July 27, 2009
A Commercial Quote With Residential Relevance?
It’s a fixed-income manager’s two ways of looking at Wells Fargo’s doubling down on commercial mortgage-backed bonds:
“One is: Your past history tells me you don’t know how to assess this risk that well…The other is: Well, you’re bright people, you won’t make that same mistake again. Personally, I’m not convinced of the latter.”
One can’t help but wonder how said quote might play in other real estate arenas.
First Published: July 27, 2009 10:45 AM
Comments from "Plugged In" Readers
Wells Fargo is simply positioning itself for the next bailout in October.
Posted by: Jay at July 27, 2009 1:51 PM
The problem with these securities is that they were set up to fail at every step of the process. Every single step of the way, the participants didn't care if the security suceeded (i.e., the home owner paid the mortgage without defaulting) as they earned their fees and sold it down the river. It's incredulous to me that the people whose left hand were conjuring up this trash (Wells, B of A, Countrywide, etc.) also bought these junk securities with the other hand. Talk in the industry was that the only way the securitization of real estate loans was going to be a sustainable model going forward was if it was required that the originating lender retained a significant portion of the securities to ensure that the loan underwriting process was solid. Basically requiring the banks/originators to have some skin in the game. I figured this would mean a bank would be required to keep 25-50% of the loans, but unfortunately the current Obama plan calls for banks to be required to retain only 5% of the securities they originate which is not nearly enough to change the bank's poor underwriting pump and dump strategy.
Posted by: Miles at July 27, 2009 5:04 PM
Everyone is still in denial. Banks are still not marking to market. Banks are still not acknowledging the huge shadow inventory of property that they just repoed or are dragging their feet like hell to effectively repo.
Everyone's trying to buy time hoping everything will solve itself up when all the mythical "cash sitting on the sidelines" will re-inflate all the bubbles that popped in the past 3 years. In the mean time, banks are using the free money from the feds to buy up anything that moves, hoping this will get the retail investors to jump in to be the last suckers in the Ponzi.
Posted by: San FronziScheme at July 27, 2009 5:12 PM
The Fed is providing free money to a few banks. How do you think they want the money used? Is the public truly so naive??? Sorry, dumb question...
Posted by: joshua at July 27, 2009 10:12 PM
I don't see why they shouldn't buy these securities.
Money at the Fed is essentially 0% right now, not to mention Billions of free cash from the taxpayer. Their business is essentially backed by the government. (increased FDIC insurance limits, government guarantee of their debt, clearly 'too big to fail')
if these securities pay off the executives will get massive bonuses.
if they fail miserably the taxpayer will eat the loss, and the executives will get massive bonuses (you know, we just HAVE to keep competitive wages/bonuses to retain our talent).
Regardless, this is all with the blessing and probably the direction of the Fed and Treasury anyway. The PPIP seems to be dead in the water, and the taxpayer is balking on outright purchasing these to bail out the banks. The govt has now tried and failed to come up with ways to purchase these assets at inflated levels to bailout the banks. Thus, the answer is simple. Have the banks buy these from one another instead. This creates a "market" price. So what if the "market" price is set by collusion and backed by the Federal Government.
when it all falls apart (again) we'll all be told how much of a surprise it was and how nobody could possibly have known, and this is a 30 sigma event that only should happen once in the existence of Earth (never mind that it just happened a few months ago, and a few months before that too).
Posted by: ex SF-er at July 28, 2009 4:45 AM
What, is that another Black Swan?
Posted by: OneEyedMan at July 28, 2009 9:54 AM
Posted by: justme at July 29, 2009 1:53 AM