Business

Jedi Master has spoken

Many of you know my stance on taxes – I don’t think that progressive taxation is the end of the world. But when one of the richest men on the planet says that he and the ones like him are not taxed enough there must be something to it. Buffett Tells ABC Rich People Should Pay Higher Taxes Or as Fox News would conclude – a hidden socialist agenda.
I read a book about Buffett recently. His genius is simplicity. The way he succeeds is he gets the same information as everyone else – from annual reports – but he knows what information is important. He just knows how to ask the right questions. All of those Efficient Markets Theory apologists that question his record are a bunch of Ph.Ds that claim to know the future by looking at the charts of past events. There are still a bunch of those being employed by big banks to this day as market technicians. But in essence, they are no better than astrologists.
Despite having grown up in a very conservative family (his father was a member of the John Birch Society) he nonetheless learned to think for himself and has become known for his support of progressive causes throughout his career. But he does not let any sort of ideology guide him. All that matters is economic sense and right now that means to lower taxes on middle class and raise them on the top 1%. That also means that without Uncle Sam coming to rescue in 2008-2009 there would be no Ford, GM and Citi anymore and millions more would be unemployed. Pretty Good for Government Work

Of course, our fiscal conservatives love to point out, in horror, to France and Germany with their constant strikes that paralyze railroads and airports, etc. implying that this is what we’re going to turn to if we raise taxes on the rich, but, frankly, it’s like comparing apples and oranges: the unions in this country are so neutered that the only thing they can do these days is give concessions to the employers. Unions Yield on Wage Scales to Preserve Jobs Trust me the strike in this country would be suicidal for workers and unions. Employers would just move operations elsewhere. The diminished union influence is, in my opinion, one of the primary reasons why middle class is disappearing here. The top 1% controls about 23% of the wealth in this country. And the rest are living paycheck to paycheck while voting Republican and fearing Socialism.

Obama keeps tax cuts for the rich

First of all let me congratulate those destitute 1% of the population who were scraping by paycheck to paycheck and who can now breathe a sigh of relief. I heard so many frightening stories about how the 3% increase of their tax rate will slow the economic recovery. Now these 3% will sure trickle down to the rest of the population. But enough sarcasm – I’m really happy for them. Maybe now they will finally stop complaining that Obama administration treats them unfairly. From my previous posts you probably know that the abundance of complaints and general thinness of skin (real or assumed) on Wall Street (who else is in the top tax bracket?) is my favorite topic. The amount of wimps in the top bracket is breathtaking. Makes you wonder how is it that they made it to the top?

I think it all comes down to the fact that being viewed as a victim has become fashionable in this country. It’s a foolproof PR strategy. Moreover, it’s convenient – you get to blame a third party (Obama, government, stiff regulations, communists, etc.) for all of your misfortunes.
Obama, unfortunately, got himself in the position where he’s damned if he does and damned if he doesn’t. One part of the country thinks that he’s in bed with Wall Street, the other part of the country is convinced that he’s out to destroy capitalism, and media doesn’t bother to notice the controversy. For their own convenience certain news sources can criticize Obama for having too many Goldman guys in his administration (alluding, of course, that he’s conniving against the working man) and in the same breath accuse him of socialistic tendencies. I fault Obama for not fighting back hard enough against this nonsense. He’s in dire need of some pit bulls and a Fox-like echo chamber with talking heads. If there’s one thing I admire about the Republicans is that they are masters at propaganda. Their mantra that repetition makes it true really works: death panels, Obama’s Kenyan birth, middle class tax increases – all of it stuck.

Now that Obama kept Bush’s tax cuts do you think that he’s going to be thanked by the business community? Fat chance! Investors Show Obama No Respect in Global Poll as Profits Surge As I described above it’s convenient to always be pissed off about something. Investors made money this year, profits surged – but they’re still not happy. If they are not pissed off at Obama they really have no one else. They need him as a human receptacle of all kinds of misdirected anger. Especially now that the Congress is Republican.

To Obama I say – may the force be with you!

The Foreclosure Situation

Given the recent development on the foreclosure front here’s my 2 cents and a possible solution.
How can a trust with tens of thousands of individual loans in it dispute each one of those defaulted loans one by one in court? This isn’t going to happen. And it’s not because it’s too long and too costly – there are ways around that, but because trusts can’t prove that they own those mortgages, they don’t have the paperwork needed. To go forward with foreclosure en masse would mean some abrogation of the sacred contract. Also, if the house has several liens on it, as happens in most cases, the potential buyer, who’s hunting for a cheap foreclosed home can’t be 100% sure what exactly he’s buying. It can turn out that he’s going to be second in line, after the primary mortgage holder claims to own the property as these two unfortunate guys found out. I mean what reliable source or a database do you check to know what it is that you’re buying with a foreclosed home? I think foreclosure has a risk of becoming a four-letter word.

What it can mean is foreclosure market will be dead for a long time, because bargain hunters will be spooked by the legal uncertainty. In reality it would look like the whole country will be plagued by haunted houses that no one can sell, buy, move into, bulldoze to the ground and not even touch with a ten foot pole. Wouldn’t that signal that the new construction will be hot again? People have to live somewhere. Just a speculation on my part.

