Okay, here’s a quick summary of the day:
3 Banks got taken over by the FDIC. The biggest one was Downey Federal, a huge “Option Arm” lender.
While Citibank didn’t go under or get bought out, but their stock was 50% lower tonight than it was Monday morning.
The stock market staged a late day rally but still ended up way down for the week. Why did it go up this afternoon? Because President Elect Obama announced that he was selecting Federal Reserve Governor Tim Geithner. Why did they rally on the announcement? Best I can say is because they liked the fact that an “insider” who has experience is going to be taking over.
Pretty much the entire financial sector of the stock market got hammered this week.
The disconnect between Treasuries and Mortgage Backed Securities has never been clearer than it is this week.
Based on some of the people I’m reading, the way that yields on Treasuries have moved this week are indicative of huge amounts of fear and tension in the markets.
The Big Three auto makers showed up in Washington begging for money, didn’t get any and left us all with a feeling that no matter whether they get it eventually or not, it’s going to be painful.
After a very calm week last week, the volatility returned to mortgage rates.
Have a good weekend!
Sean Purcell says:
Tom,
I don’t think we can call Downey’s failure “big news” as you, I and others predicted it some time ago. I will give them this though: they held on about 2 months longer than I expected.
I imagine the Big 3 problems affect you greater than most of us and my thoughts are with you. For everyone’s sake I hope the bailout idea is dropped, the band-aid is ripped off and the healing begins sooner rather than later.
November 22, 2008 — 9:35 am
Bob says:
Downey’s demise is great news as they were refusing to do any short sales on any non-portfolio loans as of July. With the FDIC in, I have a few sellers who can now get on with their lives.
November 22, 2008 — 10:07 am
Sean Purcell says:
Crazy world isn’t it. Downey was in such bad financial shape that they could not assist their customers for fear that the losses would put them under. Then, they finally go under anyway and now their customers can get the help they need. One caveat though, your clients may become mortgage renegotiaters rather than sellers.
November 22, 2008 — 10:49 am
Tom Vanderwell says:
Sean,
I think the big news about banks was essentially two things:
Finally they went under.
Citibank didn’t go under.
Yeah, as Bawldguy described it yesterday, Ohio and Michigan are sort of like London during the bombing raids in WWII, except no one dies in our troubles…. We are ground zero(or close to it).
I think that the best thing Congress could do is to use the $25 billion to support and retrain and relocate the soon to be unemployed auto workers.
Tom
November 22, 2008 — 11:28 am
Bob says:
Sean, dealing with the FDIC controlled lenders has been fairly easy. Sheila Blair has done a good job instilling common sense procedures and policies.
The servicing deals with the investors are wiped out with a Fed takeover, so this removes the idiotic barriers that only served to force a foreclosure.
November 22, 2008 — 4:37 pm
Sean Purcell says:
@ Tom – By my way of thinking there’s been a lot of misinformatin regarding the number of jobs that may be lost. What’s your take?
@ Bob – So most of the FDIC lenders you’ve dealt with are not trying to keep the borrower in the home? I understood that to be the big push now. Is that not happening?
November 22, 2008 — 5:25 pm
Tom Vanderwell says:
Sean,
Check out what I wrote at http://tinyurl.com/6nqh9z for some thoughts on the numbers and what is true and what is overblown. Here’s a summary….
There will be a lot of jobs lost in the automotive arena.
There will be a lot of jobs lost in relating and ripple areas. But let’s face it these jobs were being supported by unsupportable industries that had to end at some point.
Mitch Stapley (major investment manager at Fifth Third) told me that if the Big Three became the big 1 1/2 we could expect a 3% jump in unemployment.
I think that any government money needs to be used to support the soon to be displaced workers, not to support the status quo.
Tom
Oh, and the loan modification issue? I think it would be more accurate to say that the big push is to appear to be trying to keep the borrowers in their home. Read what I wrote at http://tinyurl.com/5ogsaa and then click through to what Yves Smith wrote at Naked Capitalism for a more realistic view of it. There are so many caveats in the loan modification programs that I don’t think they will prove to be nearly as successful as they claim.
November 22, 2008 — 5:59 pm
Bob says:
Some cant keep the property and others are so upside down it doesnt make sense (350k value agains 550k loans). Short sale in some instances better than foreclosure, at least for now.
