#OT# PMI, smoke and and the taxpayer's sphincter

Very important question that should be answered. I have a couple friends that have real estate loans that are paying this PMI. One just reached the 80% equity level and is now trying to get the payment taken off his mortgage. The kicker is that his house is assessed for tax purposes at a significantly higher value than the current mortgage principal. The lender says the current market value of the home is less than the balance of the loan. Catch 22.

DL

"F. George McDuffee" wrote in message news: snipped-for-privacy@4ax.com...

WAMU self insured in many cases George, they all did. Truly independent PMI's went the way of the dinosaur in the 1990 bust. Remember Lawyers? Poof! The sole survivor of consequence today is AIG. The rest are almost all broker/dealers. What has survived going forward since then, as insurance, is part of something called a wrapped security, or a "bond with a wrapper". The latter is the term most often used and the result is a derivative product. These things have been around so long that you just overlooked them, sort of like "zero coupon" bonds. The coupon in that case was the wrapper and you could strip and sell the warrant (coupon) to increase the upside of an M&A deal at the stage that the bridge was taken out. Stripping the wrapper from mortgage backed securities looks a little different because you are stripping the cash flow from an insurance policy from the mortgage but the result is similar. The one big difference is that when you unwrap a mortgage backed security, the risk stays with the mortgage but that portion of the cash flow is transfered/repackaged/sold again and is, thererfore, absent in the event that the mortgage defaults. You can end up with leverage of up to 1000:1 on the front end and it's legal. The original bond isn't rated again so if you aren't careful you canend up with what is essentially a junk bond trading at preferred rates - until somebody looks under the hood that is. When that happens.... Well, we know the result - collapse.

LOL

Like I said before, nobody would have bought this stuff if there had been even a scintilla of transparency.

JC

"F. George McDuffee" wrote in message news: snipped-for-privacy@4ax.com...

WAMU self insured in many cases George, they all did. Truly independent PMI's went the way of the dinosaur in the 1990 bust. Remember Lawyers? Poof! The sole survivor of consequence today is AIG. The rest are almost all broker/dealers. What has survived going forward since then, as insurance, is part of something called a wrapped security, or a "bond with a wrapper". The latter is the term most often used and the result is a derivative product. These things have been around so long that you just overlooked them, sort of like "zero coupon" bonds. The coupon in that case was the wrapper and you could strip and sell the warrant (coupon) to increase the upside of an M&A deal at the stage that the bridge was taken out. Stripping the wrapper from mortgage backed securities looks a little different because you are stripping the cash flow from an insurance policy from the mortgage but the result is similar. The one big difference is that when you unwrap a mortgage backed security, the risk stays with the mortgage but that portion of the cash flow is transfered/repackaged/sold again and is, thererfore, absent in the event that the mortgage defaults. You can end up with leverage of up to 1000:1 on the front end and it's legal. The original bond isn't rated again so if you aren't careful you canend up with what is essentially a junk bond trading at preferred rates - until somebody looks under the hood that is. When that happens.... Well, we know the result - collapse.

LOL

Like I said before, nobody would have bought this stuff if there had been even a scintilla of transparency.

JC

Warren Buffett, after buying GRE, realized that have a time bomb of toxic "financial products", a.k.a derivatives portfolio, and was very scared. He spent five years, and lost 400 million dollars, to liquidate that "portfolio".

Had he not done this, we'd possibly be reading about "General Re Bailout" now.

For all the talk about "Warren Buffett's worst year", his worst year was losing 9.7% of equity. Compare this with other numerous train wrecks of the last year. Last year was his seventh best outperformance of S&P 500, by 27%.

-- Due to extreme spam originating from Google Groups, and their inattention to spammers, I and many others block all articles originating from Google Groups. If you want your postings to be seen by more readers you will need to find a different means of posting on Usenet.

"Ignoramus15384" wrote in message news:f_CdnTaXM-ZNsy3UnZ2dnUVZ snipped-for-privacy@giganews.com...

I remember it well. That was why I mentioned it. For some reason my initial response to George isn't going through so I'll include my comments to his original below.

Boggle hasn't done to terribly bad either.

Here is my original response in this thread - maybe it will go through.....

