Your Mortgage or Your Life
Step right up folks and witness for yourselves actual feats of magic as performed by the amazing El Federale - the Master of Illusions, Keeper of the Secrets of the Temple of the Bull, and Royal Jester to the Fiefdom of Finance..."
FL, CA, AZ and some of the other ground zero markets have already experienced a severe builder-die-off period, where projects were left unfinished and construction draws have stopped rolling in, saving some banks from sinking even deeper into trouble.
Here in Oregon where I live, and in other less-devastated markets, the builders have been able to hang on longer, some eeking it out on the profits from the boom times. But their funds are now nearly exhausted, and you will see them start imploding in these tamer markets when the 'building season" ends this late fall then the regional banks will start dropping off in earnest after Q1-09 numbers call their collective bluff.
Do the math; Firstly, Regionals are not doing the volume of originations they once were, and they have been saddled with the extra overhead and personnel acquired during the boom time for over two years now. Many of the more aggressive Regional banks have held on to their fatally flawed Wholesale and Correspondent production channels for far too long in a vain effort to gain in market share at the expense of the cumbersome Nationals, and hopefully become the next WAMU.
Regionals were really striving to be the next WAMU? You bet they were, and now they are really striving to do anything they can to make sure they aren't - but it's too late for many.
Secondly, one look at that portfolio and their investors have turned tail too. Municipal Bonds are in bad shape, as are private and public pension funds, economic development projects are over budget and behind schedule, and the expected attrition rate of some of the small business loans is increasing with every new economic forecast.
I believe we will see the Regional Banks really start collapsing in earnest Q1-09, after everyone realizes rolling out Christmas in August did not help the retailers hit their mark and confidence in the markets collapse, interest rates shoot up. Cost of funds increase as available capital is priced further from reach because the big guys can afford to eat it up at prices tier 2 and Tier 3 Regionals can not afford.
Then what will the banks do? Can they all rush to private equity - which is already fairly leveraged - for a quick cash infusion? Some, but not the majority.
The majority will have to crawl on their knees to beg the Sovereign Wealth Funds and other private money magnates - basically tightening the noose around their own necks and giving the thumbs up to a collapse of confidence by investors and depositors and then gobbled up for pennies on the dollar.
The Regional Banks are so much more heavily invested in the local markets than their larger counterparts, and they fund almost all small business activities at a local level. When they crash, it will really hurt.
The foreign money would seem like an economic blessing at first, but would soon reveal itself to be a deep wound to our nation's sovereignty, as foreigners will be able to by-pass the Federal government to gain almost direct control of our entire economy from the bottom up. And the Feds let them because they know the only alternative would be nearly complete insolvency of the Regional Banks and a seriously broken link in our financial food chain.
Yes, the heroes will be the men in black with thick accents and few loyalties to you or me, and we will regret having ever made their acquaintance.
But there is hope, a deviously simple plan that works well on so many different levels. First, have the GSE's continue buying up all the garbage loans they can get their hands on as fast they can, continuing to undermine their trillion-plus dollar portfolio. Ultimately the GSE's collapse, and Federal Government steps in with a lulu of a taxpayer funded bailout.
Then, all anyone will be talking about is the GSE bailout. They will slam Fannie and Freddie, take the top brass and beat them up good in the press so everyone knows they are getting their comeuppance. Then congress will pass reforms, and the GSE's will be restructured. Mission accomplished, the majority of the regional banks are saved (per an analyst who says regional's own Bonds, protected in a GSE bailout, while shareholders lose all).
Benefits? It is an S&L style bailout of banks and thrifts - but it is disguised as a GSE failure/bailout, which may be a much easier political pill for the public to swallow. Plus this way we won't have to see ten years of executives from banks and mortgage companies doing the old Ken Lay 'perp' walk on the evening news.
Furthermore, I think the decision has already been made to let Fannie and Freddie fail in this attempt to isolate and protect the larger banking framework of the nation, and confine the majority of the damage to the GSE's, which just by luck are already legally structured for an easy bailout - no new legislation, no bickering in congress over which banks merit being saved and which do not. There seem to be a lot fewer political costs for politicians at home this way too.
The GSE's are the perfect patsy for this whole ponzi scheme. I say it will be late November, right after the elections and the spotlights that were once turned on the nation's problems have dimmed, but before all the problems completely surface for the Regionals.
There is a psychological advantage to keeping this as national of a problem as possible too; the more local this problem becomes, the more agitated the masses will become as well. Failure of even a large percentage of the Regionals would be devastating to local communities - especially the ones in already hard hit communities.
And there will be plenty of people defending the honor of the GSE's too, based on their 'necessary' function and the advantage they provide to the banks and borrowers alike by making mortgages more affordable- and that has other positive effects on the economy as a whole.
So everyone will shrug and say that it's not a perfect system - and everyone who should be called to the carpet for their transgressions will go to work trying to regulate a fix for the GSE's, and this will also ensure no one will be looking into all the illicit relationships between government officials and the finance industry: Like how Goldman Sachs runs the FED for instance; and who gave who money for what reasons; or who dropped the ball on oversight; and who got rich and walked away - all those messy questions.
Na. How about a nice tidy package instead, where only a few sacrificial heads will roll. I can see a lot of advantages to scapegoating the GSE's.
But then again I could be wrong about most or all of this. I am no Jim Cramer.
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Best Regards,
Anthony M. Freed
eFax 1-210-579-1109
YourMortgageOrYourLife.com
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