It used to be a trick question. Not anymore. Let's go through last week. AHM went from 10 to .70 cents, and probably to BK this Monday. Homebuilders and mortgage insures got crushed. The insurers are still pretending there isn't any bodies hidden; PMI thinks the best use of their capital is still buying back their stock-at least Bear Stearns has the sense to save their cash for the situation on hand. What's a buyback do anyway? Are there any long term holders in this market? It just gives the margined funds a bid. The piece on ACA by Barron's this weekend will probably cause that number to blow up. And now we see, ex whiz kid, Devaney, and his yacht "positive carry" is on the block for 23.5 million, after his United Capital horizon funds, were down about 30% in June and more than that in July. Redemptions have been halted, and the only sharks swimming next to the yacht are the lawyers.
This past Friday it was Bear Stearns; it's stock cratered after it's conference call. After blowing through two hedge funds of $900 and $600 million, and halting redemptions on a third, BSC tried to assuage the market Friday with a conference call; but it seemed it's CEO, James E Cayne was more concerned about his c.y.a. than the money investors put in their funds. So the bodies are appearing everywhere--and also overseas. Macquaire Bank Ltd of Australia Fortress Investment two high yield funds lost 25% of their value in July, and the German govt. came in to guarantee about $11 billion of loans and debt of IKB; the lenders putting in $4.8 billion to secure them. So they are saying those loans and debt are worth 53 cents on the dollar. So this crisis of confidence caused Jim Cramer to have this rant, which was a thing of beauty. Here's the youtube link!
Now despite Bernanke statements that "subprime is contained" and that to the best of their estimations it was a "$50-100 billion" problem, it's even obvious to any administration cheerleader who pimped themselves last week on CNBC, including Treasury Secretary Paulson that it's more! These problems are not contained and that the contagion is spreading like a Montana fire. On Wall Street you may euphemestically call it "an increase of risk premiums" but anyone watching a portfolio of the investment banks, moneycenters, and anything remotely related to the finacing economy is just getting killed.
Now before we blame the homeowner for getting teaser rates to buy a new home, remember it was Greenspan who said "many homeowners might have saved tens of thousands of dollars had they held adjustable-rate mortgages rather than fixed-rate mortgages" on February 23, 2004; he also opinioned on July 20, 2004 at the Federal Reserve Board’s semiannual monetary policy report to Congress before the Senate Banking Committee that high energy prices where "transitory!" Will Bernanke blink on Tuesday? It took Pharaoh ten times, and he didn't blink until it was the death of all the firstborn! But in the circle of The Federal Reserve, their firstborn are the investment and moneycenter banks, and they are looking pretty sick, probably how Pharaoh felt after the 8th or 9th plague. It looks like the Fed can finally come full circle.