WAMU self insured in many cases George, they all did. Truly independent PMI's went the way of the dinosaur in the 1990 bust. Remember Lawyers? Poof! The sole survivor of consequence today is AIG. The rest are almost all broker/dealers. What has survived going forward since then, as insurance, is part of something called a wrapped security, or a "bond with a wrapper". The latter is the term most often used and the result is a derivative product. These things have been around so long that you just overlooked them, sort of like "zero coupon" bonds. The coupon in that case was the wrapper and you could strip and sell the warrant (coupon) to increase the upside of an M&A deal at the stage that the bridge was taken out. Stripping the wrapper from mortgage backed securities looks a little different because you are stripping the cash flow from an insurance policy from the mortgage but the result is similar. The one big difference is that when you unwrap a mortgage backed security, the risk stays with the mortgage but that portion of the cash flow is transfered/repackaged/sold again and is, thererfore, absent in the event that the mortgage defaults. You can end up with leverage of up to 1000:1 on the front end and it's legal. The original bond isn't rated again so if you aren't careful you canend up with what is essentially a junk bond trading at preferred rates - until somebody looks under the hood that is. When that happens.... Well, we know the result - collapse.

LOL

Like I said before, nobody would have bought this stuff if there had been even a scintilla of transparency.

JC

JC

Perhaps some piece of it is that the securities went bust to a degree out-of-proportion to the degree mortgages were actually defaulted on?

That is, maybe the securities became worthless at a rate and to a degree much greater than they necessarily should have based on the actual default rate?

Since they could not tie individual mortgages to security instruments, maybe this played a role.

If that were true, seems it would be more correct to call this a securities bubble collapsing.

Dave

Ignoramus15384 wrote:

I remember it well. That was why I mentioned it. For some reason my initial response to George isn't going through so I'll include my comments to his original below.

Boggle hasn't done to terribly bad either.

Here is my original response in this thread - maybe it will go through.....

WAMU self insured in many cases George, they all did. Truly independent PMI's went the way of the dinosaur in the 1990 bust. Remember Lawyers? Poof! The sole survivor of consequence today is AIG. The rest are almost all broker/dealers. What has survived going forward since then, as insurance, is part of something called a wrapped security, or a "bond with a wrapper". The latter is the term most often used and the result is a derivative product. These things have been around so long that you just overlooked them, sort of like "zero coupon" bonds. The coupon in that case was the wrapper and you could strip and sell the warrant (coupon) to increase the upside of an M&A deal at the stage that the bridge was taken out. Stripping the wrapper from mortgage backed securities looks a little different because you are stripping the cash flow from an insurance policy from the mortgage but the result is similar. The one big difference is that when you unwrap a mortgage backed security, the risk stays with the mortgage but that portion of the cash flow is transfered/repackaged/sold again and is, thererfore, absent in the event that the mortgage defaults. You can end up with leverage of up to 1000:1 on the front end and it's legal. The original bond isn't rated again so if you aren't careful you canend up with what is essentially a junk bond trading at preferred rates - until somebody looks under the hood that is. When that happens.... Well, we know the result - collapse.

LOL

Like I said before, nobody would have bought this stuff if there had been even a scintilla of transparency.

some reading/sites that may be of general interest

Because MGIC is broke. Same as AIG. They over leveraged, and legally the executives should go to jail for selling insurance they could not cover.

See item on MGIC in original post.

But they had an AAA rating... My broker told me they were at least as safe as peanut butter inspected by the FDA...

------------------ This sound plausible, but then where are the premiums going for the PMI that people are still paying for, and why is PMI still showing up on the escrow statements and at closings w/ 80%+ mortgages?

After posting the original msg. I learned that some areas many

All in all, more black, thick, stinky smoke here than a fire at a tire warehouse.

Also it does appear that AIG is indeed the last link in the PMI daisy chain on many of these PMI policies, thus the taxpayer is on the hook no matter what. With valid PMI they pay through AIG, w/o PMI they pay through their ownership in the banks when the

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

------- PMI payments still showup on the individual mortgage mortgage escrow account statements every month, even when bundled into CDOs.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

There is a Tort for this George, negligent misrepresentation, and it's a loo loo. What I can't believe is that there hasn't been even a single filing. WTF is up with THAT?

