Rumors and speculation here. No working business columnist would ever sign his name to analysis like this.

"There are two deadly financial scandals that will break or which are in the process of breaking. One is the so-called "sub prime mortgage" swindle and the other is the coming collapse of the hedge funds. In the first instance, unscrupulous mortgage vendors deliberately target unsophisticated young potential home buyers or the elderly minorities and lured them with promises of very low rate mortgages. Of course the small print in light gray ink and 8 point type informed the poor sucker that, yes, you had a very low initial rate but soon enough, the rates could double or triple. And guess what, kids, they did.

And all across America, the banks and final holders of these con jobs results found their mortgages were worthless because the holders could not pay. Of course this was well-known to the initial con men but very often not to the banks or the victims holding the mortgages. All across America, sub prime mortgages giants quietly took their profits and moved to Spain, leaving tens of thousands out on the streets and a growing number of unoccupied, and unsaleable homes. The greedy banks and other mighty financial institutions, seeing how many hundreds of millions the initial salesmen were making, rushed to invest, something they will very soon regret.

While this drama is unfolding, another is in the wings, waiting to lumber onto the stage and explode. One of my friends in the FBI's White Collar Crime told me that most of the huge hedge funds are nothing but shells as their owners are operating one of the largest Ponzi schemes ever. Hundreds of billions have been looted and many of the very flush CEO's and their staffs have bought homes in foreign countries to be near the billions they have looted. In the first case, it is the poor that have been deliberately screwed and in the latter, the greedy rich."

What a great job. This will unfold just like the Savings and Loan crisis, another con game where the bailout bill landed in the lap of middle class taxpayers. The mortgage bubble, steps one, two and three:

Fed stops recession after 9/11 by pumping the economy full of cheap money.

Cheap money is distributed through the economy as cheap mortgages and real estate speculation.

Top of housing bubble is reached, demand is saturated, no more cheap mortgages can be risked, speculative profits from housing dry up, money flees back out, hedge funds that reward investors with profits earned from derivatives tied to mortgage bundles can't maintain their results, hedge funds blow up.

Final stage will be when taxpayers who did not take cheap mortgages and did not bank money from housing speculation or from hedge funds are implored to rescue both the homeowners who can't pay their mortages *AND*, by extension, the big banks who are holding those mortgages.

literally mortgaging the future for the present.

hedge fund collapse is pretty well known.

http://en.wikipedia.org/wiki/Long-Term_ ... Management

This is kind of a sore subject for me. Deregulation is actually bad for business. Whether it's S&L, 1928 or 2007 sub prime, all it ends up being is like a credit card. Getting something now and paying a lot more in the future.

Essentially it comes down to cutting corners as opposed to actual innovation or hardwork. Lay off workers, maximize current profit, turn out a lower quality product trading off of its marketed brand name and when the shit hits the fan, the taxpayer/stock holders are left holding the bag.

Here are some good examples: The "American" auto industry (actually Mexican auto industry) fights all innovation, pushes for tax benefits to make their lesser product more attractive, and when the consumer abandons your crappy product altogether, it collapses.

There are some who say, that is fine, because all that happened was that the money moved to the "Japanese" (Made in the USA) auto companies and never left our shores. But what about the workers who are jettisoned? Those transferred jobs are probably lower paying and with less benefits.

What if Ford, instead of looking to cut corners and putting all their eggs into the the crappy SUV basket, actually developed an alternative fuel vehicle? Performance is not an issue. Everyone knows that electric cars can be faster 0-60 than a gasoline powered car.

How about the Energy industry? Why fight high technology and innovative alternative fuel which we could then sell to the rest of the world? Because it's easier to be lazy and fight it and stick to the same old same old.

What do you think the Energy industry is going to do with all that cash they've made over the last few years of the bush admin? do you think they will invest in new technology? or funnel it to lobbyists and whore scientists who will refute global warming?

Old energy is bad for america. we are just consumers. If we develop new energy, we will be producers and make a shit load of money selling it to the rest of the world. Isn't it fucking obvious?

Spreading, spreading...

The delinquency rate for Alt-A mortgages remains much lower than the rate for subprime mortgages, but it has been rising. In February, 2.6 percent of Alt-A loans were delinquent by 60 or more days, up from 1.22 percent a year before, according to FirstAmerican LoanPerformance. By comparison, 12.44 percent of subprime loans were delinquent by more than two months, up from 7.84 percent.

Reports that Wall Street, which made millions of dollars securitizing mortgages in recent years, is becoming more wary of Alt-A by putting loans back to lenders or by bidding less for them could be an indication that default rates will worsen before they improve.

The problems in subprime mortgages started late last year when big investment banks started returning delinquent loans to lenders. Many of those lenders have since filed for bankruptcy protection.

“The credit markets were showering the mortgage market with capital, and now that’s just evaporating,” said Mark Zandi, chief economist at Moody’s Economy.com. “The capital markets are going to exacerbate the problem, seemingly.”

And Citigroup is going to cut 15,000 jobs.

(April 10) - Citigroup Inc. is likely to cut a "net" 15,000 jobs as part of its cost-cutting plan, and is in the process of laying off more than 1,000 employees, the Wall Street Journal and Dow Jones Newswires said on Tuesday, citing a person familiar with the matter.

