Tuesday, April 26, 2011

Un Po' di Questo e Un Po' di Quello (A little of this and a litte of that)

I was chatting with a colleague this morning and reminiscing back to 2002, when I stated to whomever could tolerate listening to me that I believed that the powers-that-be would hold the system to together until they had thoroughly cleaned out all of the middle class wealth. For the record, I'm defining middle class here as anyone who doesn't have enough liquid wealth to buy at least one tenured Congressman or Senator. At the time, the vultures had finished collecting their winnings from taking the other side of the tech bubble (by selling IPOs and selling stockholdings in stocks like CSCO and MSFT after massive stock price inflation based on fraudulent accounting) and were getting ready to create the housing bubble. Obviously this has been one unbelievably massive transfer of wealth from most of America to the priveledged few who build homes or financed the fraudulent escalation in housing prices (i.e Wall Street and bank executives).  What's left?  Well, large public and private pensions/401-k's are likely at least 50% underfunded after enormous losses from failed real estate, mortgage security and stock market losses.  Now that all these genius fund mangers have moved mostly into Treasuries and are starting to venture back into the cyanide-laced waters of asset-backed securities, I'm sure the next financial/dollar crisis will incinerate most of the rest of your retirement money.  One big massive transfer of paper wealth from you to those who run the system.  Why do I bring this up?

On Saturday I saw this news item on Bloomberg news about a judge who had dismissed a lawsuit against Bank of America which was connected to massive losses suffered by the Maine State Retirement System from investing in Countrywide toxic garbage.  Here's the LINK  At first I was irritated and assumed foul-play.  But in dissecting the details of the case with my father, a retired attorney, I realized that this was a frivolous suit devised by the plaintiff's attorney to generate massive legal fees.  The plaintiff was arguing that the deal was a "de facto" merger rather than a bona fide "asset purchase."  The difference being that legacy liability would be transferred to B of A in a merger vs. the liability being limited to just the wholly purchased subsidiary in an asset purchase.  Now let me ask this question:  does anyone out there think that Hank Paulson and Ben Bernanke - the architects of this transaction - would be careless enough to leave any doubt as to whether this deal was structured as anything other than an "asset purchase?"  There were plenty of skilled legal eyeballs going over the nuts and bolts of this transfaction on behalf of those two plus BofA and Countrywide.  Not surprisingly, the judge ruled that plaintiff failed to prove its case.  To me, this part of the lawsuit was nothing more than a greedy lawyer throwing straws in the wind and raping the State of Main retirement fund for millions in frivolous legal fees. Perhaps there are aspects of the entire lawsuit that have merit, but this did not.

To be sure, there are many aspects of this deal that should be investigated and the culprits should be prosecuted and sent to jail.  That would include Angelo Mozillo, former Countrywide CEO who is living happily on $100's of millions of fraudulently derived wealth after getting a small "wrist-slap" fine, the former CEO of B of A, and of course, Bernanke, Paulson, Geithner, et al.  BUT WHAT ABOUT THE MORONS RUNNING MAINE'S PUBLIC PENSION FUND?  I could have told any fund manager who bothered to ask me back in 2002 that the mortgage market was going to blow up.  Hell I received a no-income verification mortgage from Wash Mutual in 2000!  LOL.  It was all about the underlying assets - housing - which blew up into a bubble far larger than myself or any of my colleagues at the time thought was possible.  But, as a supposedly well-educated/accoladed invesment advisor,  you would have to be a complete idiot not to see what was going on, let alone invest money that's not your's in the absolute garbage that Countrywide was underwriting.  So much for the so-called "institutional" experts running the rest of your retirement money.

What I would really like to see is an investigation into the travel and entertainment itineraries of the managers running the big State pension funds and how much of their decision-making was influenced by the "side benefits" thrown at them by Wall Street.  I was on the "throwing" side of that party for 9 years and witnessed the incredible magic of the expense account, which included influencing the rating agencies as well.  My point is that it takes two to tango and the idiots buying the nuclear waste being sold by Wall Street need to be held just as accountable as the thieves selling it.

Un po' di piu su alloggi (a little more on housing).  The Case-Shiller index of home prices released today showed another 1.1% decline in housing prices for February. This is the seventh straight monthly decline.  It's funny because if it were a 1.1% increase, I'm sure the headines would advertise the annualized rate, which would be 12.7%, rather than the month to month 1.1%.  Remember that this is a broad "swathe" of prices from 20 major metro areas and the data massaging skews away from "distressed" sales, so you will likely find this price decline estimation to be low if you decide to list your house thinking that you can list at the same price you could have listed it for in January...on to Berlin...even more amusing was that the "Conference Board" consumer confidence index showed an increase for April.  But the headline for this followed the headlines for the housing price decline and the damage being inflicted to the consumer by high gasoline prices.  The Conference Board "is a global, independent business membership and research association working in the public interest."  LOL.  I don't think I need to elaborate on the reliability of that metric...

"Fleeing the Dollar Flood" - I would recommend taking the time to read this article from last week's Wall Street Journal. Here's the LINK  (if you get something that requests subscription registration, type the article headline into google and click on the similar article link that comes up and you should get the whole article).  Despite "strong dollar" rhetoric coming from the mentally challenged Tim Geithner (someone must set this guy up to look stupid: LINK LOL),  the only course of action open to the Fed and the Government - and really to everyone - is for the continued debasement of the dollar as a mechanism to keep the system alive.  You can protect yourself from this by moving as much as you can into gold and silver.  Don't worry about the price relative to where it was 10 years ago.  This game has a long way to go despite signs emerging that China is getting ready to pull the plug.  All I can say is one day those of you content with millions in the bank in dollars will wake up one day to discover that your millions of dollars have no value to anyone looking to exchange goods and services in kind.  Don't believe me?  Just ask anyone who might still be around from Germany in November 1923.  Those who forget the past are condemned to repeat it...Ciao a tutti!


  1. does anyone out there think that Hank Paulson and Ben Bernanke - the architects of this transaction - would be careless enough to leave any doubt as to whether this deal was structured as anything other than an "asset purchase?"

    Yes I do. The whole of MERS was illegal and anyone who knew anything about securitisation knew it would never stand scrutiny. Why would Paulson and Bernanke give a stuff about the difference of buying the assets or implications of buying the shares. The didn't in the MERS case there was probably a minuscle tax implcation in this case as as in the MERS case and they wouldn't have given a stuff about the legal implications. Afterall none of it is their money and if there is a legal suit their pals from the tribe will wet their beaks. So why would you not stuff up the paperwork?

  2. Dave,
    My sister bought a house with all cash 6 months ago. Considering housing will continue to decline, plus eventual rate hikes, would it be prudent for her to mortgage her house (cash out say 50% LTV - 15 yr fixed)and use the cash to buy precious metals as a hedge (against falling home prices)? Thanks in advance for your answer. Leilani

  3. Paulson cares because Goldman securitized and sold and made billions on Countrywide Securities and deep legal inqiry would uncover the truth. He and Paulson set up that merger to "sanitize" the whole situation. Allowing the liability from the illegalities of CFC to flow up to BAC would prevent this "sanitizing" of CFC. Yes I do believe that they dotted their "i's" and crossed their "t's" in order prevent lawsuit claimants from having any claim on BAC's "deeper pockets." Because BAC's is a Too Big To Fail, it would also mean the Fed would have to cough up money. So Bernanke had the same motivation as Paulson.

  4. The only issue is did they pay the tax when they bought the real estate. If they did then they are free and clear on an asset purchase if they sold the shares which it appears they did they have an option on a law suit.

  5. FYI, your "epic quote" is from Ayn Rand, IIRC.