They flow back through the issuer.

Yeah, this is because of the CDS, or "uninsurance" market.

That's my definition of de facto "uninsurance" I'd put a LOL here but it's fraud, not funny. I'll go with FOL ie. Fraud Out Loud, instead.

That seems to be the general impression but it isn't true. Between trade secrets litigation ( or potential litigation) and an act of Congress, the American taxpayer has deliberately been blindfolded in spite of the fact that they own, for example, 80 percent of AIG. We can't even get a look at OUR OWN books legally. Pretty stupid don't you think? Why hasn't the Congress fixed this? They easily could.....

JC

----------------- Thanks for the information. What part of the country are you locate in?

This may be the case but then why are the taxpayers taking it in the shorts because these bankers circumvented the "prudent lender" standard? How these "bankers" have been fired? How many of these "bankers" under indictment? How much of their bonus money has been "clawed back," because it was obtained by fraud?

In the 4 state area [where Kansas, Oklahoma, Arkansas and Missouri meet] PMI is still required by all the local and regional banks, and many people are having trouble getting their PMI dropped until their equity is much greater than 20% because the loan/repo value of their homes has dropped so far (c.30-40% in some areas).

It appears there are huge sums of money involved here, and much of the claimed bank "losses" are not real, but simply accounting numbers used to scare Congress into pumping yet more taxpayer money into a bottomless rat hole.

I am working up both an email to Congress and FOYA letters to the OTS, OCC, etc. to see what information they have on this. (The FRB, FDIC, etc. are *PRIVATE* corporations and AFAIK are not covered by FOIA.) The whole thing stinks.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

The northeast, although the chicanery was apparently widespread. Bankers have powerful friends. Chuck Schumer, for one:

George,

I'm still half convinced the bailout scheme is all smoke and mirrors and something else entirely is going on.

But then I always a bit suspicious when someone else sticks his hand in my pocket.

Richard

============ The fundamental error here appears to be the assumption that the "investors" have any say what so ever in running a large corporation, other than selling their stock and walking away.

While "private equity" firms like KKR & Black Rock have been successful in "throwing the bums out," this has always been to loot the company themselves.

Because of the "green mail" and "hostile take over" defenses enacted by the corporations themselves and the influence the existing management has with the regulators and courts, action by even a majority of stockholders comes to nothing. For example, votes on excessive executive compensation cannot even get on the ballot, even as an advisory [non binding] action.

The large stock holders such as the mutual and pension funds have been largely co-opted & preempted to always vote with the existing management.

The one group with a large enough hammer to occasionally get the attention of corporate boards and officers has been the major debt holders who can put a very large knot in the corporate pantyhose by refusing to roll-over a loan, or enforcing existing loan covenants to the letter.

Until and unless the directors and executives of these huge corporations are held to the same standards of accountability and performance as everyone else, things will never change. [and why should they?]

I don't know how to structure this, but there must be some mechanism put in place to remove the directors and senior officers of a corporation that are running it into the ground, before they destroy it completely, possible through some sort of structured court action analogous to a competency hearing for a natural person.

It would not seem to be too difficult to create a list of a dozen or more symptoms of management incompetency, and provide for the removal of the existing directors and officers when say any 4 symptoms could be demonstrated to exist to the satisfaction of a judge.

Consider how different things might be if the directors and executives of AIG, GMC, Citi, BoA, Chase, Lehman Brothers, etc. etc. had been removed 3 to 5 years ago for managerial incompetency, and replaced with more rational people [living in this universe].

Naturally, any employment contracts would be voided, including provisions for severance or termination payments.

The people in these groups are invited to suggest such "symptoms" for judicial consideration.

Some "symptoms" (I am sure there are many other identifiable characteristics) I came up with (in no particular order) are:

(1) The approval and/or acceptance of excessive direct and indirect compensation for the officers, executives and directors.

(2) Any exhibition of "conspicuous consumption" in the offices of the officers and directors.

(3) Utilization of company funds for the personal expenses of the directors or senior officers, particularly where this involves "conspicuous consumption," or entertainment.

(4) The continued operation of the corporation at a loss, particularly when dividends and bonus are being paid using borrowed money.