That will change come Jan 1 in CA as debt forgiveness may trigger state income tax in the 11% range where there is none with foreclosure on purchase money. So the question arises, “How much is your credit worth?”. Expect BKs to rise as well as lawsuits against agents when sellers realize that those short sale approvals didnt release the note.
November 22, 2008 — 8:02 pm
Bob says:
FDIC sold Downey to US Bank today, so this week should be interesting.
November 22, 2008 — 8:03 pm
Tom Vanderwell says:
Bob,
This week will definitely be interesting.
I don’t think we have even begun to scratch the surface of the effects of the number of people who are under water on their houses. As the overall economy deteriorates, we’re going to see more and more people look at what their house is worth and what they owe and say, “It’s not worth it, my credit is going to be trashed anyway.”
I saw a statistic that said that 39% of the people with mortgages on their homes in Michigan are under water. Gulp, hope they have snorkels…..
Tom
November 22, 2008 — 8:18 pm
Robert Kerr says:
Jingle mail,
jingle mail,
jingle all the way …
It’s a mystery to me why more people who are so badly underwater don’t just walk away. It’ll take them a decade or more of second jobs and sacrifice just to get rightside up, while the credit hit from jingle mail will be gone in 7 years.
Seems like an easy decision to me.
November 22, 2008 — 10:57 pm
Bob says:
Dead on Robert. The lenders and loan servicers dont get it. They think they control the process. What they dont get is that it is an easy decision for many.
I had a conference call with a Countrywide VP and the VP told me that buyers, sellers and agents don’t understand how much money they are losing. What a load of BS! Of course we all know. We are the ones paying it one way or the other.
Sean & Tom – We will be paying the costs for the auto industry regardless. Might as well keep people working – so long as we throw out the execs or roll back their comp to no more than $500k.
November 23, 2008 — 8:15 am
Robert Kerr says:
By my way of thinking there’s been a lot of misinformatin regarding the number of jobs that may be lost. What’s your take?
Sean, the numbers vary wildly, depending on who’s making the claim.
Opponents of the bailouts – and these really *are* bailouts, these are $25B bridge loans on the table, which will only keep them solvent until March … WHAT THEN?! – claim no/low job losses.
Proponents claim 3M jobs will be lost if *any* automaker goes under.
I don’t believe that figure and I’m dead set against the bailouts – I believe that Chapter 11 is the only good option at this point – but I expect that we’ll get them anyway, in some form, because to take the hard stance is political suicide.
So we’ll piss away $25B and then, in March, we’ll be at the same place again. Maybe then, it will be easier to say: “No.”
Sigh.
November 23, 2008 — 12:39 pm
J Boyer Morristown NJ says:
I am in agreement with Bob on this one. We may as well keep the auto industry running. We sure don’t need additional unemployment that allowing them to fail as well will cause. After all if we can give AIG 85+ Billion why not GM Ford & Chrysler 25 to 50 Billion. I think there are a hell of a lot more middle class jobs as stake on the auto industry then with AIG who is now using US tax payer money to bail out foreign banks from what I have hear.
The thing that ticks me off is we have all these southern Republican Senators lining up to condemn the US auto industry and saying to let it go bankrupt, but they are from the same states with all these foreign auto assembly plants that are getting 20 year tax abatements, free electricity and other government subsidies. Talk about a bunch of two faced SOB’s
November 23, 2008 — 4:47 pm
Tom Vanderwell says:
J,
I don’t think anyone is talking about totally liquidating the auto industry. I think they are talking about using bankruptcy to break contracts with lenders, break contracts with the UAW and supposedly emerge stronger on the other side. Stronger and smaller.
$25 to $50 billion for GM and Chrysler and Ford – I heard one congressman ask Wagoner how much money they needed to get to March 31. He didn’t know. $50 Billion every 90 days for ever? That’s too long.
In terms of the comparison between the foreign auto makers down south and the Big Three, I’d rather that we “spend” the money to put them on even footing than just write a blank check to the big three…..
Tom
November 23, 2008 — 5:11 pm
Bob says:
James, most of those deals were crafted by the individual states to attract jobs. Congressional reps of either party had little to do with those deals.
