{"id":9090,"date":"2011-09-06T09:00:41","date_gmt":"2011-09-06T13:00:41","guid":{"rendered":"http:\/\/www.technologyinvestor.com\/?p=9090"},"modified":"2011-09-06T10:16:07","modified_gmt":"2011-09-06T14:16:07","slug":"sardines-subprime-mortgages-cockroaches-and-falling-knives","status":"publish","type":"post","link":"https:\/\/www.technologyinvestor.com\/?p=9090","title":{"rendered":"Sardines, subprime mortgages, cockroaches and falling knives."},"content":{"rendered":"

Moishe sold a can of sardines to Joe for $2. Joe sold it to Robert for $4. Robert sold it to Tom for $8.\u00a0 Tom sold it to Henry for $16. Eventually , Yankele bought it for $64.<\/p>\n

That Friday night\u00a0 Yankele produced the can. He explained to his family that this was “some sardines.” It was the most expensive can he’d ever bought. The family was excited. He opened the can with a flourish.\u00a0 The family gasped. The sardines were rancid.<\/p>\n

Yankele was furious. He traced the sardine sales cycle through all the buyers. Eventually he found Moishe who had bought the sardines for $1 and sold it for $2.<\/p>\n

“How could you sell this can? It’s rancid!”<\/p>\n

Moishe explained, “You schmock. That can is for trading, not for eating.<\/strong>“<\/p>\n

And so I come to the latest Washington insanity:<\/p>\n

The Federal Housing Finance Agency (FHFA) is suing 17 big banks for billions. The FHFA, which took over Fannie Freddie, alleges negligent misrepresentation, securities laws violations and common fraud as the big banks issued, bundled and sold Mortgage Backed Securities (MBS) to Government Sponsored Enterprises (GES).<\/p>\n

The 17 banks include those the Federal Government gave huge TARP bailout monies. Here is a list of the big banks that have been targeted in the lawsuit and how much money the FHFA argues Fannie and Freddie got ripped off:<\/p>\n

1. Bank of America with Countrywide and Merrill Lynch = $57.4 billion (USA)<\/p>\n

2. JPMorgan Chase = $33 billion (US)<\/p>\n

3. Royal Bank of Scotland = $30.4 billion (UK)<\/p>\n

4. Deutsche Bank = $14.2 billion (Germany)<\/p>\n

5. Credit Suisse = $14.1 billion (Switzerland)<\/p>\n

6. Goldman Sachs = $11.1 billion (US)<\/p>\n

7. Morgan Stanley = $10.6 billion (US)<\/p>\n

8. HSBC = $6.2 billion (UK)<\/p>\n

9. Ally Financial (GMAC) = $6 billion (US)<\/p>\n

10. Barclays = $4.9 billion (UK)<\/p>\n

11. Citigroup = $3.5 billion (US)<\/p>\n

12. Nomura = $2 billion (Japan)<\/p>\n

13. Soci\u00e9t\u00e9 G\u00e9n\u00e9rale = $1.3 billion (France)<\/p>\n

14. First Horizon = $0.88 billion (US)<\/p>\n

15. General Electric = $0.55 billion (US)<\/p>\n

If you’re wondering if our administration hasn’t the faintest idea of what its right and left\u00a0 hands\u00a0 are doing, you’d be 100% right.<\/p>\n

The mortgage mess is easy to understand if you think sardines. The mortgages were not for “eating.” They were for trading. and everyone in the chain — from the mortgage brokers at the bottom to the investment banks that bundled them for resale (called securitization) — knew that.\u00a0 Mortgage brokers were pushed to originate mortgages — any mortgages. And the result was\u00a0 NINJA mortgages (no income, no job) and\u00a0 liar loans — the mortgagee lied about his income and no one checked the application. Overseeing the whole thing was Congress pushing everyone — including its agencies, Fannie and Freddie — to lend everyone and their uncle (including the deadbeat one) money to buy a home. It was the American dream. It was populist politics at its worst. It was the absolute best example of how goverenment interference in the private sector can mess things up beyond our wildest belief.<\/p>\n

I have no idea what’s going to happen to this suit. I’m interested only\u00a0 in the investment implications:<\/p>\n

The overwhelming conclusion is the one I’ve beem hammering for months — Stay away from financials.<\/strong> They are the classic cockroach stocks — viz, the FHFA’s suit. Out of the blue. Who knew it was coming.\u00a0 Who knows where the next cockroach will appear. Don’t try to catch them as they fall. “Don’t catch a falling knife.” Look at these two:<\/p>\n

\"\"<\/a><\/p>\n

\"\"<\/a><\/p>\n

I only wish I had thought this through earlier and sold them all short. Would I sell them short here? I think yes. But I’m not sure. Need to mull this morning. Your thoughts?<\/p>\n