(5) Any continual increase in debt, particularly for normal operating expenses, with no structured plan to retire it.

(6) Failure to implement and/and enforce strict GAAP accounting, or the continued use of irrational rates of return [LIBOR + 2%?] when calculating pension funding liabilities.

Any suggestions or re wordings? Something is needed about "leverage" when calculated using "tangible common equity" even for the non-banks.

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

If anyone needs additional evidence that Main Street and Wall Street are not the same, compare and contrast the following articles. ( However Wall Street and Elm Street, with Freddy Krueger now working as a friendly stock analyst / bond rater does have some similarities.)

---------- Article 1 ------ Dow gains nearly 240 on a day of good news

By MADLEN READ, AP Business Writer Madlen Read, Ap Business Writer ? 20 mins ago [12 Mar]

NEW YORK ? Investors have been clamoring for months for a bit of good news. On Thursday, they got a load of it. The Dow Jones industrials shot up about 240 points, bringing its gains over the past three days to more than 600 points. It is the index's biggest three-day jump since last November. The gains came as an accounting board told Congress it may recommend a let-up in accounting rules for troubled banks. {comment -- implement "mark to myth" and put all the spondulicks back on the books as assets/capital}

-------------------

------ Article 2 ----------- Fed reports record fall in household net worth

By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics Writer ? 2 hrs 12 mins ago [12 Mar]

WASHINGTON ? The net worth of American households fell by the largest amount in more than a half-century of record keeping during the fourth quarter of last year.

The Federal Reserve said Thursday that household net worth dropped by a record 9 percent from the level in the third quarter.

The decline was the sixth straight quarterly drop in net worth and underscored the battering that U.S. families are undergoing in the midst of a steep recession with unemployment surging and the value of their homes and investments plunging.

Net worth represents total assets such as homes and checking accounts minus liabilities like mortgages and credit card debt.

Family net worth had hit an all-time high of $64.36 trillion in the April-June quarter of 2007 but has fallen in every quarter since that time.

The record 9 percent drop in the fourth quarter pushed total net worth down to $51.48 trillion, a level that is 20 percent below the third quarter 2007 peak.

-------------

OBTW -- What happened to all those people that wanted to "privatize" Social Secutiry? ;-<

Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

----------------------

The FSA [UK] seems to be coming around to this point of view, although very tentatively expressed. [FWIW -- UK (and European/Japanese) executive salaries/compensation, both in dollar equivalent and expressed as a multiple of median firm compensation, is much lower than in the US.]

Note that in the US the SEC and courts have specifically prevented stockholders from any coordinated action to enforce accountability on their Directors and Officers, including even a non-binding "say on pay" referendum .

------------

Pension fund managers must be more active in challenging company bosses to stop them making reckless decisions, the Treasury minister has said.

Lord Myners also suggested staff should have a say in deciding how much their bosses earn in salaries and pensions.

He was speaking in Edinburgh to the National Association of Pension Funds.

He said a lesson of the recession is that institutional investors have to address the control or governance of companies.

Lord Myners, a former pension fund manager, told the meeting: "This issue is now a hot topic. The penny has dropped in that sound governance is not a 'nice to have'. It's a necessity.

"Coalition of small shareholders often have more influence than single organisations" Lord Myners

"Disengaged investors lead to ownerless corporations and the risk of unaccountable executives and boards running amok. This carries with it very substantial economic risk."

"Too often, shareholders are disunited," said Lord Myners, the minister responsible for the finance sector.

"Boards complain they hear conflicting views from shareholders and individual shareholders can become isolated. Coalition of small shareholders often have more influence than single organisations acting alone."

Pay consultants

Lord Myners recently gained notoriety as the minister who failed to stop Sir Fred Goodwin leaving as chief executive at the Royal Bank of Scotland with a £703,000 pension.

But at the conference he said executive pay had to be perceived as fair, and that directors should not rely on pay consultants to ratchet up the pay rates by comparison with other senior executives, without linking it to performance.

He added: "To support shareholder action we need remuneration committees that are open to a wider range of views.

"Should they, for instance, consider formally seeking views from investors, employees and their representatives?" =========

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).