Saturday, December 29, 2007

More toxic waste bagholders found, this time its children.

The biggest unknown during this speculative mania has been who will end up with the losses from holding this toxic waste. We have so far seen counties and states with these impaired assets on this their books and the impact can be severe (see the Florida posts).

From the NY Times we find the latest bag holders, to come clean, and they turn out to be a children's charity. How nice of the guys on Wall Street to unload this crap on minors:

THE Indiana Children’s Wish Fund, which grants wishes to children and teenagers with life-threatening illnesses, got an early Christmas gift nine days ago. Morgan Keegan, a brokerage firm in Memphis, made an undisclosed payment to the charity to settle an arbitration claim; the Wish Fund said it had lost $48,000 in a mutual fund from Morgan Keegan that had invested heavily in dicey mortgage securities

Coming less than two months after the charity filed its claim, and as a reporter was inquiring about its status, the settlement is a rare consolation for an investor amid all the pain still being generated by the turmoil in the once-bustling mortgage securities market. Before the Wish Fund reached its settlement, its mortgage-related losses meant that nine children’s wishes would go ungranted.

Against the backdrop of all the gigantic numbers defining the subprime debacle, the Wish Fund’s losses look like small potatoes. The crisis has generated almost $100 billion in losses or write-offs at the world’s largest financial institutions, cost a couple of Fortune 100 chief executives their jobs, wiped out billions of dollars in stock market value and hammered the reputations of the nation’s top credit rating agencies. Reports of the devastation that foreclosures are wreaking on borrowers also bring home the effects of this remarkable financial mess.

Still, the Wish Fund’s experience is instructive because so little has emerged about the losses that investors have incurred in these securities, perhaps because few holders have wanted to disclose them. Some investors may still not know how much they have been hurt by the crisis.

As this debacle unfolds, accounts of investor losses in mortgage securities will come to light. And Wall Street’s role as the great enabler — providing capital to aggressive lenders and then selling the questionable securities to investors — will be front and center.

8 comments:

Professor Shays said...

I've heard a number of bloggers comment that if "you think 2007 was bad, you ain't seen nothing yet." I must admit that I have to agree. Having witnessed the two previous downturns in real estate ('79-'83 and '90-'94), I can tell you from the view of an insider that this time around is substantially worse.

Past experience leads me to believe fraudsters will come out of the woodwork and pray on the misfortunes of people who are being hurt by this downturn in the market. I've at least found one site with forums that seems to be helping consumers facing foreclosure. It is:

http://www.loansafe.org/forum/

Take care,

Daniel

Bakersfield Bubble said...

I agree that 2008 will be worse, as the Alt-A and Prime pay option arms and 2/28 loans start to reset these will have a much bigger impact. This is the area where most of the liar loans with DTI's over 50% (before reset) occurred.

xs10shell said...

13 ReMax offices just closed suddenly in Phoenix, AZ.

Bakersfield Bubble said...

xs10shell-

I read that too, woo!

Lander said...

Bakersfield Californian:

"I don't think it's as lousy as everyone puts on," said Ray Karpe, the immediate past president of the Bakersfield Association of Realtors, a local trade group.
...
And, he predicted, home prices will reverse direction, and start an incremental climb. "I think home prices, home values, will creep up," Karpe said.

Bakersfield Bubble said...

Thanks Lander - I have been swaped and will get a post up...

Myrtle beach rentals said...

if you think 2007 was bad, wait until 2009!!

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