PIMCO, Blackrock, NY Fed Seek to Force BofA to Repurchase $47 Billion in Soured Mortgages; Viral Nonsense on “Show Me the Note” and “ForeclosureGate”
by ilene - October 20th, 2010 2:45 am
Excellent article by Mish who separates fact and fiction in the Foreclosuregate drama. - Ilene
PIMCO, Blackrock, NY Fed Seek to Force BofA to Repurchase $47 Billion in Soured Mortgages; Viral Nonsense on "Show Me the Note" and "ForeclosureGate"
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Courtesy of Mish
At long last, the real issue regarding soured mortgages has stepped up to the plate. The misguided focus on "ForclosureGate" is but a sideshow compared to Pimco, NY Fed Said to Seek BofA Mortgage Repurchases
Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York are seeking to force Bank of America Corp. to repurchase soured mortgages packaged into $47 billion of bonds by its Countrywide Financial Corp. unit, people familiar with the matter said.
A group of bondholders wrote a letter to Bank of America and Bank of New York Mellon Corp., the debt’s trustee, citing alleged failures by Countrywide to service loans properly, their lawyer said yesterday in a statement that didn’t name the firms. The New York Fed acquired mortgage debt through its 2008 rescues of Bear Stearns Cos. and American International Group Inc.
Investors are stepping up efforts to recoup losses on mortgage bonds, which plummeted in value amid the worst slump in home prices since the 1930s. Last month, BNY Mellon declined to investigate mortgage files in response to a demand from the bondholder group, which has since expanded. Countrywide’s servicing failures, including insufficient record keeping, may open the door for investors to seek repurchases by bypassing the trustee, said Kathy Patrick, their lawyer at Gibbs & Bruns LLP.
Patrick represents investors who own at least 25 percent of so-called voting rights in the deals and stand to recover “many billions of dollars,” Patrick said.
Countrywide hasn’t met its contractual obligations as a servicer also because it hasn’t asked for loan repurchases and is taking too long with foreclosures, Patrick said. The delays stem from missing documents, process mistakes and insufficient staffing to evaluate borrowers for loan modifications, she said.
If Countrywide doesn’t correct the servicing problems within a few months, her clients could have the right to pursue legal action against Bank of America, Bank of New York or both, she said. “None of the bondholders are opposed to modifications for deserving borrowers, but you’ve got to get it done” in a timely fashion, she added.
Mortgage-bond contracts are explicit in requiring repurchases of loans when their
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DiggDoes Overstock.com CEO Patrick Byrne Know When to Shut Up, Especially While the SEC Investigates his Company?
by ilene - October 16th, 2010 12:26 pm
Does Overstock.com CEO Patrick Byrne Know When to Shut Up, Especially While the SEC Investigates his Company?
Courtesy of Sam Antar
During an ongoing SEC investigation into financial reporting violations by a public company, competent lawyers will advise management that the wisest course of action is to simply shut up. Not so, with Overstock.com (NASDAQ: OSTK) CEO Patrick Byrne. He does not know when to stop blabbing away, misleading investors, and lying to the media – even during an ongoing SEC investigation of his antics.
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For example, in 2009, I correctly reported in my blog that Overstock.com violated Generally Accepted Accounting Principles (GAAP) in accounting for its recoveries of certain offsetting costs and reimbursements amounts due to the company from its fulfillment partners (suppliers) who were under-billed in previous reporting periods, from Q1 2007 to Q 2 2008. Overstock.com should have restated its financial reports to recognize income when those offsetting costs and reimbursements were actually earned by the company in those previous reporting periods.
Instead, the company improperly recognized income as those amounts were collected in future accounting periods (Q4 2008 to Q3 2009) on a non-GAAP cash basis. In one instance, Overstock.com improperly reported Q4 2008 profits, even though the company should have reported a loss under accounting rules.
Despite many emails from me, Patrick Byrne stubbornly refused to correct his company’s GAAP violations and even fired Grant Thornton as its auditor for agreeing with my recommendations. Instead, Byrne opened up his big mouth and attacked me on a stock market chat board and during various earnings calls in an effort to discredit me. Byrne even hired internet stalker Judd Bagley to interfere with my divorce and pretext my children and relatives after I pointed out the company’s accounting violations.
