4 August 2008

The World’s Grandest Ponzi Scheme Unravels

The World’s Grandest Ponzi Scheme Unravels

Pathetic Piping Puppets - When I see some of today’s financial “experts” telling us why there was a housing meltdown and why there was a mortgage crisis and why we now see the financial system crumbling . . . I find myself yelling at the TV, eventually launching the clicker at the screen. It’s an expensive habit, but I don’t yell as much at the guys like Mozilla, Paulson, Greenspan, Schwartz or any of the other guys that ran the Ponzi scheme. No, those guys were bad, but not nearly as bad as the ABC, CBS, NBC, FOX, CNN and CNBC financial experts who had the ability to do something, because today it is all about media. Instead, the clowns like Cramer, Kudlow, Glen Beck, Wolf Blitzer and even sweet Miss Becky and innocent Erin continued to fuel the fire. Instead of reporting on what was happening under the dirty sheets, they only reported on the “happy times” as they all bellied up to the bar and fed like pigs.

To Catch A Predator - Just think about it . . . MSNBC Dateline ran child molester stings until we cried Uncle. What would have happened if they did the same about the financial crisis. If they had done that, they would have all lost their jobs, because Paulson’s fraternity of Goldman Sachs brothers would have eviscerated the advertising of the media through strong-arm tactics on their clients. Why was it OK to run To Catch A Predator until we puked? Because the sexual predators were not buying air time. Do you realize, Dateline would not even have had to change the name of the show. They could have just changed the format from sexual predators to Wall Street’s financial predators. If they want to call it like it is, start calling it where it hurts. By the way, the answer to the most frequently asked questions I receive is, Yes. I do wear a bullet proof Kevlar vest. I hired another body guard last week. And I never sleep in the same place twice.

With that out of the way, let me ask the question no one wants to ask. What in the world were our politicians and attorneys general doing? Well, they all knew what was going on, including Senator Bunning. And they were the only ones that could have really stopped it, but they were too busy dining and dancing with Paulson’s frat boys here and abroad on lavish junkets. I’m going to get emails about that, but luckily I have an enlarged fluorescent orange delete key.

The BOSS Speaks - If you really want to laugh and cry at the same time, you must listen to Greenspan. Now he’s telling us “this was an accident waiting to happen.” Hold on a minute. He was the guy with the keys. He was the guy with the car and the money to put the gas in the car. He also wrote the rules on how to drive the car. And . . . he waived all restrictions on who could drive the car. The Greenspan rules state . . . and I read them again a few minutes ago to confirm: Drivers Include - Anybody, Everybody, Somebody and Nobody . . . but not me.

This week Greenspan told us we crashed. The car is a total wreck and the only survivors are on life support . . . with severe brain and limb damage. The question still remains, who was driving. Was it Nobody or Everybody? Or was it just Anybody? Maybe it was Somebody, but we know it wasn’t Greenspan. Or at least that’s what he says now.

The Cleaner - Just like all gangster movies have cleaners to get rid of the dead bodies, we have Paulson. Think about that. We had a typical “old time” gangster boss (Greenspan) totally out of touch with reality, but surrounded by “yes-men” sucking off the money created by his directives. Kind of like the generation of gangsters that moved from a no-drug policy, into cocaine and heroin at the urging of his young lieutenants (Paulson, Steele, Schwartz, Rubin, et al). The old bosses were clueless, and it all ended in collapsed gangster families, bloodshed and now chaos. So now we bring in The Cleaner, Paulson. And he immediately calls in one of his lieutenants, Wilson. These are the guys that belonged to the global fraternity that created and executed the Ponzi scheme. As for the “bail-out.” It’s restricted to friends and family. There is no bail-out for the public or for the pension funds that bought into the Ponzi scheme. But I am not going to re-hash it all. I’ve written about it long enough, and I took a lot of heat in my professional career and my personal life. You can read much of what I have written on my blog and institutional website.

Let’s talk about what is happening now . . .