That’s just one of many problems. The other one is sloppy record keeping.

Even before the mortgage meltdown, the servicing industry “was plagued with problems,” such as servicers charging unauthorized or excessive fees and making false or unsubstantiated statements about how much borrowers owed, says David Vladeck, head of the bureau of consumer protection at the Federal Trade Commission, which has brought several recent cases against servicers.

WSJ Article

I read a few articles in the past few days and to my horror I found out that no one is really insured from being foreclosed upon in this unceremonious manner, even if you’re current on your mortgage! That is because most of those small lenders that originated your loans are non-existent right now, those loans are long gone from their balance sheets into the trust without proper documentation being transferred into the hands of a new owner or lost altogether. In this case how do you prove that you paid all your mortgage bills on time? You have your records, sure, but they have theirs! Prove that your records are correct! These robo-signers are a sort of indiscriminate roulette that can pull your own mortgage out of some system purely by mistake and make you in default. “Because it says so on the computer screen” – you will be hearing when, puzzled, you call your mortgage servicer trying to clear the little misunderstanding. You will be speaking with some clueless person who will be immune to your logic and calls to reason, because I suspect they all are being trained to not understand questions for which there are no standard answers from the manual. What recourse do you really have in situation like this other than going to court?

The solution. With such clusterfuck in the foreclosure process and a high unemployment rate the solution begs for itself. Just like in early 2000s a bunch of no name lending companies popped up here and there I can see a huge market for foreclosure specialists. The business model would look like this: A small company gets a list of the prospective foreclosures from the trust or from the sponsoring bank and hires high-school drop outs for $10 an hour to phone the properties on the list. If somebody still lives there and pays mortgage or at least is working out a payment plan – those get dropped from the FC process. If no one answers the phone, the bank is given the green light to proceed with the FC. I mean this is a rough idea, perhaps those employees have to do visits to the property and follow some guidelines, etc. but you get the idea. Then they send the updated list back to the bank, which, in turn, proceeds with the wholesale robo-signed foreclosures. It’s a sort of quid pro quo: if banks want to speed up the process and bypass the paperwork requirement they have to pay to make sure that no current homeowners end up on the list. Isn’t that a reasonable requirement? This way we kill many birds with one stone: the FC proceeds at a reasonable speed (not as fast as it is right now, but not as slow as it would under the judicial review); a bunch of unemployed people get jobs (and maybe, as a positive side effect, even pay their own mortgages); politicians can move on something else, like fighting socialism – everybody’s happy. I think even Republicans can support something like this – after all it’s good for business.

ABS East 2010. Time of disconnect.

The annual securitization industry conference has just concluded in Miami. I attended it mostly due to gracious gesture of my former colleague who got me a free pass at the very last moment. Since I’ve been out of industry for a year I had to get current on recent developments. My second reason for going was anthropological, of course. I wanted to get a general feel of the market participants.
I will get very specific with terms during my observations, but I will make the best effort to explain terms to the uninitiated. This is not, after all, a financial blog.

But first things first. The biggest topic of discussion and concern at the conference was government and legislative actions. After attending a few panels and listening to speakers from different camps I came to sad conclusion that Wall Street, Government and regulatory and legislative bodies are a beast with more than two hands and naturally neither hand knows what the other is doing. First, let me describe the participants. Each panel consisted of specialists in that particular area of expertise. If it was a regulatory panel – there were people from some government agencies, FDIC, OCC, etc. If it was a research panel – it had a bunch of analysts on it, and if it was a traders’ panel – you guessed it! Normally, at this sort of conferences, I would just skip the lectures all together and hang out by the pool or at the bar with salespeople, but this time I wanted to make full use of the conference pass acquired through the kindness of others. I had to go listen to the panelists in order to refresh my memory on things and get the feel on the state of current affairs. So the uncertainty about legislative maneuvers was on everybody’s minds. Because this is not a specialty industry publication and it’s not even a market blog I will not delve into the specifics about deals and bonds performance. (Those who are interested to know about trade ideas can ask me specifically, but being in a generous mood I put a few at the end of the post). I will try to make it into a 3d party observation from 10,000 foot view.

“It’s not the product, it’s the macro.”

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Republicans Are Anti-Business

Karl Rove, Bush’s consigliere, has employed some rather brilliant (until the hubris and The Math took him down) strategies over the years, one of those being Attack Your Opponent Strengths strategy. Just look at what happened to John Kerry’s war record in 2004 – they turned a war hero into a coward, and what was left was just a flip-flopping blue blooded privileged New Englander – just the kind of opponent Republicans wanted.
Whenever I hear Republicans calling Democrats unpatriotic it has the same rovian flavor to it. Republicans own patriotism, Jesus and the flag. They also own pro-business image. For now.

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Trickle Down Economics

Here’s a gem from Stephen Colbert. This is how trickle down economics works.

Stephen Colbert\’s Trickle Down Economics