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???”