or $3/gallon gas.
Oil Inventory levels were just released and showed a 800,000 barrel build for JULY!!! So much for the tight supply theory.

A VERY WEALTHY man I know gave me some of the best advice I have ever heard…

“If you do the EXACT OPPOSITE of what most investors are doing…you’ll make money 90% of the time.”

No truer words have ever been spoken!!!

Anyone here smart enough to go out and buy themselves a BARGAIN BASEMENT SUV??? I did…2006 Ford Explorer with 25,000 miles on it. Bought it from a moron who thinks gas is going to $12/gallon. He just paid $5000 OVER sticker for a Prius. So his total loss including the beating he took on the Explorer plus the cost of the Prius was about $45,000!!! But THINK of the money he’s saving on GAS!!! :banghead :banghead :banghead :banghead :banghead

He sold the Explorer to me for $6500 and was THRILLED because the dealer offered him $5000.

Only in America!!!

Gees fdjake, I thought I got a good deal on my 2002 suburban. It was loaded. I got it for 10K with a trade in of a Jeep. This was a 45K vehicle brand new. It had a book value of 24K when I bought it. We’ve only put 10K miles on it in 3 yrs. Gas isn’t an issue with that.

We should open a car flipping business on the side.

Should be profitable.

I could flip that explorer at the auction for a $4000 profit easily

I owned a used car dealership for 15 years.

Here’s some tips on getting a great deal on a used car from a private owner…

  1. Make sure the person selling the car is the same as the name on the title. You’d be SHOCKED to find out how many people just flip cars. What they do is ask the owner THEY purchase the car from to leave THEIR name off the back of the title and the bill of sale. This is usually done by telling the seller that he’s buying the car for a relative and isn’t sure if they are going to register the car in the wives name or the husbands. The previous owner (watching the buyer counting thousands of dollars in cash) is happy to do it. This leaves the title “open” that buyer can then run an ad in the paper and sell the car for a profit and simply hand the paper work to the NEW buyer. This scam takes place THOUSANDS of times a day. Ask to see the sellers LICENSE. If the name doesn’t match the titles WALK AWAY!!!

  2. Get your cars FROM private owners. Dealers know what that car is worth TO THE PENNY. The weakest hand is ALWAYS the owners. Watch for cars that are priced TOO HIGH. These cars will not sell, the owners become frustrated because NO ONE has even called on the car. You’d be AMAZED at how well this transfers to real estate. PRACTICE talking to these sellers. You can use the EXACT same methods when dealing with home sellers.

  3. CALL CAR ADS…TALK TO THESE SELLERS. A few minutes, and the right questions can really make a difference. I always tell them I’m embarrassed to make them my offer. “It’s a LOT less than your asking, and I don’t want to insult you.” This is usually followed by 2 possible outcomes. The first…the owner tells you that he’ll keep the car before he gives it away. or the second…which is the one we’re all looking for…“Hey, don’t be embarrassed, I just want to get this thing out of my driveway.”


Buying cars correctly is a huge strategy you can learn to build your net worth. Think about how most Americans buy cars…
They purchase them NEW!!! That’s their first mistake. Then to add insult to injury THEY FINANCE THAT PURCHASE!!! Or worse… THEY LEASE???


I have NEVER owned a new car, and NEVER will. I buy my cars when a DEAL comes along. NOT WHEN I need a car. If I can replace my wifes car with a newer and lower mileage example at a GREAT PRICE then I do it. I always pay cash, and in most cases I sell her old car for about 90% of what I paid for the new one. That is accomplished by having EVERY little thing done to that car BEFORE it is listed for sale. Again, it’s just like selling homes. You want that house(or car) to be so nice buyers CAN NOT find a reason to NOT BUY IT!! DEATAIL the car, have the oil changed, new brakes put in. TAKE CARE OF IT!!! and Keep all receipts. Then finally…park the car in your Garage and make sure that garage is SPOTLESS. I want a buyer to think I’m a fanantic about my vehicles. My garage has sold the last 8 cars my wife and I have owned. People think I’m nuts, they can eat off the floor. But…those last 8 vehicles were all sold to the FIRST person who came to look at them!!!

I’m not trying to brag here but my savings on vehicle purchases in the last 6 years has probably added well over $100,000 to my net worth. All for FREE!!!
Think about it!!!