Another reason never, ever to buy Verizon. <\/span><\/strong>I returned to New York City last night to find the following on my Verizon FiOS TV screen:<\/span><\/span><\/p>\n

\"\"<\/a><\/span><\/p>\n

Yes, dear readers, those “nice” people at Verizon took The Tennis Channel off right in the middle of the most important tennis tournament of the year — The U.S. Open. <\/span><\/p>\n

Here’s their explanation from Peter Thonis, head of Verizon PR:<\/span>
\n<\/span><\/strong><\/p>\n

Harry – I’ve looked into this issue. Verizon had been in an agreement with the NCTC that included carriage of the Tennis Channel. When the agreement expired, we pursued a separate agreement with the Channel.\u00a0 Their proposal at this point, however, includes an unreasonable price hike that would cost us many millions of dollars more than what we have been paying up until now. We continue to talk to the Tennis Channel, but have yet to reach an agreement.\u00a0 I’ll follow this and let you know when that changes. Sorry for the inconvenience. – Peter<\/p>\n

Now, think this through. Do I honestly buy this stuff about “many millions of dollars more?” No way. Do I hear anything about a refund for subscribers? I hear “Sorry for the inconvenience.” Pretty lame.<\/p>\n

I feel particularly stupid and hurt on this one. I stuck my neck out to recommend Verizon FiOS to our apartment building. I got their service into this building. I’ll now have to answer to the tenants. “Are you an idiot or what, Harry, putting us into Verizon?”<\/p>\n

Suffice, if Verizon makes dumb decisions like this, Verizon is not a stock worth owning — ever. Look where it’s gone in the past five years — nowhere.<\/p>\n

\"\"<\/a><\/p>\n

Though I’m tempted to sell it short, Verizon’s stock has too many admirers — because of its 5.62% dividend yield.<\/p>\n

The US Tennis Open continues. <\/strong><\/span>Fortunately I can still watch some live matches on ESPN2 and CBS. The best coverage is on DirecTV. Go to channel 701. You can pick between six matches under way and pick the one you want to watch. Verizon hasn’t got to that level of creativity and probably never will. How can\u00a0 you be so stupid.<\/p>\n

From a kind reader who’s good on math:<\/strong><\/span><\/p>\n

Hey, let’s be supportive OK! We all have to do ‘our’ part, right? So I decided to follow the Presidents lead, and I hope you will participate too.<\/p>\n

The President ordered the cabinet to cut $100 million from the $3.5 trillion federal budget.<\/p>\n

I’m so impressed by this sacrifice that I have decided to do the same thing with my personal budget. I spend about $2000 a month on groceries, household expenses, medicine, utilities, etc. but it’s time to get out the budget cutting axe, go through my expenses, and cut back.<\/p>\n

I’m going to cut my spending at exactly the same ratio, 1\/35,000 of my total budget. After doing the math, it looks like instead of spending $2000 a month; I’m going to have to cut that number by, six cents. Yes, I’m going to have to get by with $1999.94\/<\/p>\n

That’s what sacrifice is all about. I’ll just have to do without some\u00a0 luxuries.<\/p>\n

<\/strong><\/p>\n

\"\"<\/a>
\n<\/strong><\/div>\n

Harry Newton who read much on the FHFA suit. What was best were some of the priceless comments left by readers on the New York Times’s site (underneath the article):<\/p>\n

+ Remember when everybody, especially politicians, were happy as larks that “everyone can own their own home.” That worked out well, didn’t it. The banks would never have made those loans without a government guarantee. The Fed needs to keep its nose out of private industry.<\/p>\n

+ It was Fannie and Freddie that created the securitization of loans in the late 70’s as a mechanism to indirectly create a way to finance the needs of the baby boomers desire to be part of the American dream which was to own a home. Its quite ironic that they are are suing the banks for something they created. Its amazing how ignorant our government is. The policies they create are based on emotions of the current situation without any regard to how the whole problem was created.<\/p>\n

+ What a joke. Fannie and Freddie were at the very heart of the financial collapse stemming from the housing bubble and easy loans to unquallified buyers. Now they say they didn’t know what they were getting? Unless they can point to very clear and compelling instances of being misled by the banks, this is a CYA lawsuit by the government and it should go nowhere. Let’s see if the judge has any guts.<\/p>\n

+ The suit is nothing more than a campaign issue for Obama. It will never go before a jury. Either the banks will be offered a favorable settlement or the new president will let it die.<\/p>\n

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Moishe sold a can of sardines to Joe for $2. Joe sold it to Robert for $4. Robert sold it to Tom for $8.\u00a0 Tom sold it to Henry for $16. Eventually , Yankele bought it for $64. That Friday night\u00a0 Yankele produced the can. He explained to his family that this was “some sardines.” […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-9090","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/9090","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=9090"}],"version-history":[{"count":0,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=\/wp\/v2\/posts\/9090\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=9090"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=9090"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.technologyinvestor.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=9090"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}