Depression - Totally unavoidable. Bank on it. Well . . . you won’t be able to bank on it, but you can bet on it. We are not only headed for a Depression, but a violent Depression that will be far worse than 1929. Some experts believe the United States will fall into the chaos, bedlam and anarchy that tore apart Yugoslovia. I am not going that far, but I know our morals and ethics are not the same as they were in 1929. Moreover, we are a far more violent society and totally dependent upon a well oiled system for delivery of food and basic services.

Bank Failures - I warned that Fridays would become known as F3 - FDIC Failure Fridays. And Voilá . . . two bank failures on Friday, July 25. Then another bank failure a week later, after the market closed, on August 1. Next week? Maybe none, but maybe 10 . . . or more. And here’s why.

I am on the ground, in the trenches, and behind enemy lines. To repeat for those new to my information, I own a real estate brokerage in Florida and I serve as a consultant to banks, financial institutions, mutual funds and hedge fund managers . . . as well as builders and developers. So when I talk, I talk from Behind Enemy Lines. Unfortunately for clients and readers, I can’t always share as much detail as I would like because of confidentiality concerns. My institutional clients appreciate that, because they can feel comfortable discussing their portfolios, problems and potential outs.

I can tell you this. We will see at least 100 bank failures before the end of the year. What’s important about that statement, is it is not another rear-view mirror statement from one of the financial experts on TV or some of the others that write blogs and columns . . . but never venture out into the world of reality. I will share what I am seeing on the ground and hearing from my institutional clients here and abroad.

US Banks - I work with banks on two levels. One, we offer services to banks selling foreclosed properties to consumers. Two, we offer services to banks trying to determine what they own, what it’s worth and what to do with it. The latter includes evaluating portfolios for bulk sales and trying to coordinate these transactions. Let me start with the first level of services.

Banks and lenders that are foreclosing on properties have managed to bumble the process of disposing of foreclosed properties. Then again, as I have noted many times, banks are not in the real estate business, and I warned that they would be the group to drive prices into the ground, finally collapsing the entire system. That is exactly what is happening.

The systems developed by banks and lenders are horribly convoluted or they have farmed the process out to asset managers that often are “totally” incompetent. I thought we might see this start to correct itself, but it is actually getting worse . . . and now banks and lenders are the ones throwing jet fuel on the fire. For my residential brokerage, we have reached the point where we must carefully evaluate whether we even want to take these listings. You heard it right.
Most brokers would kill for listings of foreclosed properties. These properties are often priced below the market so they can sell fast, but that is rare. Most of these properties come with a laundry list of headaches and expenses. And when they do sell, the asset managers are skimming a full third of the commission off for themselves.

Real estate agents still vie for these listings, because we have an industry that is not regulated, with a low barrier of entry, and 98% of our industry is part-time. Agents don’t understand what is involved with the sale of foreclosure properties, and lenders don’t take the time to develop procedures to avoid incompetent real estate agents . . . just as the lenders ignored the issues with mortgage brokers during the development of this crisis.

I will shed a little light on this for those not in the industry. Foreclosure listings come with a laundry list of Things To Do. This begins with occupancy reports and rekeying of the property, that can quickly escalate into initiating the eviction process if there is an owner or tenant in the property. And once you gain possession, there is the trash-out, clean-up and repairs. This process alone can take several weeks and cost the agent thousand of dollars. Listing agents must pay for all of these expenses, as well as place utilities in their own name. Even after getting over these hurdles, which on average takes a month, the property then must be priced. That process can take 2-3 weeks, and it is so riddled with inefficiencies that most properties are overpriced because of the time it takes to complete this process, and the level of competence of those providing the Broker Price Opinions.

100% Loss = Busted Banks - To get to the stage where we have a price on a listing, the lender has already spent tens of thousand of dollars. Here’s a basic example for a $400,000 mortgage. The property is most likely only worth $250,000 now. I have previously written about the process and expense involved in property disposition, so I will cut to the chase. A lender will be lucky to clear $125,000 on this property. This is not a typical example. The typical example is a $250,000 mortgage where the property is now worth less than $150,000 and by the time you carve out all the expenses . . . the bank has a zero or negative. The reason for the zero on the lower priced property, is because many of the expenses (i.e. foreclosure process) are the same for a million dollar property as they are for a $100,000 property. So here is the question for Paulson, Bernanke and Bair. How can any of our banks survive when they are taking 70% -100%+ hits on mortgages? PB&B will tell you these problem mortgages make up less than 2% of total mortgages. Huh? What? I’ve got news for them. I have no idea where they are getting their numbers, but you don’t even have to go behind enemy lines to see through the numbers they are trying to feed us. Drive around and count For Sale signs. Now multiply that by a factor of 2-10 depending upon where you live and whether signs are allowed in all neighborhoods. Now double that number for the homes that are moving into the foreclosure process, and then double it again because things are getting worse (quicker), not better.

