My Most Recent News You Can Use E-mail

News You Can Use
WAMU Last Week
Wachovia This Week
Who Knows Next Week
Probably National City Bank


What it means to you and what it means to the real estate markets!

As I have been saying privately for some time now, Washington Mutual and Wachovia would be the crown jewels of this round of bank failures. There was never any doubt in my mind given what I knew about these two institutions. WAMU was easy, they have been making the worst quality loans for the longest time either directly or through their Long Beach Mortgage operation. Wachovia wasn't much of a stretch either since they acquired World Savings which was a house of cards given their loan structures and California and Florida exposure.

The fact of the matter is that Greenspan's biggest post 9/11 fear eventually did come true - deflation (ie devaluation) of the real estate markets. Greenspan actually knew that he had to find a way to actually keep inflation in the banking system via real estate in order to prevent exactly what has gone on today. What he didn't realize was the high degree of leverage in the banks and hedge funds and utterly horrid quality of the loans that was driving the market place. Hind sight being 20/20, Mr. Greenspan would have served us all better to have let the economy go into what would have been a shallower recession versus what we face now.

In the geopolitical analysis of what we are experiencing you can certainly ascertain quickly that we are experiencing the long-term effects of the terrorist attacks on our country. Not that those who perpetrated those terrible deeds had any idea that this would happen but it remains that economic adjustments warranted by the Federal Reserve combined with ridiculous spending by congress and the executive branch have largely been responsible for this calamity along with the attacks of that fateful day.

Today, if congress and the president had balanced the budget and not driven this nation into debt to the degree they have, we would be in a much better position to deal with this matter. As Barry Goldwater Jr. said recently, "you don't let your dog watch your food or the government watch your money". There is simply no room in the budget for the bailout. It isn't relevant whether you believe the taxpayer can actually come out ahead in this deal. The money we need to implement this plan has to again be borrowed and that means a weaker dollar and more dependence on foreign countries to buy our bonds. In other words we simply don't have the money.

Over the years this notion forced down the banks throats by democrats like Barney Frank to make more loans to low income borrowers was and is absurd. For the most part citizens of this country that are in the low income bracket are there for a reason and probably shouldn't own homes especially if it means taxpayers are eventually going to have to foot the bill. And let's be realistic here; anytime a low income family fails to meet the obligation of homeownership and suffers foreclosure it is an emotional travesty and train wreck for that family. It is a further knock down the social ladder rather than a move up as intended. This altruism must be tempered with better judgment and in the future significant opportunity must be given for low income families to achieve homeownership but with it must be better conceived than the Community Reinvestment Act and the rest of these "feel good to the voter" measures.

Corruption too is and was a big part of this. A few weeks ago I was having lunch on a Sunday and happened upon a very nice gentleman from Alexandria, VA. Our conversation quickly got down to our lines of work and he was a retired tax attorney. Originally from the Austin area he has spent most of his career in the D.C. region and part of his practice was individual tax return preparation. A few years ago one of the associates at his firm came into his office and told him that there was a lady in the lobby that wanted them to prepare her 1040. She was a minority and according the associate did not even speak good English to the point that he assumed she didn't even have as much as a high school education. She had no idea who had prepared her return previously and simply handed the associate her W-2 for the previous calendar year. It was from FannieMae for $437,000. I won't even go into the background of what transpired at FannieMae during the 90's but is suffices to say that Bill Clinton's director of OMB, Franklin Raines, who later became CEO of FannieMae and was fired after being paid $90,000,000 was little more than a criminal himself. If Jeffrey Skilling is in jail for what he did at Enron, Franklin Raines should have the cell next door. The same is true for the president of FreddieMac, Washington Mutual, Lehman Brothers and many more.

As a true capitalist I get criticized for my opinions about government intervention into the private sector. Let me state emphatically that I detest government intervention but I do support the notion that it is governments duty to protect the country from its enemy's both foreign and domestic. My critics charge that these corporations should be allowed to fail (which I agree) and they can elect to pay these folks whatever they want. This is where I take umbrage. In my opinion if you are CEO of a public company and its failure can traced back to your leadership you should have to give every dime your earned from that company back even if it means you have to file bankruptcy. Now before you jump to conclusions let's think about this. Do you believe for one minute Angelo Mizillo at CountryWide would have taken the risks he did had he known that the money he already took out of the company would have been at risk for his decisions? I seriously doubt it.

Today all the republicans and democrats want to talk about is new regulation. This is laughable and I want you to think about this for just a minute. Any regulation in the mortgage and banking business could not be more useless. This horse is already out of the barn and the time for that is long gone. What they better be focused on is not the past but the future. Somewhere out there in our economy is the next Enron or mortgage meltdown and it doesn't look anything like this. If you study the history of these types of events they never repeat themselves in the same fashion. Yes calamity comes around periodically but it never wears the same dress! To create regulations for this event now would be like changing deck chairs on the Titanic. The market has already over-corrected this problem and it's no longer a threat. However as we become a larger and more technologically advanced economy the next one, the one that we haven't even thought of yet makes me quiver to the bone. These events are slippery slopes and the bottom of the slope is our status as the largest third world country on the planet. We are on the verge of not only becoming more of a debtor nation but soon our entire tax revenue will be absorbed by national defense, entitlements and interest on our bonds with nothing left for anything else.

The next big calamity to watch for is municipalities and cities filling bankruptcy.

This is wake up call but I am afraid the alarm is going off and we are collectively sleeping right through it.


Philip M. Salemi
RATE FORECAST:
30 Year Fixed Rate Mortgages
October 2008 - 5.625%
November 2008 - 5.25%

Town & Country Mortgage Services
613 NW Loop 410, Suite 650
San Antonio, TX 78216