A Citigroup spokesman declined to comment. Citigroup plans to unveil the restructuring plan Wednesday morning.

Personally, I think people are nuts to invest in hedge funds. The risk is huge, and except for a few funds, mututal funds tend to perform at least as well.

Well it's all about money.

Hedge funds became popular when the stock market was not going up at some insane rate of return.

Real Estate at the same time speculation and flipping property. The running figure given is 25% of all house loans were for investment propertys. It is probily higher

Wait till the refinanceing loans start colapseing. Most of the people I know have been taking out the "profet" on the value of their appraised property by getting loans for the difference between the previous value of the propery and its new appraised price. (the estimated profet over the mortgage).

As property values drop or level off thease people will defalt as well but would appear to be good bets on paper cause they have been paying their mortgages for years. Lots of other people got baloon mortgages figureing they could refinance or sell at a profet. I can say it looks bad. Where my dad lives in Florida people are defalting at a high rate and houseing prices are falling.

There are lots of people who are working on wall street and in banks trying to figure out get ritch schemes. Due to the hand's off the free market pose of the goverment they pretty much can go crazy untill they crash things.

I worked on the S&L cases in the 80's what was universal was Ronnie Regan did not want regulation so they fired and got rid of bank inspectors. Banks which were inspeceted once or twice a year might get inspected once a decade if that.

Also we got papers on Lincoln S&L the biggest looser that there was going to be a case - oddly we then got papers that the case was being withdrawn. Guess Daddy Bush got the case pulled for his son Neil.

Wood Goblin wrote:Personally, I think people are nuts to invest in hedge funds. The risk is huge, and except for a few funds, mututal funds tend to perform at least as well.

That's according to the publicly released returns for hedge funds, but, because of the unregulated off-shore locales of the major hedge funds, they are 'Big Boys' clubs, where very serious players make returns that are impossible in the SEC-regulated world of mainstream Wall Street. Hedge funds are havens for those who get insider info and make moves based on it, and they're havens for tax cheats. The real returns of hedge funds are not in the public record. They're not transparent at all, not in the sense that a mainstream trading house is.

The hedge fund players know risk inside out- they're not reckless. If they could get every investment they want from a mutual fund, they'd do so, but they can't. Hedge funds amass insane capital into a ton of leverage, and they use that to exploit small spreads in the options or futures markets, or in the currency markets. They get in and out very quickly in many cases. That's the kind of 'quick hit with a big stick' investing that mutual funds can't offer. They're not for people who want to park money and check it every three months. They're funds for predators, big game hunters.

( But even with all the illegality and stealth on their side, they can still take beatings and lose big, because there are other funds using their leverage to move markets in different directions and making bets against their bets. )

Wow, huge surprise. Bernanke just warned about hedge funds, but of course, any new regulation would not be helpful:

Bernanke: Current hedge fund system OK

By MARTIN CRUTSINGER, AP Economics Writer 8 minutes ago

WASHINGTON - The current market-based system is the best way to regulate the trillion-dollar hedge fund industry although improvements can be made,
Federal Reserve Chairman Ben Bernanke said Wednesday.

Bernanke, speaking to a conference on global economics in New York City, said that the current system is superior to increased government regulation. That view is at odds with critics who say large failures in recent years highlight the need for greater supervision.

This shit cracks me up. Where does it say that regulation means that the market still can't work? I thought regulation, if designed properly, is supposed to prevent illegal market behavior? Will Bernanke be advising that police forces be abolished to make street crime more efficient?

On the upside, in a few months it'll be an ideal time for prime borrowers to pick up a home/property. It's tragic that so many sub-prime borrowers were lured into balloons/adjustable/overbuying... I think the best advice I ever got was "buy a house, but buy one you can afford."

I for one am kind of happy to see people who've been buying fleets of jets skis and oversize trucks on equity lose their homes. My wife and I had to struggle so hard to get our place, paid way too much because of speculation, watched our neighbor's rental homes go to shit because the equity was being stripped and used to purchase luxury goods....fuck em. I'd be more than happy to buy their property at a discount and rent it back to them at the same absurd rates we paid when we we renters.

Does anyone know of a decent economic educaton curriculum for kids at the HS level? I'm thinking something at the dunderhead, home ec. level, not and AP class.

-chris

chris jury wrote:Does anyone know of a decent economic educaton curriculum for kids at the HS level?

This is a very good economics book. It's part biography and part theory, and it's a lively read:

Buchholz surveys and critiques economic thought from Adam Smith's invisible hand of the 18th century to the depression-fighting ideas of the Keynesians and money-supply concepts of the 20th-century monetarists. He also relates classic economic principles to such modern-day events as the fall of communism, the Asian financial meltdown, and global warming. Buchholz includes plenty of anecdotes about the lives of the great economists: Karl Marx, for instance, was an unkempt slob; David Ricardo, the early-19th-century English politician and economist, was among the rare economists to get rich trading stocks; and Maynard Keynes was so homely his friends called him "Snout." Here's a lively and authoritative read for those interested in the past, present, and future of economics.

I would go see a band called 'The Sub-Prime Blowout and The Con Man Exodus.'