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| Patrick Byrne while intoxicated |
The company’s pretexting operation also targeted dozens of other journalists, bloggers, critics, and their minor children, too. Big Picture (over 140,000 subscribers) blogger Barry Rithholtz called Judd Bagley a "possible pedarast." His family was spied on, too.
Eventually, the SEC started investigating Overstock.com and the company was forced to restate its financial reports. Patrick Byrne will have a difficult time explaining to SEC investigators why they should not find that Overstock.com’s GAAP violations were a deliberate scheme to manipulate earnings. At…
The Coming Collapse of the Real Estate Market
by ilene - October 16th, 2010 12:54 am
Here’s another great article on the frauds at the heart of the mortgage and banking sectors. – Ilene
The Coming Collapse of the Real Estate Market
Courtesy of Charles Hugh Smith, Of Two Minds
The system for financing mortgages and regulating that financing has failed, completely and utterly. The mortgage and real estate markets are now in collapse.
Yesterday I wrote about how positive feedback loops lead to collapse. Welcome to the U.S. housing and mortgage markets. As I have documented here numerous times, the entire U.S. mortgage market has already been socialized: 99% of all mortgages are backed by the three FFFs--Fannie, Freddie and FHA--and the Federal Reserve has purchased a staggering $1.2 trillion in mortgage-backed assets in the past year or so to maintain the illusion that there is a market for mortgage-backed securities.
There is, but only because the mortgages are backed by the Federal Government and propped up by the Federal Reserve.
The mortgage market is completely dependent on government guarantees and quasi-Government purchases of securitized mortgages. If the mortgage market were truly socialized, then the Central State would own the banks which originate, service and own the mortgages.
But then the private owners and managers of the "too big to fail" banks would not be reaping hundreds of billions in profits and bonuses. And since the banking industry has effectively captured the processes of governance (that is, Congress and the various regulatory agencies), then what we have is a system of private ownership of the revenue and profits generated by the mortgage industry and public absorption of the risks and losses.
Could anything be sweeter for the big banks? No.
The incestuous nature of the system is breathtaking. The Fed creates the credit which enables the mortgages, the Treasury guarantees the mortgages via Fannie, Freddie and FHA, the Fed buys the mortgages ($1.3 trillion in mortgages are on their balance sheet) and the private banks collect the fees and profits.
One of the core tenets of the Survival+ critique is the State/Financial Plutocracy partnership. There are many examples of this partnership (crony capitalism in which the State is the "enforcer" which collects the national income and distributes it to its private-sector cronies), but perhaps none so blatant and pure as the mortgage/banking sector.
But now the entire legal basis for that privatized-profits, socialized losses system has dissolved. The foreclosure scandal…
ARE YOU READY FOR EQUITY RETURNS OF -0.07%?
by ilene - October 12th, 2010 5:56 pm
ARE YOU READY FOR EQUITY RETURNS OF -0.07%?
Courtesy of The Pragmatic Capitalist
In February of 2009 John Hussman wrote a letter that stood out to me. He discussed the very depressed valuations and the likelihood of 9-11% 10 year returns. This was a big change for Mr. Hussman and a very healthy 10 year return by any standard. What no one expected, however, was that we would get most of that 10 year return in just 10 months.
In his latest letter Mr. Hussman updated his valuation model. It’s not nearly as optimistic:
Total annual return = (1+g)(Yoriginal/Yterminal)^(1/T) – 1 + (Yoriginal+Yterminal)/2
As it happens, the long-term growth rates of S&P 500 dividends, earnings (measured peak-to-peak across economic cycles) and other fundamentals have been remarkably stable for more than 70 years, at about 6% annually, with very little variation even during the inflationary 1970′s. Even if one includes the depressed yields of the bubble period, and restrict history to the post-war period, the median dividend yield is 3.7%. Thus, a reasonably good estimate of future 7-year total returns for the S&P 500 is simply:
Total annual return = (1.06)(Yoriginal/.037)^(1/7) – 1 + (Yoriginal + .037)/2
At a 2% dividend yield, this estimate is currently -0.07%.
For historical perspective, the chart below presents the 7-year projected total returns obtained in this manner in blue. The actual subsequent 7-year total return for the S&P 500 is depicted in green. Notice that the performance of this method deteriorated significantly after about 1988, reflecting the fact that terminal yields 7 years later began to depart dramatically from prior historical norms.
The last 15 years have been skewed to the upside as the U.S. government has attempted to generate a capitalist market where losers never lose. In other words, valuations have been inappropriately bolstered by the government’s constant tinkering in the markets:
“The difference between the green line and the red line represents the effect of bubble valuations. Had it not been for a period of sustained bubble valuations (which ultimately proved themselves to be bubble valuations by creating a 13 year period of dismal subsequent returns), we find that the yield-based model above would have extended its admirable historical record.
This creates a terrible problem for investors here. Given that the yield on the S&P 500 is now below 2%, it is essential for investors
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Tavakoli: Biggest Fraud in the History of the Capital Markets
by ilene - October 9th, 2010 1:22 am
Tavakoli: Biggest Fraud in the History of the Capital Markets
Courtesy of JESSE’S CAFÉ AMÉRICAIN
Washington Post
‘This is the biggest fraud in the history of the capital markets’
By Ezra Klein
10/8/2010
Janet Tavakoli is the founder and president of Tavakoli Structured Finance Inc. She sounded some of the earliest warnings on the structured finance market, leading the University of Chicago to profile her as a "Structured Success," and Business Week to call her "The Cassandra of Credit Derivatives." We spoke this afternoon about the turmoil in the housing market, and an edited transcript of our conversation follows.
Ezra Klein: What’s happening here? Why are we suddenly faced with a crisis that wasn’t apparent two weeks ago?
Janet Tavakoli: This is the biggest fraud in the history of the capital markets. And it’s not something that happened last week. It happened when these loans were originated, in some cases years ago. Loans have representations and warranties that have to be met. In the past, you had a certain period of time, 60 to 90 days, where you sort through these loans and, if they’re bad, you kick them back. If the documentation wasn’t correct, you’d kick it back. If you found the incomes of the buyers had been overstated, or the houses had been appraised at twice their worth, you’d kick it back. But that didn’t happen here. And it turned out there were loan files that were missing required documentation. Part of putting the deal together is that the securitization professional, and in this case that’s banks like Goldman Sachs and JP Morgan, has to watch for this stuff. It’s called perfecting the security interest, and it’s not optional.
EK: And how much danger are the banks themselves in?
JT: When we had the financial crisis, the first thing the banks did was run to Congress and ask for accounting relief. They asked to be able to avoid pricing this stuff at the price where people would buy them. So no one can tell you the size of the hole in these balance sheets. We’ve thrown a lot of money at it. TARP was just the tip of the iceberg. We’ve given them guarantees on debts, low-cost funding from the Fed. But a lot of these mortgages just cannot be saved. Had we acknowledged this problem in 2005, we could’ve cleaned it up
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The Ghosts of Earnings Past
by ilene - September 21st, 2010 5:10 pm
The Ghosts of Earnings Past
Courtesy of Joshua M Brown, The Reformed Broker
Mark Twain tells us that history doesn’t repeat itself, it rhymes. When it comes to investor behavior going into earnings season, I beg to differ – it is repeating itself even now.
There is a pattern in place that you may want to familiarize yourself with as history has just repeated itself six quarters in a row. The pattern has been a run up in stocks at the beginning of earnings season’s opening month followed by the almost inevitable denouement as hearts are broken and focus is diverted elsewhere.
In each of the last six quarters, the Dow Jones was up on average seven of the first ten days of the first reporting month (Jan, Apr, Jul, Oct). Each of these rallies ended up succumbing to selling, even during quarters with high percentage beat rates. This action is both a commentary on our Twitter-addled attention spans and a classic embodiment of a Wall Street law so old that Hammurabi himself may have written it — Buy on the rumor, sell on the news.
For a reference point, take a look at last quarter’s earnings season (above) which kicked off with a bang in early July. All of a sudden, consumer confidence data began overshadowing anything coming from Corporate America – on Friday, July 16th, we were looking at a brutal 250 point sell-off of the Dow Industrials, wiping out any enthusiasm from upbeat calls. We would resume the rally for a time, only to give it all back as the drumbeat of reports winnowed away.
You can also look at the first quarterly earnings season of 2010 and see the same pattern. We were rockin’ and rollin’ throughout the month of April as each headline read "better than expected". By early May, however, news from our European cousins began to overshadow these upbeat profit reports. On May 6th, the Euro fears had flooded over the transom and we were treated to the infamous Flash Crash.
Will this coming earnings season repeat (or even rhyme) with the last six? We may already be on that track as stocks have begun to breakout of the much-vaunted trading range you’ve heard so much about. The nominal reasons? The NBER has (officially) declared us out…
Price Before Volume – Don’t Get It Twisted
by ilene - September 18th, 2010 9:05 pm
Joshua argues that we don’t need volume to confirm a stock market breakout. – Ilene
Price Before Volume – Don’t Get It Twisted
Courtesy of Joshua M Brown, The Reformed Broker
Here’s a composite quote that could come from the market strategist of virtually any major firm, I’m certain you’ve read something like this over the last few days:
"The stock market is nearing overhead resistance, a punch through would be a positive catalyst only if volume picks up before or during the breakout."
- Any Chief Market Strategist, Any Firm USA
Wrong!
Price rules in this environment. Volume is completely and totally irrelevant until about 5 to 7% afterthe breakout.
The breakout could come with only 60% of normal volume and be just as meaningful. In counter-distinction to the conventional wisdom, I would argue that a low volume breakout would actually bepreferable right now. Here’s how I arrive at this idea…
Nobody is in. Nobody. We’ve documented the equity fund outflows ad nauseum, they are bigger than Precious after Thanksgiving dinner. Fine. The question becomes, what can we agree is the more motivating condition for investor psychology right at this moment, Fear or Greed?
The answer is undoubtedly Fear. How else to explain the endless Treasury rally and the full scale retreat from equities? Fear is the conductor of this train right now, period, end of story. With that in mind, I ask you to think about the one thing that American investors fear more than anything else – the fear of missing out on the big opportunity.
Nothing freaks out the average investor more than watching the train leaving the station without them. I could put up 75 charts showing parabolic blow-off tops in various markets or I could just remind you that I’ve worked with over 1000 individual investors over the years and I know this stuff.
Fear of missing out is exactly why a stealth rally in stocks with low participation would be more meaningful and bullish than almost any other scenario. What could possibly draw hundreds of billions out of money markets faster than a 5% S&P rally that no one was a part of?
So please, stop regurgitating the "we need real volume" pablum, it is functionally backwards. What we need are higher prices, the lower the participation the better. That’s the kind of milkshake…
Rosenberg Joins Anti-HFT Crew: Notes Massive Equity Outflows, Blames Churning, No-Volume Melt Up On HFT
by ilene - September 16th, 2010 12:26 pm
Rosenberg Joins Anti-HFT Crew: Notes Massive Equity Outflows, Blames Churning, No-Volume Melt Up On HFT
Courtesy of Tyler Durden of Zero Hedge
One more man awake to the farce that are stocks. Although this being a man as realistic as David, it is not much of a conversion. We can only hope that by 2099 Mary Schapiro’s just as blatantly incompetent successor will finally dare to take on the Wall Street lobby and bring some normalcy to capital market topology, instead of nickel and diming micro prop shops which do nothing worse than what the biggest Supplementary Liquidity Providers do on a daily basis. Speaking of, it has been a while since Irene Aldridge was on CNBC defending the practice of small- and medium-investors scalping.
