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Wells Fargo's COO: "we never get into the chain of ownership"


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2007 Feb 12, 6:51am   12,953 views  128 comments

by HARM   ➕follow (0)   💰tip   ignore  

How the banksters see you

Over the past 18 months or so of regular posting here, I've taken a considerable amount of flack for my criticism of MBS/CDO debt instruments as being a primary cause of the current housing bubble --and why I believe this bubble is so much larger in magnitude and global scope than previous relatively localized bubbles. In particular, I've criticized mortgage-backed securities as being a bankster stealth vehicle, used primarily for transferring mortgage default risk from lenders to main street (retail investors, pensioners & taxpayers). Some of the big "L" Libertarians disagree with me on this.

Some of you might be familiar with my mantra (even if you disagree with it): "Privatize Profits, Socialize Risk".

Well, last Friday my point-of-view just received some direct confirmation from a rather unlikely source: Wells Fargo's President and COO, John Stumpf. You may recall that Wells Fargo is the nation's largest sub-prime lender (see the Mortgage Lender Implode-O-Meter for rankings).

Reuters: Mortgages are different story for Wells Fargo-COO

Here's an excerpt:

Wells Fargo President and COO John Stumpf said: "It's a very different story at Wells," citing the fact that most of the subprime mortgages it issues are sold to Wall Street banks which then assume the risks.

In the first half of 2006, 72 percent of the bank's subprime mortgages were co-issued with Wall Street firms, he said.

"They take those risks and they sell that off to investors so we never get into the chain of ownership," he said. "It's that simple."

There you have it straight from the horse's mouth: MBSs exist primarily for risk-transference to protect the lenders --"it's just that simple".

Oh, and after they repackage and sell these loans to "Wall Street firms" (think Fidelity, Merrill Lynch, Goldman Sachs, etc.), do you think those firms personally keep them on the company's books or re-sell them downstream as fast as possible to retail sucke-- er, investors (think 401k plans, pension funds, grandma, sister, etc.)? I think we can finally can close the book on this particular "debate" now ;-).[1] [2]

[1] In light of recent information from Mike, FAB, Randy, etc., I am reconsidering my postition. If most of the default/repurchase risk is concentrated in the lowest MBS tranches, and these tranches are basically off-limits to retail investors and pension funds, then the only people getting screwed are hedge funds and FCBs. If that's indeed the case, then more power to Mr. Stumpf & Co.

[2] Another poster (News) recently (2/22/07) pointed out that the Amaranth Hedge Fund blow-up last September cost the San Diego County employees' pension fund $87 million in losses. While this was related to natural gas trades --not MBS/CDO-- this example illustrates how my original contention about retail investors being exposed to HF/derivatives risk might turn out to be true. Isolated data point, or an early indication of an emerging trend? The next few years will tell the tale, as $Trillions in option-ARM and I/O mortgages start resetting.

Discuss, enjoy...
HARM

#housing

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45   e   2007 Feb 13, 9:14am  

Or if you're even more bored, you can join in on the discussion here:

http://www.yelp.com/topic/rDp0r5MtesBaUfS6ee1TpQ

Sample quote:

"dangerous loans"... let me know guess, you've been reading popular media warning against exotic loans and their readjustments. guess what... it's not happening. (btw, i work in the industry). will it happen? probably, but not nearly to the degree that you or the media wish it to. The US economy continues to remain strong, people have jobs, and guess what... they're paying there bills. Will these exotic readjustments put some families on the street? sure. a lot? maybe. enough so that we taxpayers will have to bail them out? good one. that is "unprecedented" my friend.

my fundamental problem with you persective is A) it's based on non-expert opinion and B) you are the cosumate dooms day advocate and C) you speak so surely about the future.

46   Paul189   2007 Feb 13, 10:07am  

HARM,

I would like to commend you on your ability to consider new information and revise your position / thread. Your actions speak volumes about your integrity and intelligence!

Sincerely,
Paul

47   Zephyr   2007 Feb 13, 1:29pm  

They might be borrowing in Yen or Euros at a lower rate.

48   Zephyr   2007 Feb 13, 1:29pm  

... and then hedging the currency risk.

49   EBGuy   2007 Feb 13, 2:02pm  

It has begun...

(02-13) 17:57 PST PHILADELPHIA (AP) --
An investor who killed three people and himself at a marketing company was upset about losing money in a failed real-estate venture and told his victims to "say your prayers" before he opened fire, police said Tuesday.

http://www.sfgate.com/cgi-bin/article.cgi?file=/n/a/2007/02/13/national/a133744S42.DTL&type=printable

50   DinOR   2007 Feb 13, 9:38pm  

stuckinthecity,

But but bu.... I thought Roman "the Candle" retired and is living the quiet life in Las Vegas? Please remind me from time to time to stop by Second City Bubble! Is that embarrassing or what?

51   DinOR   2007 Feb 13, 9:52pm  

eburbed,

Is this the right "Vu"?

infomercial.tvheaven.com/tomvu.htm

52   DinOR   2007 Feb 13, 10:58pm  

Uh, I don't know if anyone else noticed but somehow Patrick.net has "slipped" in Google rankings from #1! to (#6?). How is this possible?

