Stocks plunged in morning trade as Goldman Sachs testimony on Capitola Hill leaked out. Some of the more glaring details Thomas Montag former head of sales describing the Timberwolf CDO deal as crappy, it lost 80% of its value in just 5-months. Fabrice Tourre claiming he did no deceive despite considerable emails to the contrary. An assertion that the bank isn’t obligated to put its clients best interests first, and it goes on and on as the SEC Civil Fraud filing opens Pandora’s box as it was originally expected to do.
How did that quote by Abe Lincoln go. “You can fool some of the people all of the time, all of the people some of the time, but you can’t fool all of the people all of the time”, something obviously forgotten on Wall Street and in many of the executive boardrooms in America.
There was a very interesting comment posted by a former SEC Lawyer on Barry Ritholz’s Blog The BigPicture regarding the Goldman Sachs case. Talking about lawyers who bring enforcement actions and the approval process of their superiors before said action sees the light of day. The former SEC attorney noted that during the Bush years enforcement actions rarely made it past the commissioners.
This ties back in to what I said a while back regarding FDIC field examinations of banks, they found problems, could have prevented both this fiasco and the banks resultant collapse. Yet the field examinations went nowhere due to political pressure from the higher ups as the former SEC Attorney points out during the Bush years. This was also the case back in 2003 when the Office of the Comptroller of the Currency or OCC used its power to end investigations into predatory lending by all 50 states Attorney Generals following voluminous complaints under their consumer protection mandates.
The Case Schiller Index posted its first annualized home price gain in 3-years during February at +1.4% despite 9 of the 10 cities showing falling prices on a monthly basis, only San Diego increased in February gaining .6%, further price losses are a common forecast through the next year or so.
The Mortgage Asset Research Institute reported that appraisal fraud is becoming widespread again. After falling to about 1 in 5 during 2008 incidents of fraud jumped 50% in 2009 to affect 1 in 3 appraisals with the states of Arizona, New Jersey and Virginia toping the list. Makes you wonder just how accurate the comps are and of course the prices as well.
When the Fed stopped buying MBS last month to keep rates low I wondered who would step up to the plate and keep the mortgage market liquid as I opined that I would want some serious risk compensation or control before I invested a dime.
Well the 2+ year drought in private MBS was broken by a Redwood/Citigroup deal as per Bloomberg. Some particulars of said deal, average LTV was 56%, average FICO Score 768, 80% were refi’s, 20% purchase’s with an average down payment of just over 30%, almost 10% of the borrowers made over $100,000 per month.
It doesn’t get much more risk less than that and though this deal represents the opposite end of the spectrum from FHA 3% down and USDA no down government backed, meaning taxpayer of course, mortgages with a tax credit to boot.
It serves to illustrate the condition of the mortgage market and without the Fed there wouldn’t be one at these interest rates as once bitten twice-shy investors clearly are not willing to step up to the plate.
Hi and welcome to The Profit Motive, I’m your host Caleb Lawrence. Once upon a time in America the media acted as the watchdog of the corporations and the state. In the modern era it’s all about ratings and profits, opinion has been substituted for news and frequently is presented as fact. Much like my daily radio show on KPIG 107.5 FM in Santa Cruz California and KPYG FM 94.9 Cayucos/San Luis Obispo California. A thousand Blogs were able to spot the current problems and many began discussing it years before it reached crises proportions. While there were exceptions, and these exceptions are becoming more common, the mainstream media failed to get it and largely continue to do so.
