Agitprop: Or How I Learned to Stop Worrying and Love the Propaganda

Then They Came for the Lawyers

Big Shitpile hits close to home:

July 30 (Bloomberg) — Cadwalader, Wickersham & Taft, the New York-based law firm founded in 1792, will fire 96 salaried lawyers in the U.S. and London because of “a significant slowdown” in real-estate finance and securitization work.

“Cadwalader has adapted to this market reality,” the firm said today in a statement sent by spokeswoman Claudia Freeman. Cadwalader fired 35 lawyers in January. The latest round of cuts will leave the firm with 580 attorneys, the same number as in January 2006, it said.

Big Shitpile - it’s not just for bankers anymore.

Cadwalader to Fire 96 Lawyers on Real Estate Slowdown [Bloomberg]

How Many Mortgages Would Jesus Have?

The mortgage lending crisis now upon us has produced lots of fun new terms - “jingle mail”, “trash-out”, and “moral hazard” are just a few.  Lenders demand that buyers ignore logic and continue to make payments on homes that are worth less than the loans on them (”buried alive - face down”).  It’s a “moral hazard” when buyers “walk away” instead of behaving like good little capitalists.

Of course, dirty fucking hippies like you (and cheerful godless heathens like me) aren’t really all that moral.  Faced with a $450,000 house that had $625,000 in liens, we’d probably mail in the keys and take the washer, dryer, and refrigerator to boot.  But you’d expect our friends in Jesusland to keep paying because not honoring your contracts makes the Baby Jesus cry, wouldn’t you? Not so fast:

Next up is 5015 Meadowlark Court in the Foxwood Forest neighborhood in northern Albemarle County. Here, the owner owes $500,000 on the first deed of trust. But this time there are two additional liens on the property– $150,000 on a second deed of trust and $75,000 on a third note, a credit line, according to Albemarle County records. . . .

Lenders have allowed the owner to pile more than $725,000 in debt on a property assessed by the county at only $691,200. But the real shocker is the owner’s vocation: he’s Chris Prang, a mortgage broker.

“It was really bad timing for us,” says Prang. “We had bought a house a Wintergreen and dumped a lot money in it. Then there was the news about mortgages–” news that affected Prang’s own business.

Prang works out of his house for Carteret Mortgage; he says his mortgage consulting is geared toward the Christian community and home schoolers, which is what his wife does with their three children.

More morality after the jump.

Can I Haz Iceberg?

As you know, our economic ship of state has hit a seriously big iceberg. So does it surprise you that the Bush administration’s response is to rearrange the deck chairs?

Anyone who has worked in a large organization — or, for that matter, reads the comic strip “Dilbert” — is familiar with the “org chart” strategy. To hide their lack of any actual ideas about what to do, managers sometimes make a big show of rearranging the boxes …

You now understand the principle behind the Bush administration’s new proposal for financial reform, which will be formally announced today: it’s all about creating the appearance of responding to the current crisis, without actually doing anything substantive.

Sounds like Katrina, non?  More incompetence after the jump.

Today at the Bear Stearns Building

Thanks to Calculated Risk.

Subprime Crisis (Right-Hand-Drive Version)

Who says we don’t export anything?

House repossessions [in the UK] are expected to hit a 12-year high this year, with 45,000 owners seeing their homes taken away, experts warned yesterday.
…
With a growing number of lenders refusing to offer mortgages to those with a poor credit history, many people in financial trouble are expected to find their finances even more stretched. The CML is predicting that 45,000 homes will be repossessed this year. This would still be some way off the crash in 1991, when 75,500 were repossessed.

Remember back in January when the European markets threw a shit fit after finding out they owned more of Big Shitpile than they thought?

Europe’s major indexes suffered massive declines, as persistent fears of a U.S. recession drove investors to short selling. The German DAX slumped 7 percent, cutting the value of the usually outperforming index to levels of ten months ago.

More Big Shitpile (with sauerkraut) after the jump.

Cynical Home Borrowers Hate America

Big Shitpile, you'll recall, is the term affectionately given to the shitload of mortgage CDOs (collateralized debt obligations) that were sold to various pension funds, institutional investors, and other gullible types. A real estate CDO is created when an issuer waves a magic wand over a bunch of mortgage loans and turns them into a security, usually a really shitty security, shares of which can be sold just like stock.