COOL :biggrin Thanks for sharing your perspective and valuable info on these things!

fdjake - actually I don’t think Merril sold because they thought it was fair value. They probably sold because they need the money NOW. Not tomorrow. If they could have waited, I bet they wouldn’t have sold.

It is similar to what is happening to a lot of homeowners. I guess the only people selling are the ones that have to sell (for whatever reason). I believe most homeowners that can wait are actually waiting for the market to improve. I am. I thought about selling my house and getting something smaller free and clear. However when I saw how much I could get for my house, I decided to wait.

Just my 2 cents… good discussion…

Have a great evening!

fdjake - great tips on buying cars… THANK YOU.

I bought my first car for my wife used from a dealership. We bought it because we liked the salesperson… I even asked (and paid) for four new tires and a CD player… The tires lasted for 2 full years… When I tried to find the manufacturer to claim my warranty, I couldn’t even find it in the internet… It was a name I never heard of… I then called Honda and they told me no problem - I could bring the car in, they would take the tires and send them to the manufacturer. It would take 7 to 10 business days… When I asked if they would put a set of tires while we waited, they said NO. I would need to take care of that myself… I decided to buy new tires elsewhere… and I learned my lesson.

My first truck was a success history. I can tell you that when I bought it new from the dealer I had paid $50 less (including taxes, registration, doc fees, etc, etc) than KBB estimate for the same car. Basically, a used truck was quoted by KBB $50 more expensive than my brand new truck… :O)

I found it in the newspaper during a end of semester weekend. Actually I saw it advertised on Friday. It was one of those 3 days end of month/end of semester weekends when the dealers are eager to make their quotes… June 30th was Monday. I didn’t go to the dealer until early Monday evening (June 30). I asked for the truck in the ad and the sales person looked at me as if I came from another planet. He basically told me that considering that the ad was published on Friday there was no way that the truck would still be there. When I told him that I knew he had several of the same truck in stock he laughted and told me that that price was only for that one truck they put in the ad. He showed me the small stock number in the bottom of the ad. He basically told me that they advertise one truck at very low price to get people in the dealership and they eventually buy something else. I was very disappointed. I asked him to check if that specific truck was still there or not… just in case… We went to the lot and eventually we found the truck… :O) It was a white no-frills Sonoma. The truck next to it was exactly the same but a nicer color. I asked if I could buy that instead and he went to check the price. That truck would have costed me almost $6k more than the one I bought… I decided to get the white one. When I sold the truck 3 months ago I sold it for exactly $500 less than I paid for it. It felt really good. I had it for four years… :O)

And then I tried to repeat this same strategy again when we bought my wife’s new minivan. I looked at the ads and went to the dealer early in the weekend. After visiting 4 dealers we couldn’t find any of the advertised vans. We ended up buying one from another nice salesman. Two years later, that van is worth half what I paid for it… Not such a good deal… :O(

Anyway - now that I wrote this I am starting to realize that my cars are usually a bargain and my wife’s cars are the ones that end up being expensive… :O)

VERY interesting. Thanks for that article.

Anyone here smart enough to go out and buy themselves a BARGAIN BASEMENT SUV??? I did....2006 Ford Explorer with 25,000 miles on it. Bought it from a moron who thinks gas is going to $12/gallon. He just paid $5000 OVER sticker for a Prius. So his total loss including the beating he took on the Explorer plus the cost of the Prius was about $45,000!!!! But THINK of the money he's saving on GAS!!!!!

Another nice contrarian move…



for those of you who dont understand what the gov’s bailout plan is. It is to buy these these cdo’s. they will be bought buy the us govenmemt by reverse auction. 1 buyer , alot of sellers (banks) Lowest prices offered get bought by government, so those banks can lend again.

and we think we are getting deals buying 50% off market LOL

Do you still think it was a bad idea for the bailout plan ???

I’m willing to guess the government plan will make money here. the only way is if we see some real crooked offers now. if merrill sold theirs for 22 cents on the dollar. the government better not being paying alot more than that. if they do pay anything over 50 cents on dollar then we were duped by these banks here.

I had to look for this thread i knew i remembered reading it here.

I’m just happy that you said that… thank God this work is not dragging me down at the bottom of the food chain