Month: November 2007

Article: The Stealth Public Bailout of Reckless “Countrywide”: Privatizing Profits and Socializing Losses


Yet another excellent article. See yesterday’s piece and the day before’s as well.

Nouriel Roubini | Nov 27, 2007

The letter by Senator Schumer questioning the $51.1 billion that Countrywide borrowed from the Federal Home Loan Bank system (specifically the Federal Home Loan Bank of Atlanta) has finally revealed the little dirty secret – that was known only to a few insiders and was noticed on a blog a month ago – that Countrywide, the largest US mortgage lender, has received a massive stealth public bailout that has put at severe risk taxpayers’ money. Here is Countrywide – the premier poster child financial institution of the reckless and predatory lending practices of the last few years – getting in severe financial trouble because of its rotten lending practice in subprime, near-prime and prime mortgages – and whose CEO Mozilo is under SEC investigation for potentially illegal activities – now receiving a massive $51.1 billion of public bailout money with little official supervision of such lending. Mozilo is under investigation for his accelerated sales of Countrywide stock under a 10b5-1 plan. Mozilo has made more than $100 million on stock sales this year, while Countrywide shares collapsed more than 50%.


The Next Dominos: Junk Bond And Counterparty Risk


(click on image above to larger version — pops up in new window)

Another excellent recent piece on the unfolding credit crisis. This article was originally brought to my attention by John Mauldin, whom in turn was brought to my attention a few years ago by a fund-manager friend, Steve Miller.

Note, the image above was selected by me, not the author of this article, Ted Seides, CFA[i]. Footnotes are at the end of the article.


Financial history doesn’t repeat itself, but it often rhymes. Earlier this year, losses from subprime mortgages revealed that the financial markets had taken to excess a good idea in the real economy. A perfect economic environment allowed the alchemists in structured finance to apply massive amounts of leverage on low quality, securitized mortgages.[ii] When the first signs of softening in real estate prices surfaced, we learned that investors had taken on far more risk than anyone realized, and losses could not be contained.

The severity of the subprime debacle may be only a prologue to the main act, a tragedy on the grand stage in the corporate credit markets…


Dumb Money Averaging Down?


Citigroup, Inc. (NYSE: C): 10:53 AM NYC time, November 27th: Just a quick comment on the “Citigroup Receives $7.5 Billion Capital Infusion from Abu Dhabi” story. As you may know, the largest individual Citi shareholder is Saudi Prince Alwaleed bin Talal, son of the founding king of Saudi Arabia. Citi shares are down almost 50% in the past six months. Now more money is flowing in from the Middle East. Is it dumb money averaging down? The trailing dividend yield is over 6%, which is attractive…


Draft Gore to Run for Pres. & Vote for Time Person of Year

Draft Gore
Here’s the Draft Gore website:

Vote for Al Gore - Time Person of the Year
And here’s where you can vote for him on Time’s website:


PS: If you really want to help spread the word and make this “draft Gore” idea go viral just do something like write about it, blog about it, comment about it, sign the petition, etc. If you don’t know HTML you can just grab the code for this bulletin and repost it on your blog or website. Feel free to edit or whatever. Here is a link to the code (2 KB .txt file):


What’s Wrong With the Credit Ratings System?


Everyone should read this article… and send it to their senators and congressmen:

Transcript from Heilbrunn Center for Graham & Dodd Investing

Heilbrunn Center for Graham & Dodd Investing
17th Annual Graham & Dodd Breakfast
David Einhorn’s Prepared Remarks
October 19, 2007

What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual. In my view, the crisis wasn’t an accident. We didn’t get unlucky. The crisis came because there have been a lot of bad practices and a lot of bad ideas. Securitization is a mediocre idea. Re-securitization of already securitized assets into a CDO is a bad idea. Re-securitization of CDOs into CDO-squared is a really bad idea. So is funding a pool of long-term illiquid assets with very short-term funding in the so called asset backed commercial paper market. And as I will get to in a moment, it is a horrendous idea to delegate most of the responsibility for assessing credit risk to a group of credit rating agencies paid for by the issuers rather than the buyers of bonds.


Article: Home prices to keep sliding with no bottom in sight


Home prices to keep sliding with no bottom in sight
Mon Nov 12, 2007 6:09pm EST

By Julie Haviv

NEW YORK (Reuters) – The U.S. housing market’s skid is nowhere near over and could extend for another five or even 10 years, according to one of the most-watched housing economists.

Robert Shiller, a Yale University economist and co-developer of Standard and Poor’s S&P/Case-Shiller Home Price Indices, told Reuters that declines in home values in the most vulnerable markets could well double the losses recorded thus far.

What’s more, Shiller, who is also co-founder and chief economist of the financial firm MacroMarkets LLC, said predictions for a bottom within the next year or so are probably wrong, with price declines in 2008 possibly worse than those seen this year.


