Washington Mutual Breaks Through Support
The big banking and mortgage conglomerate Washington Mutual (WM) broke down past its 50 and 200 day moving average. Net income is way off, executives are leaving and there are rumors of "hedging activities" that seem so common these days. This blog will keep an eye on WM's situation.
3 Comments:
This is really interesting because as far as I can tell, I think the banks are going to be the ones to get burnt by all of this. They are the ones that are holding the over priced debt against the houses. When an owner walks away from a house, the bank will have say $350,000 on its books for an asset that is only worth $200,000.
What I can't figure out is how banks can lend vast sums of highly levereraged money to homeowners for the miniscule amount of spread between the overnight rate and the mortgage rate. Mortgage rates are lower than a lot of municiple debt and when was the last time that a public entity defaulted on their bonds ?
I don't get it. I don't understand this whole situation.
The banks don't hold most of the mortgages. Fannie Mae and the rest of the GSEs package and re-sell most and hold some. To make money they have to hold vast portfolios relative to their size. Thats why regulators are worried, the debt is huge.
Sure, small/medium banks have a certain amount of these loans and they have already started taking hits from Fannie. In the oil patch real estate bust of the 1980's, Texans lost ownership of every major bank in the state. The big multinational banks bought them up for pennies.
The bankruptcy legislation is making it harder to walk away, as well.
Public entities do default but are probably safer than mortgage debt.
Thanks for commenting..Ben
Ms. Penelope,
Great info in that comment. I haven't had time to cover the kickbacks/fraud in the mortgage biz. A person could do a whole blog on the subject.
Have you noticed how clever all the experts are in figuring new reasons housing prices can't fall? They are more hysterical every week. Logic and reason are hard to find. In So. California, only 20% of people can afford to live in some areas. Yet they think that can continue?
I also agree that people are going to walk away. The taxpayer, small businesses, etc, will catch the brunt of this. Thanks for your help Ms. P!..Ben
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