Sub-Prime Patty Meltdown, Or How Those Subprime Mortages Keep Coming Back Like A Bad Hungarian Dinner...

The Dow has gone looking for the Titanic this afternoon as the French get antsy about all those wonky subprimes they invested in, and who can blame them?

Wall Street plunged again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. The Dow Jones industrials extended its series of triple-digit swings, this time falling more than 380 points

The safe has been dropped into the middle of the US Credit Market and the real tsunami hasn't yet been felt. The only Ripples we're talking here is the cheap wine the brokers are going to be drowing their sorrows in. The days of Chateau Mont Helena are gone. Welcome to the real world, and the reality based financial community.



A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.




There's only so long that one can live in denial. Even Cleopatra had to get off her barge once in a while. This situation is more than Joe, and Jane Doe with the suicide loan or the giganto HELOC swimming sideways toward the drain. It impacts the prudent and the imprudent alike. Worldwide.

The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it shows that problems in subprime lending are, in fact, spilling into the general economy.

"This is a mini-panic," he said. "All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer."

Yeah, and that includes even those of us who've sat this dance out. The band is packing up, don't look at us to pay the tab.
I was particularly struck by this little incident when the "other" Cramer had his own meltdown last night.



If you want to get a general idea of things just watch the little birds that have been living off the dung on the housing rhinos back for the last five years. Can you say Hakuna Matata!

In another sign of credit market trouble, Home Depot Inc. warned that the sale of its wholesale business might bring in less than expected. The world's largest home improvement retailer, which also cut how much it intends to pay to repurchase stock, said volatility in the stock, debt and housing markets has led to the possible repricing. Home Depot fell $2.01, or 5.3 percent, to $35.79, and was the worst performer of the 30 Dow components.

But American International Group Inc., one of the world's largest insurers, on Thursday reassured investors that it remains comfortable with its exposure to the subprime lending market as an investor, lender and mortgage insurer. AIG, which reported a 34 percent jump in second-quarter profit late Wednesday, said it has enough cash and liquidity and "does not need to liquidate any investment securities in a chaotic market."

AIG fell $2.18, or 3.3 percent, to $64.30.

Of course this headline probably didn't help.
Mortgage delinquencies, defaults spreading: AIG

Let me get this straight, they're not worried about anything, and yet they're warning their investors. Ok.

While saying most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.

Although acknowledging the "significant declines" in subprime securities, Chief Executive Martin Sullivan said AIG's tight underwriting standards had minimized losses and he was "poised to take advantage of opportunities" in the mortgage market.

But it was clear the overall market was getting worse.

"We are experiencing stress in the Midwest markets where jobs have been lost and we are now seeing it in Florida and California," said William Nutt Jr., chief executive of AIG's mortgage insurance arm.

Everything's A-OK, except where it's not.

Yeah, and other than that how did you like the play Mrs. Lincoln?

it's Not Foreclosure, It's Just A Little Gas!!

Foreclosure as part of the digestive process?? What a novel way of stating things. That's is however just what was said today by one of the RE Economic gurus who's been telling us that there was no bubble.

G.U. Krueger, an Irvine-based economist, said default activity may slow once weak subprime loans work their way through the system. There could be “a quick kind of flushing out, a kind of a storm that passes quickly.”

Dude, ever hear of the concept Binge and Purge. He needs to talk to the Olsen Twins.

The San Diego Union Tribune, is telling "homeowners", not to panic. Sure things, look a little "worrisome" right now but they'll soon clear up. Sort of like that worrisome little hole on the good ship Titanic, or those worrisome little ice caps that're watering down the ocean.

Home foreclosures in San Diego County continued a troublesome climb into record territory in June, but analysts say the number has yet to reach a threshold that creates a drag on real estate prices or the economy.
DataQuick Information Systems reported yesterday that during the first half of 2007, San Diego County had 2,896 foreclosures compared with 445 during the first half of 2006, a 551 percent increase.

That sets a record dating to 1988, when DataQuick began tracking foreclosures, researcher John Karevoll said. “A steadily increasing portion of those who get notices of default now are being foreclosed on.”

If they don't consider a 551% increase in foreclosures a sign that there's gonna be a lot of property to move then I've got a bridge to sell them.....,plus a few thousand condos.

Of course they love to brush all of this off as just a small glitch, nothing to see here folks, just move along .
University of San Diego economist Alan Gin said a recession could make the foreclosure problem much worse, but he said there is less than a 50 percent chance that one will occur. While foreclosures are “still a small part of market,” the spike in defaults is worrisome, he said.

After all, though housing may be hurting everything else is ok.....right?...right? RIGHT??!!

Stocks plunge; Dow down more than 310,

Whoopsiedaisy, guess he didn't see that article.

Wall Street suffered one of its worst losses of 2007 Thursday, leading a global stock market plunge as investors succumbed to months of worry about the mortgage and corporate lending markets. The Dow Jones industrials closed down more than 310 points after earlier skidding nearly 450.

Investors who had been able for months to largely shrug off discomfort about subprime mortgage problems and a more difficult environment for corporate borrowing finally decided it was time to sell after the Commerce Department issued another disappointing home sales report.

Recession, recession, did anybody order a recession?

Wall Street extended its steep decline Friday, propelling the Dow Jones industrials down more than 500 points over two days after investors gave in to mounting concerns that borrowing costs would climb for both companies and homeowners. It was the worst week for the Dow and the Standard & Poor's 500 index in five years.
Investors cast aside a stronger-than-expected read on the economy and maintained negative sentiment that dominated Thursday when the market shuddered amid worries over the U.S. mortgage and corporate lending markets. Investors globally took flight from equities, shifting cash into safer investments in Treasury bonds.

The pullback Thursday and Friday wiped out $526.1 billion in shareholder wealth from the stocks in the Standard & Poor's 500 index.

But I thought the GDP sounded so good, I mean sturdy, robust, encouraging. What happened? Could it be that maybe people like, just stopped believing them, cause maybe they were, oh I don't know, say....LYING?! After all these were the guys that though housing was so cool, condos were so cool, irrational exhuberance was so coooooooooool.
Yeah.




"I think we're going to have continued sideways movement with 100 point up-and-down days," said Frederick, referring to the Dow's back-and-forth movements.

"The 14,000 level is going to be tough for this market to get back above," Frederick said.

I hate to break it to you Freddie my man but the only thing that moves sideways is a dead fish as it circles the drain...oh yeah, and a snake. But I guess that wouldn't really apply , would it?

More wisdom from Freddie.
"You look at a 300-point Dow day and it seems like a big day but from a percentage viewpoint it's not a big move," Frederick said
Right, like standing on the ledge 5 stories up, is nothing like standing on the ledge 30 stories up, really it's not that big a move.