I don't know if you remember- but months ago we had an exchange on CDS long before any of this hit the blogs or certainly the mainstream media. I stated that this was my biggest fear, but felt certain the "authorities" would not let things get to that point. I no longer feel that way and now think the question is how bad does the CDS unwind get. Corporate defaults could easily go to north of 10% and as you point out mortgage defaults are just getting started.

The declining home value and lack of equity in the property is the critical factor here in terms of default and severity of loss. The other distinctions like FICO are not going to be relevant. California is imploding as we speak and I don't think that ends well for the western US or the rest of the country for that matter.

By the way working with Rutben and will help in any way that I can....

How close is the congressional recess to Cox's "publicize your ****" deadline?

Maybe it's wishful thinking, but it seems like that might be a perfect opportunity for a lame-duck SEC chairman to "throw the grenade in the pit and walk away," as my boss likes to say. No congress in town, high likelihood of an opposition administration coming in to have to deal with the fallout. Maybe?

ETA: not intended to be tin-foil, just grasping at straws...

Two good ones in one day! just thought up a good nickname for Karl... "Double Tap Denninger!"

(Those who know handguns will pick up the double entendre!)

<<Bernanke is gambling with our future by refusing to act to force the deleveraging to take place now through recognition that these swaps and "insurance" policies are, in aggregate, worthless.>>


Q: In all actuality, hasn't this already happened. To stick w/ the 'gambling' analogy, haven't the dice been thrown and now we're all waiting breathlessly to see how they come to rest? Is it possible to stop what the Fed has done?

Then to the point, if it IS possible to stop it ... as small-fry investors ... is there really any doubt at this date that they will be stopped? Really, isn't this "game" going to go to termination on the track it is on ?????? - that is, the Fed buying and covering until there is a final, let me call it and "interest rate event."

FWIW, it is totally beyond my comprehension how rates have so far failed to move to any appreciable extent given the contamination that the Fed has taken on their/our account.

Think only a couple of things are overblown there. Market cap of the MI companies is not what you want to look at - you'd want to look at reserves. I didn't take the time to research it because I know they are woefully undercapitalized for what will happen. And the 50% down won't happen the FED government will have us backstopped with FHA loans. But these two items don't go anywhere near discrediting Karls thesis. A MI company will blow up like a poisoned dog and we will find out who's swimming naked. Once again you've done great work today Karl. Now go grab a cold one and relax for a while.

Quote:

And the 50% down won't happen the FED government will have us backstopped with FHA loans. But these two items don't go anywhere near discrediting Karls thesis.

No, that wasn't 50% DOWN on home prices, its a recovery of 50 on the loans, which is about what they're fetching NOW when they default - recovery across the ALT-A space is running about 50.

Edit: Ok, not I realize what you're talking about. It still might - someone has to write the paper.

another excellent commentary Karl, however it is now becoming blatantly obvious that no one else apart from the TF's and a few others are listening or observing history in the making, it looks like that this market will carry on oblivious, blind and stupid, until there is a major collapse of a Bank or a global war ,as it did in the late 20's /early 30's, you're/we're right, but we are outnumbered by 100:1 by bulls, J6P's, and the billions and billions of oil money dollars that is being put to work.
I believe that Photoguy's recent comments and observation were/are probably correct.
If history is going to repeat/rhyme then I guess that the same stupidity that happened last time will also happen again before the endgame is played out.

According to the latest out of the Senate the current plan is to pretend the GSE's are funding the FHA bailout. This is a disgrace- I guess the good news is that $300 Billion won't do too much damage. I don't think folks are going to refi down and lock in at a discount anyway if housing prices continue to fall.

In California 15% writedown would not even get anyone to pay attention. Values have and will drop way below that- people are not stupid they know this....From what I see the market is dead except for knife catchers that are buying REO and short pays....

Yeah, like the GSEs have the spare cash laying around

With respect to Congress -- if you have hope for your current congresspeople, a campaign donation will go a lot further in getting their cooperation than simply faxing/phoning/writing them. I think a donation as small as $20 will get your voice heard - and it'll happen a lot faster than 20 daily faxes. Money talks louder than words. We've already seen, from the lead-up to this debacle, that small special interests get their voices heard in Washington. Even at the expense of the silent-majority public interest. Buying votes works. I suspect that many congressfolks do in fact see the writing on the wall, and want to be on the right side of history, so they will switch sides once there's campaign money on both sides of the issue.

If you have no hope for your current Congresspeople, then figure out who you want to support in the election and put your voice and funds behind them. Out where I live, we threw out a corrupt multi-term real estate developer(swindler?) in our district in 2006. This is one of the worst-hit areas right now in terms of the real estate crisis. Not clear to me yet whether the new guy is cutting the mustard, but if we have to recycle our congressperson again and again until we get decent representation, that's what we'll do!!!

They got plenty of money for now. Just cook the books and borrow some more. It'll all come tumbling down with the MI companies. If they want to keep the balls in the air they are going to have to have the MI companies raise billions. Because that will be the watershed moment.

Genesis-
Remember that you said it was a donation, not a subscription. Two tickers in one day, as well as everything else you do? Take some time off...don't look at the markets, y'know, all that stuff.
And if you don't follow my sage advice, I'll still be reading and thankful for all you do.
Cheers!

And speaking of The Banking Sysytem:

Gen,

The more i read your ticker the more curious i am as to your thoughts on the Money Masters - http://youtube.com/watch?v=OnwLgrSJZKs

Hope you get a chance to take a look............