Friday, March 25, 2005

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.


At 1:33 PM, Anonymous Anonymous said...

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.

At 2:51 PM, Blogger Ben Jones said...

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

At 5:23 PM, Blogger mspenelope said...


"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."

This is very simple to figure out.
Banks, Mortgage lenders, etc... make their money up front. They provide you a mortgage for a percentage "fee" of the loan. Once it's closed escrow they sell the loan to Government entities. It is in their best interest to make as many loans as possible. If one mortgage rep makes 3 loans in one month and averages $4000. per each ......that rep just made $12K income in one month. When rates were on their way down...the rep. made money every time someone refinanced....over and over again. Sometimes you don't see the points/fees because they are hidden. The lenders kick back money.....boils down to the same thing. And there are other sneaky ways for the rep. to make more money. The higher an interest rate the rep. can convince you to buy the more of a kick back the rep gets.
This is obviously a huge money grab....with no one to hold accountable. Plenty of people using this tool to make fortunes.
However....when there is a transfer of money....someone wins and someone looses. When this game is over I'm guessing a lot of people will just give their properies back to Fred, Fan, and Gin....and cut their losses. People aren't as stupid as these recent articles will have us believe....
"There are certainly serious reasons to believe that house prices will not suffer the fate of technology stocks. Not only are houses more tangible, but people do not sell their homes as quickly as stocks, making a panic much less likely. Because of tax advantages, few owners are likely to sell and rent something else simply because local house prices start to decline."
Where is the logic, reason, common sense in the above statement?
What a joke!
The government could care less...they'll just pass the loss on to the consumer. Don't they always?

At 6:13 PM, Blogger Ben Jones said...

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

At 9:49 PM, Blogger mspenelope said...


"Have you noticed how clever all the experts are in figuring new reasons housing prices can't fall?"

Dear Ben,

Are you kidding me? How could one not notice? Oh yes....we're dealing with human beings here, aren't we? I think 95% of the population NEVER pays attention to anything that is going on. The old "Ignorance is Bliss" syndrome at its best. The 5 % that are paying attention will profit from this man-created gold rush. And then there are the ones that aren't too bright but happen to get "lucky," in spite of their actions, and profit as well.

Below is a link to a blog (by Katy Delay) that kinda ties into your blog. I hope you as well as the other 5 percenters out there can find it of benefit.
I don't mean to sound's just that sometimes ...just when you think you've heard it all.... another one of the 95 percenters comes up with yet another totally idiotic fantasy excuse ...meant to interpret what is going on. Naturally you can see how easy this fantasy would turn into a truth. S/he has 95% of the population of her/his side. ;o )

Katy Delay
I was very impressed by the story of Sybil Ludington, a young lady of 16 back in colonial America. Late at night on a rainy April 26, 1777, word came to the house of Sybil's father, a colonel in the militia, that the British were attacking and burning a local village. Sybil had the courage to jump on her horse Star and ride for dozens of miles over unlit, muddy forest roads, to bang with a stick on the homestead doors of her father's militiamen, stirring them in preparation for battle. Like Sybil, I want this blog to be at once my stick and my Star, carrying a few evocative words of lucidity in a treacherous world of economic, political and philosophical cacophony.


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