Article: The Coming US Consumption Slowdown that Will Trigger an Economy-Wide Hard Landing

(click for larger image)

UPDATE: In December 2008, the NBER made it official, dating the recession from December 2007.  See my “U.S. officially in recession” post and links.

I chose the chart above to go with the following article because it shows that U.S. Private Fixed Investment (PFI) is already at recessionary levels. As you can see, the chart goes back 25 years, covering the past three recessions, the official start and end dates of which are called — well after the fact — by the Business Cycle Dating Committee, National Bureau of Economic Research.

Key points are as follows:


Article: Goodbye, expansion; hello, recession


This is old news for anyone who follows markets and economics and thinks for themselves, but it’s interesting that the mainstream media is finally starting to understand. See the following article from CBS MarketWatch. As a sidenote, a rally attempt should appear soon, after the swift fall from recent market highs. Cheers!

Goodbye, expansion; hello, recession
Commentary: Signs are everywhere, particularly in the plight of the consumer
By Dr. Irwin Kellner, MarketWatch
Last Update: 11:29 PM ET Nov 12, 2007

PORT WASHINGTON, N.Y. (MarketWatch) — No matter where you look, signs of a recession are beginning to proliferate. Indeed, it’s getting more and more difficult to come up with reasons to expect this aging expansion to continue.


Article: The Coup at Home


From the November 11, 2007, New York Times:

The Coup at Home

AS Gen. Pervez Musharraf arrested judges, lawyers and human-rights activists in Pakistan last week, our Senate was busy demonstrating its own civic mettle. Chuck Schumer and Dianne Feinstein, liberal Democrats from America’s two most highly populated blue states, gave the thumbs up to Michael B. Mukasey, ensuring his confirmation as attorney general.

So what if America’s chief law enforcement official won’t say that waterboarding is illegal? A state of emergency is a state of emergency. You’re either willing to sacrifice principles to head off the next ticking bomb, or you’re with the terrorists. Constitutional corners were cut in Washington in impressive synchronicity with General Musharraf’s crackdown in Islamabad.

In the days since, the coup in Pakistan has been almost universally condemned as the climactic death knell for Bush foreign policy, the epitome of White House hypocrisy and incompetence.


Keep Your Eye on the Bouncing Chinese Ball (and Google)


iShares FTSE/Xinhua China 25 Index (Amex: FXI): 8:40 PM NYC time, November 8th: Just a follow up on my most recent three blogs, which focused on China.

We talked about the Chinese stock market as the bellwether for the global rally off the August lows, marked on the chart above. That rally has now faltered, as indicated by the 1 (pullback off new high), 2 (subsequent attempt at new high) and 3 (close below the low at point 1).

It should be noted that today’s action also shows an intraday rally that developed below the 50-day moving average (shown) and closed at/above it. And on strong volume. The end result was a hammer-type candle, which is easily visible at the other places on this chart from which rallies began. Does it mean that the selling of the past week has been completed? Perhaps, but…


Blurb: China to Move From Dollar to ‘Stronger’ Currencies


Remember what happened to the dollar before October 1987? Doesn’t mean history repeats, but it might rhyme. Cheers, chrisco

The dollar slumped to record lows and stock index futures fell sharply early Wednesday after Chinese officials said they would further diversify the nation’s $1.43 trillion in foreign reserves in view of a declining U.S. dollar. “We will favor stronger currencies over weaker ones, and will readjust accordingly,” said Cheng Siwei, vice chairman of China’s National People’s Congress, told a conference in Beijing. Siwei’s comments sent the euro to a new record high of $1.4703, gold futures up $20 to as high as $848, and oil futures as high as $98.6. At the same conference…


Article: From the Desk of Donald Rumsfeld . . . “Sacrifice = Victory”


From the Desk of Donald Rumsfeld . . .
In Sometimes-Brusque ‘Snowflakes,’ He Shared Worldview, Shaped Policy

By Robin Wright
Washington Post Staff Writer
Thursday, November 1, 2007; A01

In a series of internal musings and memos to his staff, then-Defense Secretary Donald H. Rumsfeld argued that Muslims avoid “physical labor” and wrote of the need to “keep elevating the threat,” “link Iraq to Iran” and develop “bumper sticker statements” to rally public support for an increasingly unpopular war.


Article: Fearing Fear Itself


From the October 29, 2007, New York Times:

Fearing Fear Itself

In America’s darkest hour, Franklin Delano Roosevelt urged the nation not to succumb to “nameless, unreasoning, unjustified terror.” But that was then.

Today, many of the men who hope to be the next president — including all of the candidates with a significant chance of receiving the Republican nomination — have made unreasoning, unjustified terror the centerpiece of their campaigns.

Consider, for a moment, the implications of the fact that Rudy Giuliani is taking foreign policy advice from Norman Podhoretz, who wants us to start bombing Iran “as soon as it is logistically possible.”