The latest wrinkle in the mortgage crisis is lender concerns about borrower "morality". In many cases, it's in a buyer's interest to walk away from a property if the loan is much bigger than the value - the buyer can save their other credit and probably buy a new home in 3 or 4 years. But will delinquent borrowers feel remorse as they walk away from a bad investment and reconsider, or will they do the smart thing?

Can I Haz Internal Controlz?

Let me get this straight - a rogue trader at Société Générale loses €4.9 billion ($7.16 billion American, and dropping) over roughly a year and nobody noticed?

Société Générale, one of the largest banks in Europe, was thrown into turmoil Thursday after it disclosed that a rogue employee executed a series of “elaborate, fictitious transactions” that cost the bank more than $7 billion, the biggest loss ever recorded by a single trader.

Daniel Bouton, Société Générale’s chairman and chief executive, said the employee, later identified by other bank employees as Jérôme Kerviel, had confessed to the fraud, although he did not appear to have profited personally from the trades. The bank has started legal proceedings against the employee, whom Christian Noyer, the governor of the Bank of France, said was “on the run.”

Not to be cynical and shit, but are we to believe that Société Générale learned nothing from the Nick Leeson episode? That this guy got through five levels of internal controls in order to hide the trades?

Here's Your Pony

Guess what you're going to get for taking out that mortgage you couldn't afford ... three hundred bucks!

WASHINGTON (AP) — Democrats running Congress and the Bush administration reached a tentative deal Thursday on $300-$1,200 tax rebates and business tax cuts to jolt the slumping economy.

[snip]

Families with children would receive an additional $300 per child, subject to an overall cap of perhaps $1,200, according to a senior House aide who outlined the deal on condition of anonymity in advance of formal adoption of the whole package. Rebates would go to people earning below a certain income cap, likely individuals earning $75,000 or less and couples with incomes of $150,000 or less.

So what will you do with yours? Fill your gas tank? Pay those late fees your lender charged you? Or maybe just drink it. All I know is that it's not enough for that pony they promised me.

Cross-posted at Cynic's Party.

Big Shitpile Trashouts

They have a new word for what happens when people just mail their house keys to the mortgage company: trashout.  Firms specialize in clearing furniture, trash, and the rest of the stuff out of the house when people abandon it.  And it looks like a growth industry:

From the Wachovia conference call:

“Part of one of the challenges is, and we've mentioned this before, a lot of this current losses have been coming out of California and it's -- they've been from people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they've lost equity, value in their properties, and so in a way, we may have -- it's hard to know right now, but we may have seen somewhat of an acceleration problem loans as people have reached that conclusion and we're just going to have to see how the patterns unfold here.”
emphasis added

Some fret about the morality of borrowers just walking away, but Atrios wonders why they're criticized for acting rationally, like a corporation:

I know some will find walking away from homes morally unsettling somehow, but I don't see what's wrong with people behaving as businesses would. It's the fault of lenders for not ensuring that people had skin in the game by requiring reasonable down payment levels.

...and, adding, if the banks hadn't lobbied for the awful Bankruptcy Bill more of their customers might be choosing that route instead.

Somtimes it's worth remembering that people, like corporations, are people too.

Big Shitpile European Vacation

Tomorrow when the market reopens it is not going to be pretty:

Analysts estimate that state-owned Bank of China ... may have to write off a fourth of the nearly $8 billion it holds in securities backed by U.S. subprime mortgages ...

And the European and Asian markets were off four, five, six, even seven percent today:

Europe's major indexes suffered massive declines, as persistent fears of a U.S. recession drove investors to short selling. The German DAX slumped 7 percent, cutting the value of the usually outperforming index to levels of ten months ago.

Asian markets also tanked. Japan's Nikkei 225 Average

NIKKEI Unavailable                                              %

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[NIKKEI Unavailable     (%) ] dropped 3.9 percent, its lowest close since Oct 2005, battered by selling of bank shares and investor dumping of blue-chip shares.

Hong Kong’s Hang Seng Index and the Shanghai Composite Index also lost over 5 percent.

Who could have predicted that our habit of living off the equity in our homes could wreck the global economy?