GM pays out $10b a year just in retirement benefits. The average autoworker hourly wage + benes cost is over $70 an hour. It used to be that employee costs ran $2k per every car sold. With far fewer sales, employee cost per car goes way up.
Any bailout deal will be contingent upon a major restructuring of UAW contracts. Keeping a job vs unemployment will be the carrot – BK will be the stick.
Blaming Republicans is pointless and ironic as it will be a Democratic controlled Congress that will have to lance the union boil in order to save the patient.
November 23, 2008 — 7:04 pm
Bob says:
Here is an interesting read from someone at Ford using SM to get into the conversation.
November 23, 2008 — 7:12 pm
J Boyer Morristown NJ says:
I was mainly trying to point out that those particular senators from the south are talking out of their butts. Though they did not write the givebacks to the foreign auto manufacturers they most certainly know all about them and are probably proud of them.
As far as bankruptcy, I am sorry Tom, but that is just plain stupid. Taking them into bankruptcy is a sure way to take another 50% of the market share the big three have left. Then what? You know as well as I, people don’t buy houses from bankrupt home builders, and they likely don’t buy cars from bankrupt car makers. No assurance of warranty, parts or resale value.
I would say that keeping AIG in business was far less important an issue than is being faced now.
Not saying that the big three did not cause many of their problems, but a big share of their current problem falls squarly on the door step of the creators of the current financial crisis.
The Europeans and Japanes are bailing out their auto industries, theirs will survive, will ours?
November 23, 2008 — 10:01 pm
Bob says:
James, people bought tickets and flew on aircraft owned by airlines going through bankruptcy.
BK wouldn’t mean liquidation, but reorganization, which would allow them to restructure union contracts they cant afford.
November 23, 2008 — 11:58 pm
Bob says:
“I would say that keeping AIG in business was far less important an issue than is being faced now.”
Then it is possible that you are not fully aware of exactly what AIG’s role in the financial services industry was.
November 24, 2008 — 12:00 am
Tom Vanderwell says:
As far as bankruptcy, I am sorry Tom, but that is just plain stupid. Taking them into bankruptcy is a sure way to take another 50% of the market share the big three have left. Then what? You know as well as I, people don’t buy houses from bankrupt home builders, and they likely don’t buy cars from bankrupt car makers. No assurance of warranty, parts or resale value.
J- No need to apologize, there are a lot of stupid ideas floating around these days. I agree that there is inherent danger in a bankruptcy but I’m intrigued by the idea of a prepackaged bankruptcy with the government as the, I believe the term is debtor in posession? That way, they know they can stay open and operating but at the same time they have the ability to rewrite contracts and emerge safer and cheaper.
I agree that GM is a bigger issue for those on Main Street, but I’m not sure that it’s a bigger issue to the world economy as a whole.
I think that the problems from the Big Three and the UAW were made worse by the credit mess, but not caused by it.
Tom
November 24, 2008 — 6:01 am
J Boyer Morristown NJ says:
Bob, Not wishing to be argumentative but a ticket on a bankrupt airline costing $200 to $600 is not the same thing as a car or truck costing $20,0000 to $60,000. I am not rich but am willing to take big chances with $200 to $600 but want evidence that I am buying something from a solid company when purchasing a $20,000 item.
The other problem with bankruptcy is that in our current state (fully caused by the finance industry and the government)there is no source of financing for a bankrupt auto industry other than the US government.
So you pay now and save a auto industry that was 2/3rds of the way through it’s reorganization (new UAW contract has all new hires at $14.00 an hour, health care costs transferred to the UAW as of 2010, a number of cars that rank for quality as high or higher than their Japanese rivals, and new autos which are game changers coming to market in the next 18 to 24 months)or you force them into bankruptcy, you take them down from 40% market share to 20% market share, destroy at least 50% of the middle class jobs associated with them, and over time you get a bunch more foreign transplant assembly plants in the south. Then we pay a much higher price.
Of course all the profits the foreign companies make go back to their home countries and on top of that the governments in those states will be happy to hand over what ever money it takes to get those companies to build the assembly plants there. Double standard, I think so!!
How much have we given AIG now? It is allot more then 85 Billion now right? Where is that money going? I have heard at least some of it has gone to prop up a few foreign banks.
November 24, 2008 — 6:15 am