Dean Baker and Mike Whitney haven't done updates (on the bubble anyway) in MONTHS!

53   Sylvie   2007 Feb 14, 12:43am  

Helicopter Ben on the hot seat this morning. Again total jibber jabber he's so in the pockets of the Investment Bankers. He briefly mentioned risk on the sub-prime implosion. He also said there is no way to assess whether it will spread to other sectors and prime. I think he knows what's coming and knows he's too late to stop it. But I am enjoying watching the Senate grill his ass.

54   Claire   2007 Feb 14, 1:07am  

OT - Pro's and Con's of renting - the rats in the garage that the landlord won't do anything about have now started living in out car engines! So now we have to get them inspected for damage at $125 each! Maybe we can get the landlord to pay?

55   StuckInBA   2007 Feb 14, 1:29am  

Uh, I don’t know if anyone else noticed but somehow Patrick.net has “slipped” in Google rankings from #1! to (#6?). How is this possible?

Don't we have our friend as an insider there ? Maybe he can fix it.

Or maybe it's time for a "Huh ? 2.0" and "Duh ! 2.0" thread.

56   DinOR   2007 Feb 14, 1:33am  

Claire,

First, look on the "bright" side. (It could have been skunks?)

Provided you'd notified them previously, I'd say it's their problem. However rats don't know your personal financial situation so they probably would have moved in even if you were paying 2-3X on a mortgage!

Oh and get a cat! :)

57   Allah   2007 Feb 14, 1:36am  

Helicopter Ben on the hot seat this morning. Again total jibber jabber he’s so in the pockets of the Investment Bankers. He briefly mentioned risk on the sub-prime implosion. He also said there is no way to assess whether it will spread to other sectors and prime. I think he knows what’s coming and knows he’s too late to stop it. But I am enjoying watching the Senate grill his ass.

Speaking of Ben, I am sick of hearing him say the same damn bullshit month after month, "duh, Inflation seems like it's getting a bit high, duh, I may soon have to raise rates."

Why doesn't he just come out and say, inflation got the best of us; we cannot raise rates anymore and we are all screwed!

58   DinOR   2007 Feb 14, 1:38am  

Sylvie,

I was frankly a little surprised the subprime MELTDOWN was even mentioned. By Heli-Ben bringing it up first I took it as something of a "pre-emptive" move in an attempt to divert attention elsewhere. Evidently it's just too big to sweep under the carpet? :)

59   lunarpark   2007 Feb 14, 1:39am  

Sigh...a girl in my office is buying a place with her boyfriend. They are planning to spend $550k - their combined income is probably $80k, and I'm being generous. And they aren't trust fund kids either.

When will this madness end?

60   Allah   2007 Feb 14, 1:40am  

When will this madness end?

On the courthouse steps in a few months. :lol:

61   DinOR   2007 Feb 14, 1:42am  

StuckinBA,

I don't want to say 'conspiracy' just yet but most of those placed above Patrick are really just "one time rants". Hell we rant ALL day EVERY day around here!

"It d o e s n ' t m a k e s e n s e!" :(

62   SFWoman   2007 Feb 14, 1:42am  

Claire,

I'd say it's health department time. You can't have rats getting into your stuff and eating your cars' wiring.

63   Claire   2007 Feb 14, 1:52am  

SFWoman - I'd say it's time to move the minute one gets in the house, till then I am hoping my other half gets a payrise so we can use it to move to our neighboring school district - but rentals are a bit thin on the ground at the minute and I was reluctant to move schools and go through the "I miss my friends". My daughter's school is okay, and she's doing well, but I do wonder if she would be doing even better eslewhere.

64   Claire   2007 Feb 14, 1:52am  

And no we can't afford a private school.

65   Allah   2007 Feb 14, 1:54am  

I'd have to say this is karma! Realtor's being cheated; my how the tables have turned.

66   Claire   2007 Feb 14, 1:59am  

HeliBen seems to be covering his A**, he seems to almost contradict himself so that he can weasel out of it all one way or the other - there is "noise" in the data - we think inflation is okay, but........core inflation is high - yep - just turn up that noise a bit more and we won't have to worry about anything. The housing market is stabilizing, but it could be worse than the Fed anticipates......no s...t sherlock!

67   DinOR   2007 Feb 14, 2:00am  

Claire,

(And SFWoman PLEASE don't take this the wrong way) I will *not take atty's as clients. Period. Claire, did you know it was an atty. when you signed the lease?

68   DinOR   2007 Feb 14, 2:04am  

allah,

We should never wish bad things on other people, even if they are realtwhores! (In Peter P's absence) :)

69   Claire   2007 Feb 14, 2:06am  

No, thought he worked at Stanford Uni, on the bright side he rarely raises the rent and doesn't bother us and we've been here 4 years now. The house has been owned by them for years, so unless they've HELOC'ed it, and we don't have to worry (too much) that they are going to sell it out from under us.