Admitting Defeat - The lenders I speak with know they are dead. They have no problem admitting it now. They realize their jobs are over, and they are on borrowed time. They are nothing more than liquidators now, and they are doing a lousy job at it.

We built too many homes and have too many builders. The markets are correcting that. We have too many mortgages and too many mortgage brokers. The markets are correcting that. And we have too many banks. The markets are correcting that as well. Paulson’s tinkering with the ability to short his Fav19 will come back to mark him in history. It was un-American. This is not Russia or Venezuela. If the markets were not working because of naked shorting, then put the bastards in jail that were violating the rules. Unfortunately, that would mean Paulson was going to have to throw his frat boys in jail. Paulson knew what he was doing with the Fav19, just as he did with the Housing Bill. Paulson had one purpose, and one purpose only in both the Fav19 and the Housing Bill . . . to bail-out his buddies. That’s it. Full Stop.

The Housing Bill is a complete, absolute and autarchic ploy by a man that has far too much power and control. I am not going to write about the Housing Bill. I am going to save that for our August 7th Conference Call. If you are interested in the Conference Call you can purchase a dial in code - Mike@MorganFlorida.org Clients receive free access codes and will receive the replay link.

I’m going to share some things that I am doing in my model portfolios as well as some of the trading we are doing in our trading portfolios, but you will find sections below that are only a portion of what I wrote, and the portion not visible publicly (about half of the meat) is what my clients are receiving. There are sections below where I refer to “more info for clients,” and this simply means you are only seeing a portion of what I wrote. The balance is reserved for clients only. It is not meant to anger anyone, but if I don’t provide my clients with added value, there is no reason to pay for my services. In addition to updates, trade alerts and model portfolios, my clients receive additional information and access to all conference calls at no charge. If you are interested in asset protection and asset growth as we move into the Greater Depression, I suggest you become a client . . . or at least try it for a month or two.

Short the Banks - We are short a number of banks, including Wachovia and Banc of America. Some people question why these two, but we’ve already been short many of the smaller banks that have tumbled 60-90%. WB and BOA have multiple mea culpas to come. I like other banks for short positions, but WB might just be my favorite. Over the past few weeks, as we see more and more clowns like Cramer call a bottom, the issues plaguing the big banks have been ignored. Here’s a few things to remember.

Bob Steel, another Goldman Sachs frat boy, just took over at WB and he pompously purchased a million shares. Bob Steel can’t fix WB, not even with his buddy Paulson pulling strings. Wachovia has Auction Rate Securities problems that they cannot hide. I love one of the Wachovia responses to a question about their ARS problem. A Wachovia spokesman said, “Many securities firms, including Wachovia, are responding to inquiries from regulators about the auction rate securities industry. The discussions that are occurring today are a part of this ongoing process.” So, does that make it OK. Is it OK because everyone was doing it? Isn’t that exactly why we are where we are at? Yes. And if you had to think more than three seconds, you deserve to follow Cramer off the cliff . . . except he’s not going over the cliff. He’s just making sure everyone else stampedes off the cliff.

Wachovia also has CDO and CDS exposure. How soon we forget that one bold hedge fund actually sued Wachovia on an allegedly fraudulent CDS contract. That one involved Citigroup as well. The really cool part about all of this for short traders, is that most of the banks still have no clue what they own, what it’s worth or how much trouble they are in. Personally, I’ve got to think most of these big banks are broken and broke. As Greenspan said, it is not a liquidity problem, it is a solvency problem. B-I-N-G-O

No comments: