You may have noticed how we haven’t really talked about the melt-down of our financial systems here. It has been the Big News, particularly this week as we saw Lehman Brothers exit stage left and Merrill Lynch find a foster home at Bank of America, and as we continued to hear the reports that banking giants Washington Mutual and Wachovia are operating with detonation devices strapped to their chests. Most recently, attention has shifted to news that insurance powerhouse AIG is doing the dog paddle in a fierce undertow.
We haven’t really talked about it for a couple of reasons. First, what is currently taking place is quite complex. I am a real estate agent and, having opted to forego the elective classes on micro- and macro-economics during my college years in favor of physical anthropology and sailing, I readily admit I am not qualified to provide an in-depth analysis of the global or even national banking systems. I know what I don’t know, and what I know comes from the same places every other “outsider” gets their information — the media. Second, a full month ago I spoke with a favorite mortgage broker who promised me an insanely inspired guest article. The problem here is that he is a maniac, a perfectionist, a loan officer who embraces and studies economics with the same enthusiasm I show my Altos Charts. And with the scenery changing by the minute, I am told he is about eight redrafts into the assignment, which means I am no closer to my guest post.
Thankfully, Jeff Corbett has unknowingly come to my rescue. Better known as the X Broker, Jeff wrote this succinct piece on what the Wall Street goings-on of the past week really mean to the real estate market. Even I understood it, so I encourage you to give it a read.
If you live in San Diego, you might want to skip over the last part, where the X-Man says, “Unless you live in California, Las Vegas, South Florida, or the Rust Belt…which either experienced high levels of mortgage fraud(or) illogical appreciation… your local housing market is no worse off than it was before Wall Street’s most recent ‘Black Monday’.”
Unless.
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Sven
09.17.08 at 1:31 pm
There used to be an old saying in the mortgage industry: “All mortgages end at Lehmann”. Lehmann and Bear Sterns were the two top securitizers of mortgages during the real estate boom, and they basically dictated the lending standards. In other words, people always say don’t blame the mortgage brokers because they were just working off the standards they were given… well Lehmann and Bear (and other investment banks) wrote the standards they were given. It wasn’t just the two of them, but they hold significant responsibility in the whole subprime mess and the overinflated housing prices of today(or yesterday I guess). It actually is nice poetic justice to see a 150 year old monolith of greedy, old people with money crumble to the ground. I feel bad for AIG though. They were a victim in all this, but that’s the insurance business.
That being said, I actually made a nice chunk of cash investing in puts for Lehmann a few months ago when all the wall street analysts were putting “buy” ratings on it. I’ve been really spot on with my predictions so far. Here’s a positive prediction.. I don’t think WaMu is going bankrupt. If they do get to that point, I’m positive they would be acquired because the retail banking side of their business is so valuable. IndyMac had an average account size of something crazy like $50,000 would made them very exposed to people fearing the FDIC limits. As long as WaMu has such a massive quantity of individuals with much smaller accounts, the stable potential for borrowing with their assets is still huge.
How can you make money on this? Well, I sure as hell wouldn’t buy any of their stock, but a WaMu bond probably has like a 80% yield right now. It’s definitely a high risk play, but, if you got some money lying around and feel like rolling the dice with it… (all possible disclaimer’s apply here, i.e. check with a financial professional, blah blah blah)
Lake Homes
09.20.08 at 10:52 pm
I think the only victims in this were the hard working people with honest loans who knew what they were getting into and could afford what they were getting into. AIG was not a victim… huge payouts to top execs….. this mess was caused by greed at all levels and a government that did not do their job. Welcome to 2009….. the second great depression!
Sven
09.28.08 at 11:26 am
Turns out I was very wrong about WaMu. It’s funny that things are going so far south that a slightly bullish prediction from me (mr pessimist here) was still way to bullish.
Kris Berg
09.28.08 at 7:25 pm
LH - Not an uncommon sentiment, and sentiments are certainly running high this week.
Sven - Fortunately, I didn’t run out and invest my retirement fund based on your advice.
Welcome to the real world. None of us truly has a clue what is going to happen next if we are entirely honest, because few of us have seen anything like this perfect storm in our lifetimes.