The fog of battle [1] of "Slightly-Less-White Thursday" [2] has now dispersed a bit. Numerous commentators declared that the weakness in subprime, made manifest by the New Century and HSBC announcements, would not spread beyond that narrow category. The remainder of the week seems to have proved the optimists right. What caught my attention during this exercise, though, was this Street article [3] that put forth a theory as how the firewall around subprime is constructed. As quoted by the author, senior economist at Deutsche Bank Torsten Slok implies that subprime’s customers rest mostly in the bottom 20 percent of…
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The Safety Net That Never Was – Part XXIII (and last)   SPECULATORS SPINDERIVATIVE DOUBLE BINDSOF RISK FREE ILLUSION Contributed by poet1 under Friday’s "Housing Haiku" post   Hail and farewell. This will be my last "Safety Net" post. I’ve been fascinated by derivatives and the GSEs since this 10 March 2004 Fannie Mae rebuttal of a Financial Times piece where reporter Steve Schurr estimated Fannie’s derivatives losses for 2003 at $14.4 billion. That was just about exactly a year after Warren Buffett called derivatives "financial weapons of mass destruction" and, well, I’ve had my eyes squeezed shut and my…
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Hat tip to spike66 at Ben’s Weekend Topic Suggestions for this important find. An article [1] from today’s New York Times provides a healthy dose of Mainstream Media (MSM) confirmation for what many bubble bloggers have been saying for months, notably Crispy at the Bakersfield Bubble and Aaron on The Mortgage Lender Implode-o-Meter (up to 16 today, yikes!), but many, many others. Thanks to all. Also at Ben’s, GetStucco recommends this Newsweek article [2] as further evidence the MSM is getting wise to subprime, and Twist adds this recent Providence Journal piece [3] that documents how a half-dozen subprimes have…
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I’ve learned over the last while to take Doom reader K seriously, even when I have a pretty difficult time figuring out what he’s talking about. Last Friday he sent a long communication containing some difficult and challenging ideas. His main thesis seems to be that if times get sufficiently difficult (as some pundits are expecting) then governments will somehow withdraw into their shells.

Don’t know if it’s quite time to radio the OCC with "Pan-Pan, Pan-Pan, Pan-Pan, ABX, ABX," but it sure has been interesting these last few days. Amid a constant background drone of relentless optimism about markets and the US and global economies, cautionary voices are starting to stand out.

========================= This may be a Doom first, an advertisement. Doomers who will be near Tucson Thursday evening should take note of this event from the Arizona Daily Star Business Calendar (published Jan 12th). Thursday…Economic Outlook and Developments in Mortgage Markets — Berger Auditorium, McClelland Hall, University of Arizona, 1130 E. Helen St. The Eller College of Management’s Distinguished Speaker Series presents Susan Bies, member of the Board of Governors of the Federal Reserve System. The lecture and reception following are free and open to the public. Arrive early. Space is limited. 5:15 p.m. 621-9400. =========================   Amid record after record…
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K must have seen me struggling last week, because he’s sent along links to a couple of the Fed’s research papers from last year. As usual with him, interpretation is left as an exercise for the reader. I’m guessing that the Atlanta Fed paper [1] was suggested as a way to see how the Big Banks of NYNY stumbled on a prototype Fed system during the Panic of 1907, three years before that Jekyll Island meeting discussed in my Jan 4th post roughed in the present system. Perhaps a takeaway from the Philly Fed’s effort [2] is that during the…
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A few days ago Twist and I were reflecting on the folding in rapid succession of sub-prime lenders Ownit and Sebring. It seemed to us like the scattered explosions at the start of popcorn popping. Since then, several other lenders have more or less stopped operations. In recent days we followed the demise of Connecticut’s Mortgage Lenders Network. Just yesterday, Crispy reported [1] that Secured Funding had gone out of business. Also on Friday, in yesterday’s Ben’s bits (scroll down), Crispy points out Decision One as a possible next victim. Comment by crispy&cole2007-01-05 09:47:45The scuttle butt today is on –…
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This [1] just in. I’ll review the rumors we’d been following and add further MSM stories as they come. Looks like another biggish sub-prime lender is trailing smoke.

The Safety Net That Never Was – Part XXI I don’t know how she did it with everything else exploding around Doom Castle yesterday, but Twist picked up on this [1] mildly startling OFHEO press release. Once again, an important Fannie Mae story has been slipped in during a period of slack attention, hidden under a smokescreen of competing RE news.[2] As I write this, neither blog nor MSM has picked up on OFHEO’s announcement. It’s likely that a couple of the usual suspects, perhaps DSNews or Calculated Risk, will mention this. Hopefully they’ll provide some insight. What’s the bottom…
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On Christmas Day, Twist popped this story [1] onto the sidebar. It’s by Chinese finance professor Sun Lijian. The opening passage may be one of the sanest and most sensible things I’ve read about debt in a long time. "I used to tell this story in the first lecture of my finance class every term. It goes like this An old American lady, who talks with an old Chinese lady in Heaven, boasts that she has long enjoyed living in an apartment purchased with borrowed money. The old Chinese lady seems sad – she spent most of her life saving…
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Fannie’s Big Bath Last time, in eposode XIX, we at Doom were struggling to sort the key stories from the mass of information we were receiving about Fannie Mae. The flood has continued unabated, in fact the intensity seems to have increased since that December 14th post. Doom covered what looked like a climax on Thursday with this DoomWatch that noted the long awaited suing of Fannie’s former scandal era CEO, CFO, and controller by OFHEO. Still, something wasn’t right. We were all missing somthing obvious. And then finally it hit us: "The Lighthouse is the Rocket!" The big Fannie…
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I don’t know what Doom would do without L. Today he passed along this article [1] detailing how the two big GSEs have only two and one half months to get cracking on implementing the same guidlines on non-traditional loans as federally chartered banks now have to follow. The actual press release is here.[2]

Signs of a possible credit contraction continue. Doom reader G sent along this Dallas Morning News article [1] that provides an excellent summary of recent developments with sub-prime lenders, the demise of North Texas based Sebring Capital Partners LP as well as the better known Ownit collapse. Then K weighed in with an analysis that delves deeply into the guts of the secondary and tertiary markets that consume all that toxic-loan paper. K finds some key quotes (in [3] and [4]) that clarify what’s going on with the credit derivatives used to support the sub-prime MBS market. Fasten your seat…
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From time to time since last summer, Doomers have discussed the thesis, "is what we are seeing more of a credit bubble than a housing bubble?". In fact Jan-Martin recently contributed a link [1] on the issue, and just yesterday he pointed out this itulip credit bubble graph. Doom reader K is convinced the credit bubble exists, that it is in the process of reversing, and that credit contraction is the key to understanding the US housing market and the larger global economy. In the last couple of days he has discovered a report that he feels supports his thesis….
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