HowardGimmee Shelter- Mortgage Collapse and the Banking Danger
February 13th 2007 23:06
Gimmee Shelter- Bronx Shepherd Restoration
Where did the push for a housing bubble come from? It came from the US Federal Reserve and also the offshore hedge funds that were buying up strips of MBS- Mortgage Backed Securities. But, spots of the sub-prime MBS stuff are going up in smoke, and witnessed in problems at HongKong Shanghai Bank (HSBC) and other collapses or near collapses. And then the new cute trick is for hedge funds, first, Fortress, to go public, sell shares on the stock market and thus unload all the bad mortgage paper. It's called passing the bag. Or in the drug world they say, getting some primo (cash) and getting rid of the Chooko (crap). By, the way, Fortress recently bought 30,000 or so housing flats from the public owners just in the east German city of Dresden.
source: Wall St. Journal, James R. Hagerty and Ruth Simon, Feb. 9]
FOLLOW-ON TO HSBC BAD MORTGAGE LOANS BLOW-OUT: WORRIES GROWING IN HEDGE FUND-LED MORTGAGE-BACKED SECURITIES MARKET. The {Wall Street Journal} reports that warnings announced by HSBC and lender New Century Financial Corp. of higher-than-expected losses on subprime mortgage loans, as defaults are rising, "highlighted
uncertainties about how many investors in mortgage-backed securities might be vulnerable." The riskiest of subprime mortgage loans packaged into securities, those that absorb some
of the first losses from defaults, the {Journal} adds, are typically sold to money managers and hedge funds in the U.S. and abroad.
"The thing none of us know, including the [Federal Reserve], is who is holding this stuff," Richard Kovacevich, chief executive of Wells Fargo & Co., one of the nation's biggest
mortgage lenders, said in a recent interview. "The assumption is that it is well-diversified. If it's concentrated, it's going to be a disaster."
Shares of subprime lenders plummetted on Feb. 8, wiping out $3.7 billion in market value of seven U.S.-based lenders. Hedge funds have been forcing lenders to buy back bad loans, which has led to the closure of several smaller subprime lenders.
Standards for what types of loans that are made, previously dominated by Fannie Mae and Freddie Mac, now are largely set by hedge funds, and other money managers, who have encouraged lenders to experiment with a profusion of loans.
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