From Breakfast with Rosie (Gluskin Sheff)
Those who have continued to believe that the boomer demand for yield was a fad may have to go back to the drawing board because week after week, and month after month, all the data show that households are embarking on a deliberate move to redress their underweight in bonds and overweight in equities as it pertains to their desired asset allocation. So yet again, the ICI numbers showed that last week, bond funds took in a net $5.73 billion inflow while equity funds posed a net redemption of $1.1 billion (on top of a $9.7bln outflow the week before). Equities have not recorded a positive inflow for one week since early May! So it goes without saying that whoever is driving this market higher is not where the wealth and savings are in this society as much as the high-frequency traders, and rest assured, these guys move in both directions.
Market Still Deluding Itself That It Can Escape The Inevitable Dénouement
by ilene - September 13th, 2010 9:09 pm
Market Still Deluding Itself That It Can Escape The Inevitable Dénouement
Courtesy of John Mauldin, Outside the Box
One of my favorite analysts is Albert Edwards of Societe Generale in London. Acerbic, witty and brilliant. Emphasis on brilliant. The fact that he is a Doppelganger for James Montier (who long time readers are well acquainted with) is a coincidence (or he would say vice versa). I only kind of have permission to forward this note to you, but better to ask forgiveness… So, this week he is our Outside the Box. And a short but good one he is.
I am in Amsterdam and it is late, but deadlines have no time line. Tomorrow more work on the book. It is getting close to the end. Most books are finished when the authors quit in disgust. How many edits can you do? I am close.
I wonder late at night, with maybe a few too many glasses of wine, why I feel like a book is so much more than an e-letter. Really? The last ten years of what I have written are on the archives. Good (ok, sometimes really good) is there. But some are an embarrassment. What was I thinking?
But somehow in my Old World brain, a book is more than a weekly letter. It is somehow more permanent than an “online” letter. Which may be archived forever. The book is “paper” and may be around for a few years. But the online version is here for a long time.
I know that is stupid. Really I do. But what is a 61 year old mind to do? A strange world we live in.
It is really time to hit the send button. More than you know! The conversation tonight has been too deep!
Your trying to figure out the purpose of life analyst,
John Mauldin
Market still deluding itself that it can escape the inevitable dénouement
By Albert Edwards
The current situation reminds me of mid 2007. Investors then were content to stick their heads into very deep sand and ignore the fact that The Great Unwind had clearly begun. But in August and September 2007, even though the wheels were clearly falling off the global economy, the S&P still managed to rally 15%! The recent reaction to data suggests the market is in a similar…
SMALL INVESTOR BULLISH SENTIMENT SOARS NEAR 2010 HIGH
by ilene - September 10th, 2010 10:25 am
SMALL INVESTOR BULLISH SENTIMENT SOARS NEAR 2010 HIGH
Courtesy of The Pragmatic Capitalist
Talk about a schizophrenic market. Just two weeks ago the sky was falling. As sentiment plummeted the excessively fearful shorts were caught flat footed and an impressive short covering rally ensued. Now, just a few economic reports and a brief rally later small investors are convinced that there are no risks coming down the pike. The AAII’s bullish sentiment survey showed a remarkable rebound in recent weeks. After hitting 21% just two weeks ago the percentage of bullish investors has surged to 43.9% – the highest reading since April 15th when sentiment hit 48.5% and just days prior to the Q1 market peak. AAII elaborated on the results:
“Bullish sentiment of individual investors rose 13.1 percentage points to 43.9% in the latest AAII Sentiment Survey. This is the most bullish individual investors have been on the market outlook six months forward since bullish sentiment reached 48.5% on April 15, 2010. The historical average is 39%.
Over the last two weeks, investor sentiment has swung from bearish sentiment outweighing bullish sentiment by 28.7 percentage points to bullish sentiment outweighing bearish sentiment by 12.3 percentage points.
Bullish investors predominately mention that pessimism seems to have reached an extreme which should favor stocks going forward–the sky is not falling.”
The Investors Intelligence survey also showed a rebound in sentiment as bullishness jumped to 33.3% from last week’s reading of 29.4%. Although there has been a slight rebound in this data it is not at the same extremes seen in the AAII data.
Source: AAII, II
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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