Lunchtime Links 6-11

June 11, 2009 – 3:26 pm

by Rolfe Winkler, CFA

(Send links, videos, pics to optionarmageddon at gmail with subject “link”)

A Daring Trade Has Wall Street Seeting (WSJ)  Oh this is just delicious.  Big banks thought they had an easy mark.  Turns out the mark was a hustler.  The trade in question is a little complicated, but WSJ includes a very helpful chart at the bottom of the article that explains it graphically.

Mortgage Market Remains Solidly Frozen (Mish)  Spiking mortgage rates (in response to higher Treasury rates) will have that effect….

Paying $98 a month on a $350k mortgage (Calculated Risk)  Another issue not mentioned by CR or the Bloomberg article he cites is that banks continue to treat loans like this as “performing.”  Borrowers are permitted to make minimum payments on option ARMs that allow the loan balance to grow.  Just like a credit card you end up paying interest on interest.  All the while the bank recognizes non-cash interest income: the interest you’re obliged to pay but have chosen to defer until later.  Of course, when “later” arrives, you’re monthly payment explodes and you default instantly.  And all that deferred interest income has to be written off.

Bondholders Face Losses From Commercial Mortgages (Bloomberg)  Lots of good details in this article.  Briefly, monthly payments on interest-only commercial real estate loans are set to increase over the next few years.  With rents still falling, many borrowers are likely to default.

Zipcar plans IPO (NY Post)

Long-Bond Auction Goes Well (AP)  Today’s U.S. Treasury auction found higher demand for U.S. paper than yesterday’s.  Bond prices rose and yields fell from their recent highs.

America’s Sea of Red Ink Was Years in the Making (NYT)  A very interesting piece, with a choice quote: “Alan Auerbach, an economist at UC Berkeley, describes the situation like so: “Bush behaved incredibly irresponsibly for eight years. On the one hand, it might seem unfair for people to blame Obama for not fixing it. On the other hand, he’s not fixing it.  And not fixing it is, in a sense, making it worse.”

Bringing the Hammer Down on Derivatives (NPR)  A good interview with NYT’s Gretchen Morgenson.

Two Japanese Carrying $134 Billion of U.S. Treasury Bonds Detained in Italy (Cyprotgon)  Wait, $134 billion?!  WTF?!?  No way this is legit.  Hopefully other news orgs will try to confirm, and figure out who these two guys are.

  1. 4 Responses to “Lunchtime Links 6-11”

  2. I was appalled at that $98/month payment on a $350,000 loan story. First question should be “what did grandma do with the money?”

    As I recall the lady is now 73 which would have made her around 70 at the time she ‘pawned’ her house. Unlikely she was ‘incompetent’ at that age
    so what was the great need for $350,000? Unless the answer is medical bills something else is going on and it probably involves fraud.

    By sangellone on Jun 11, 2009

  3. RE: The Amherst deal.

    Gave me a chuckle.

    Out-gamed the Big Boyz at their own game. And now they wanna cry foul.

    CDS are the “Wild West” of the insurance biz.
    I actually hope to see more of this kind of action.
    This is a good example of a free market starting to correct itself.

    A new Con comes in & con’s the old Con’s.

    Do we live in a great country, or what?

    By shinola on Jun 11, 2009

  4. I loved the NYT covering for Obama’s debt, but I don’t think they worked it hard enough. I believe that this deficit is the work of Chester Arthur.

    No, really! I’m sure you could prove that the cataracts of tooth fairy money gushing forth from the Stimuloid Porkgasm and the supplemental spending bills Obama signed go all the way back to that profligate knave, Chester Arthur.

    Well, it’s worth a try.


    By K T Cat on Jun 12, 2009

  5. Yeah, $134 billion worth of bonds, eh? How much would that weigh?

    By Chris on Jun 12, 2009

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