70   DinOR   2007 Feb 14, 2:10am  

Claire,

Oh I see. Don't get me wrong, I have friends that are atty's and I refer bus. to them when appropriate but I make an effort not to enter into bus. arrangements w/them if I can help it.

71   Claire   2007 Feb 14, 2:32am  

spike66 - when I say rats - they are commonly described as roof or fruit tree rats, so I do not think they are the same as sewer rats, but maybe that's just people making it sound better. If we reported it our LL would know it was us.

72   sobs   2007 Feb 14, 2:38am  

Re DinOR's take on attorneys as clients ...

Right on, brother. In my short life, I have tried to advise two attorneys about their financial affairs and it didn't work out well either time. Every conversation was a very thinly disguised deposition. In the end, I told them both that I wasn't the person for them and walked away.

Re justme's how is this getting them more than the 5% they can get in the bank or US treasuries?

Leverage. The hedge funds are excellent credits and are in some cases willing to post collateral to secure their borrowing in order to reduce funding costs further. They can lever their funds to the eyeballs and, as long as their models correspond to the real world, they coin money.

73   Allah   2007 Feb 14, 2:41am  

Claire,

If you come across a dead rat, put on some rubber gloves, pick it up and drop it in your LL's mailbox. :twisted: :evil:

74   sobs   2007 Feb 14, 2:43am  

Claire, use poison (I recommend solid bait; comes in cylinders with a hole in the middle so you can drive a nail through the center into a stud, say; don't place where other animals might be) or call an exterminator. Spike66 is right. Rats can go anywhere. Small ones need a hole the size of a nickel!

75   Claire   2007 Feb 14, 2:46am  

Can't use poison, next door did that once, and they never will again! They died in the walls and stank the house out, they had to rip the walls out and get in the cleaners (that usually clean up crime scenes) to clean it all up!

We have caught a few on glue trays, but we have seen one leap over the trays to avoid getting caught.

76   sobs   2007 Feb 14, 2:58am  

One more thing. In my experience, it takes a pretty mean cat to go after a rat of any reasonable size. Count on vet bills if you use a cat. The classic ratters are terriers and/or mongoose (gooses/geese, I don't know).

Is the landlord's policy "no pets" or "no cats"? A mongoose would be incredibly chic, no?

77   Claire   2007 Feb 14, 3:06am  

Punchbowl - we are allowed our dog (named specifically in the lease), but no cats or other pets.

78   DinOR   2007 Feb 14, 3:09am  

"very thinly disguised deposition"

Yep, that'd be about right. I worked for a small shop and it was the unwritten policy. If you lost them money, they would sue. If you made them money, they would sue. There is no winning.

Btw, I've heard if a rat can get his head through, then he can get through. We used to have skunks and that really sucked! :(

79   Sylvie   2007 Feb 14, 3:19am  

That is why I think it's invaluable to have a cat in residence. I've had my dumpster kitty for six years. Most places are feline friendly I've had no problem and they keep any invader critters at bay. I don't mind the deposit places charge it's nominals compared to the companionship. She's outlasted many a boyfriend.

80   Boston Transplant   2007 Feb 14, 3:30am  

There is a good article in the FT today (apologies if this has been posted before).

http://www.ft.com/cms/s/0e9f6a24-bbd0-11db-afe4-0000779e2340.html

"The ABX index for bonds, rated BBB-, has soared about 300bp higher since last week's news, reflecting a perceived increase in risk, and pushing the index to a record level above 960bp, signalling an alarming rise in investor concern over the potential losses on 2006 mortgage bonds."

Can someone explain what the relation of the ABX index (ABX.he) is to MBS in general? Is it a good representation of the sub-prime tranche?

If I am understanding correctly, this index has moved from 6% to 9% (from an even lower basis over the last year or so). Is there somewhere I can see this plotted? (Yahoo finance doesn't seem to work).

81   Sylvie   2007 Feb 14, 3:33am  

C-span 2 is naming who are the top tax break recipients. It tells you who bought this current.administration it's so telling of the power of super wealth to buy favor. It's sickening...

82   SFWoman   2007 Feb 14, 3:44am  

DinOR,

No offense taken. My husband said if he were a landlord he'd never rent to lawyers (by which I think he means litigators and sole practitioner types).

83   Peter P   2007 Feb 14, 4:03am  

Still, am I foolish to let people take full commisions? I think I’m not.

You get what you paid for. Trust your instincts.

Not advice of any kind.

84   DinOR   2007 Feb 14, 4:27am  

Boston Transplant,

There are so many other posters here more qualified to address your question but since everybody's out to lunch I'll give it a shot.

Is it a good representation? Well NOW it is! The risk premium was never factored in properly before and now (I) believe it is correctly priced. The only link I do have is to my firm's internal bond desk and they're kind of sensitive about that. A little help? Oh btw, if I attend the webinar about CMO's I'll get CE credits! How timely!

I did take exception to the FT's depecition of "perceived increase in risk" though. Is this like when we have a guy with bloody finger prints all over the crime scene and we are bound by law to refer to him/her as "the alleged killer"?

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