 

Big Shitpile Squared

And they keep coming:

“For all consumer credit and I think we've pointed out consistently that we see in auto, home equity, subprime, credit card, that where home prices are down, delinquencies, charge-offs are going up, and so we've kind of been preparing for that, thinking about that and trying to build that into some of our models and that's what you see in home equity and I hope we get near the end of this but this was certainly higher than we would expect it even at the peak of a cycle.”
CEO Jamie Dimon, J.P. Morgan Chase, Jan 16, 2008

What does this mean?  Seems to mean that Morgan thinks it's worse now than they expected it to be at its worst, but it's going to get even worse.  Doesn't that give you a warm fuzzy feeling? Morgan took $1.3 billion in writedowns it's so bad - nothing compared to Citibank's $17.4 billion, but still ....

Carl sees a catastrophe that will make the Great Depression look like a bounced check charge:

Right now, in this country people are going broke at a faster rate than they did during the Great Depression.

Sink your teeth into that statement for a moment. The event that triggered your parents and grandparents to squeeze each and every dollar for all it was worth was nothing compared to the firestorm headed our way: it could create a permanent underclass along the lines of sharecroppers of the post-Civil War South.

So who's to blame?  Bush and Cheney?  People who refinanced and sucked every dime out of their house to buy SUVs and big-screen TVs?  Mortgage brokers?  Lenders?  Big banks who packaged the shitpile and sold it off to pension funds, smaller banks, and foreigners?  Who?

And let's not forget Little Shitpile ....

More Big Shitpile

First Shittybank:

Citigroup could write down as much as $24 billion due to subprime and credit-related losses, CNBC has learned. In addition, an estimated 20 thousand layoffs will be part of a comprehensive plan to slash costs and raise capital.

The plans will be unveiled Tuesday, when it reports fourth-quarter earnings. At the same time, Citigroup could also announce that it is cutting its dividend payment.

And guess who play the Citigroup bailout game anymore ... China!

Once again, Wall Street came knocking on Beijing's door. This time it went home empty-handed.

The Chinese government's apparent rejection of a planned multi-billion-dollar investment in Citigroup Inc. by state-owned China Development Bank suggests there may be limits to Beijing's status as a cash source for Western banks eager to plug holes in their balance sheets. ...

People familiar with the situation say China's senior leadership decided against backing the investment plan ...

And Merrill's in trouble too, but it and Citicorp might get a little help from another one of our "friends":

Merrill Lynch is seeking about $4bn in a second capital raising, as the hole in the US investment bank’s balance sheet continues to grow.

The Kuwait Investment Authority is expected to be a significant investor in the new deal, which could be announced as soon as midweek, according to people familiar with the matter. Other investors could come from Europe.

KIA, which may also invest as much as $2bn or $3bn in Citigroup, is emerging as an large source of rescue finance on Wall Street. Once among the most conservative of sovereign wealth funds, KIA is changing its strategy in order to move more quickly than competitors and seize opportunities amid the turmoil in the US credit markets, these people say. Both Merrill and KIA declined to comment.

And it's not just a subprime crisis, higher grade mortgages and other credit markets are in trouble too:

If this had been a mere subprime crisis, it would now be over. But it is not, and nor will it be over soon. The reason is that several other pockets of the credit market are also vulnerable. Credit cards are one such segment, similar in size to the subprime market. Another is credit default swaps, relatively modern financial instruments that allow bondholders to insure against default.

But the Dear Leader says everything is fine!  So shut up and go buy something.  And remember to charge it.

More Big Shitpile

Mixed metaphor of the day:

“These letters are a smoking gun that something is not right in Denmark,” Judge [Thomas P.] Agresti said in a Dec. 20 hearing in Pittsburgh. . . .

Basically, a borrower filed Chapter 13 bankruptcy.  Her lender is Countrywide, one of the biggest players in the subprime mortgage crisis (aka "Big Shitpile").  The problem is letters sent to the borrower demanding money, which would have been filed with the bankruptcy petition:

The documents — three letters from Countrywide addressed to the homeowner — claimed that the borrower owed the company $4,700 because of discrepancies in escrow deductions. Countrywide’s local counsel described the letters to the court as “recreated,” raising concern from the federal bankruptcy judge overseeing the case ....

Even more interesting - rumors are swirling that Countrywide itself might be ready to file for bankruptcy.