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Given the role of conservative ideology in the mortgage disaster, it’s puzzling that Democrats haven’t been more aggressive about making the disaster an issue for the 2008 election. They should be: It’s hard to imagine a more graphic demonstration of what’s wrong with their opponents’ economic beliefs.

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Smith & Wesson, the iconic gun manufacturer, is doing even worse. Its shares are down more than 70 percent in the past three months. Earlier this month, Smith & Wesson reported disappointing second-quarter results. While sales to law enforcement are doing well—after all, violent crime has been up for two straight years—the consumer channel is dead. CEO Michael Golden blamed "softness in the market for hunting rifles and shotguns driven by lower-than-expected consumer demand, an industrywide buildup of preseason retail inventories, and unseasonably warm autumn weather, which compressed the fall hunting season." Golden also noted that consumers are buying fewer handguns. As a result, retailers stuck with too much inventory are slashing prices and reducing orders.

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The concern relates to ARMs - adjustable rate mortgages. Whether the recipients' creditworthiness is sub-prime or prime is immaterial to the fact. As the teaser rates on the ARMs reset,the debtor is unable to meet the payments.

Over half of US ARMs are tied to the London interbank rate,LIBOR,not domestic US rates and as these mortgages fall into default, the foreign purchasers of the collateralised debt obligations are suing the US banks and their enablers who peddled junk derivatives as investment grade debt.

The "crisis" will take years to unwind and will mean a huge transfer of wealth from American to foreign holders of US dollars. The only other option is default or a legislated get out of jail free card to the crooks.

There is no way that the Fed can allow the US economy to go into recession in an election year so they will allow the dollar to go into the toilet and let the next administration deal with the inflation soon to follow the trillion dollar liquidity drop.

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Originally posted by Proaxiom:
Any idea if those law suits have any chance of being successful?

If the terms of the mortgage were available to the buyers of those debt bundles, then it seems the US banks might just be able to shrug and say caveat emptor. Is there reason to think the banks were being fraudulent, rather than the investors being careless?

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Its not a matter of the mortgage terms,its a matter of the individual Structured Investment Vehicle's terms whereby the creditworthiness of the seller and buyer are both part of the settlement process within the SIV. Each vehicle is designed for a particular CDO.

Financial and legal functionaries craft particular sections of the SIV with an end product that no-one understands. As the rating of the vehicle changes,the value changes with either party forced to provide more funding to cover margins.

The reason that lenders would lend 100% loan value to someone with a credit rating lower than their IQ and no job is that these loans were bundled and sold as derivative SIVs to funds and institutions hungry for increased yield and rated by DBS or Moodys as investment grade when,in actuality,they were loaded with garbage mortgages.

The lenders knew they had no exposure to the loan going sideways and didn't care. Now,the original lenders and the rating agencies as well as the Wall St crooks who peddled this garbage are likely to be sued for breach of fiduciary responsibility.

The only winners here are the lawyers.It will take years to sort this out and hundreds of billion dollars of wealth will disappear.

The crisis is to the point that Citibank Group has restricted wire transfer withdrawls to $10k per month to forestalla run on the bank. Major houses like Morgan Stanley and Bear Stern need multi-billion injections of cash in exchange for equity from sovereign wealth funds such as China Sovereign Fund and Dubai Sovereign Fund in order to stave off bankruptcy.

The idiot in the WhiteHouse is blind to the march of equity wealth from US to foreign hands while he takes another $70 billion to piss away on one or other of his military quagmires.

Next year,the US debt will hit $10 Trillion and in 2020,Canada's debt will be retired in the same year that US Medicare goes bankrupt because the US government is increasing Medicare's unfunded liability by writing off-the-books IOUs rather than paying the interest it owes on borrowings from the Medicare fund.

The schadenfruede could be immense for anti American types except for the fact that if the Americans don't take everyone else with them,they are going to be an even bigger pain in the ass than they are now when they are broke and hungry.

Basically the purchase contract for a house was being written such that a price was given, and then the seller rebated some amount of the price back to the buyer. So, for instance, the buyer would agree to pay $250,000 for a house and get $25,000 back in a rebate, making the actual price $225,000.

At first glance this appeared to be a mechanism to defraud banks, who had requirements that had to be met before they would issue mortgages (such as minimum equity). The guy who submitted the report had communicated with people at some banking organizations, and the response he got was basically that it wasn't fraudulent because the banks had a copy of the contract and could see what was going on.

I mean, if I were a member of the aristocracy, after a hard day of tripping blind men and boffing the visaless maid, I don't know I'd be so relaxed at the country club, sitting in the overstuffed chair with my brandy and Cuban cigar, watching Rachael Marsden in fetish gear waterboarding kittens.

I think I'd be more worried about this sub prime loan fiasco, along with tales of insider trading, etc, etc, is going to hurt me. Maybe not as much as others, but that's hardly relevant. It would end up hurting me.

I might wonder what the real value is of living in the penthouse suite in a house of cards.

I might, more than those bleeding hearts on the left, be more interested in government going back to regulating the market place, and I might put notes to that effect in the manila envelopes stuffed with cash I sent out to the politicians that I own.

And I would wonder why those bleeding hearts on the left care so much for my welfare. It would seem to me that they'd be better off letting us all drown in the puddle of our own greed drippings.

[ 22 December 2007: Message edited by: Tommy_Paine ]

Its easy enough to circumvent the unencumbered DP and closing costs requirement and replace the funds with the cashback. The secret lies in finding the "right" appraiser.

These transgressions are usually minor but the potential for fraud is apparent.

In the present credit fiasco,the US companies are slowly coming clean and taking SIVs back on their balance sheets. (Each SIV may or may not have a buyback at par for underperformance clause-more fodder for the lawyers)

The case in Euroland is different with the ECB injecting half a TRILLION dollars in liquidity inone shot while resolution of the issue is still murky as the banks are NOT being transparent and taking risky valuations on their balance sheets. The Euros will try to weasel as long as possible and keep ordinary investors at risk.

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Originally posted by jester:

Its not a matter of the mortgage terms,its a matter of the individual Structured Investment Vehicle's terms whereby the creditworthiness of the seller and buyer are both part of the settlement process within the SIV. Each vehicle is designed for a particular CDO. ~

Don't count them out but it will take them years to recover. Years of blaming and bullying everyone else in order to scrabble back into the driver's seat.

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Wow ! i couldn't have said it any better.

hedge funds, derivatives, SIV's, were all very confusing for me. i somehow ended up on the mailing list of John Mauldin at
http://www.investorsinsight.com/

and, after engaging in the typical, "how to get 10% risk-free return on your money", for a long time, he finally got real about SIV's and did a great job of explaining them in a series of about 10 articles.

he's the kind of "money manager" who specializes in people with $5 Million+ to give him. he just opened up a "budget fund" for people with $1.5 million.

when a guy who is part salesman, part financial genius, and a good writer starts saying, "here comes the recession", it's attention getting.

as i told a few lefty friends when Bush first came into office - if you think the Bush economic recovery is bad, just wait for the Bush recession.

[ 22 December 2007: Message edited by: Abdul_Maria ]

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Originally posted by jester:
The term "sub-prime crisis" is another of the manufactured scenarios spun by the establishment to effect damage control on the credit meltdown.

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Jeff, how many pardons is an outgoing President allowed to grant? The Wall St crooks will need them.

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[ 24 December 2007: Message edited by: brookmere ]