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Bloomberg to WaMu: "Be careful what you wish for"


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2007 Nov 8, 4:48am   23,587 views  161 comments

by HARM   ➕follow (0)   💰tip   ignore  

WaMu's Wile E. Coyote moment

Bankruptcy Law Backfires as Foreclosures Offset Gains (Update1)

Nov. 8 (Bloomberg) -- Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest U.S. savings and loan didn't count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.

``Be careful what you wish for,'' Westbrook said. "They wanted to make sure that people kept paying their credit cards, and what they're getting is more foreclosures.''

Washington Mutual, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a non-partisan Washington group that tracks political donations.

The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions. It also reached to the top echelons of the financial services industry.

...'Let the House Go'

People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive officer of Capital One Financial Corp., the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said.

"What we conclude is that people are saying, 'Honey, let the house go,''' but keep the cards, Fairbank said Nov. 5 at a conference in New York sponsored by Lehman Brothers Holdings Inc.

All I can say is... BWAAAAHAHAHAHAHAHA!!!!!!
It looks like the Law of Unintended Consequences rules the day (again). So much for the "no bankster left behind" BK bill. Couldn't have happened to a greedier, more evil group of thugs.

Pigs getting their just desserts.
Chickens coming home to roost.
Life for a debt-free bubble sitter: wonderful.

Discuss, enjoy...
HARM

#housing

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81   Peter P   2007 Nov 9, 4:12am  

My dogs have some understanding of right from wrong, and even understand the concept of stealing. I believe dogs are moral creatures.

Too bad, I only have cats. :)

82   SQT57   2007 Nov 9, 4:13am  

You mean bringing reality back to the neighborhood?

I probably won't say that to my new neighbors-- at least just yet. I don't want to be facing the angry mob if I can help it.

83   Peter P   2007 Nov 9, 4:15am  

Cats can be evil geniuses one instance and adorable fur balls the next.

84   DinOR   2007 Nov 9, 4:16am  

"hitting that point where we need the tax break"

That (among other things) was one of the bars we had too. The first year I was "independent" I made more from un-employment. So it wasn't even a concern. Bubble-sitting: Year 2, start-up costs MORE than off-set! Year 3, "at least we're not part of the problem". Year 4, "we're going to take it in the shorts".

I think we paid right around $162 per but OR is "special" not like SAC.

85   Peter P   2007 Nov 9, 4:17am  

I probably won’t say that to my new neighbors– at least just yet. I don’t want to be facing the angry mob if I can help it.

Yeah, just say you got it at a once-in-a-life-time low price and that you fully expect to flip it for 300% more next year. When they are not looking, you may roll your eyes.

86   SQT57   2007 Nov 9, 4:21am  

I think we paid right around $162 per but OR is “special” not like SAC.

He he he. We're actually in a suburb of Sacto that is pretty nice. I looked up the stats and the median income is around $80k-- not too shabby. The neighbors are going to have fits when they figure out how much we paid per sqft.

Yeah, just say you got it at a once-in-a-life-time low price and that you fully expect to flip it for 300% more next year. When they are not looking, you may roll your eyes.

Now that sounds like a plan....

87   DinOR   2007 Nov 9, 4:25am  

That's the spirit Peter!

Not only will you defuse a potentially awkward situation you will become the rallying point for renewed interest in koi ponds and other various lawn adornments!

88   DinOR   2007 Nov 9, 4:27am  

"when they figure out"

See, that's the tough part. With Z anyone can check that out.

Make sure you put extra emphasis on the "300%" part.

89   SQT57   2007 Nov 9, 4:28am  

See, that’s the tough part. With Z anyone can check that out.

I know. I hope they're all going to be in serious denial mode and choose not to look.

Fat chance, I know....

90   DinOR   2007 Nov 9, 4:34am  

USAYesterday,

Sacramento, CA: 9 NOV 07

Could "bottom feeders" become the new "Real Financial Heros"?

Before you get all bent out of shape about your neighbor paying HALF of what your... dumb@ss did, consider recent buyer SQT! With mortgage payments a fraction of yours they will be able to purchase everything from swing sets to wood chippers down at Home Despot (TM) (and get this!) they're paying CASH! For those of you that haven't seen any for awhile it's green and has dead presidents on it with numbers that correlate to different amounts....

91   anonymous   2007 Nov 9, 4:38am  

haha so Surfer-X bought in Sacto?

I can hardly wait to hear his euphamism for the place, San Jose became San Hosebag, I'm assuming Sacto will be changed into something even more imaginative than the common "Sack'o'tomatoes".

92   SQT57   2007 Nov 9, 4:41am  

No no, Surfer didn't buy in Sacto. I just meant that he is among the buying crowd.

I shudder to think what Sacto's euphemism could end up being though...

93   SQT57   2007 Nov 9, 4:42am  

DinOr

I'm in the too-scared-to-buy-anthing-I-don't-need crowd right now. Home Despot will have to struggle along without me for the time being.

94   Peter P   2007 Nov 9, 4:43am  

RE: Home Despot

Great name!

95   DinOR   2007 Nov 9, 4:52am  

Anything you don't... need?! Some "Financial Hero" you turned out to be!

Look, you've got Free Equity! 90K of it! Don't you know the "New Rules for Finance"! Now I have this friend.... great guy. He can get you rock bottom rates...

96   Malcolm   2007 Nov 9, 5:22am  

Peter, why is it that some of the nicest people love cats? What is it with you guys? Do you just have an abundance of love in your life that you want to share it with a creature who thinks its better than you?

I saw a bumper sticker once I may have shared it before but I love it.

"I wish I could be just half the person my dog thinks I am"

97   Peter P   2007 Nov 9, 5:23am  

“I wish I could be just half the person my dog thinks I am”

I wish I could be just half the person my cat thinks she is.

LOL

98   Malcolm   2007 Nov 9, 5:27am  

good one

99   Peter P   2007 Nov 9, 5:39am  

Cats and dogs are very different creatures and they attract very different personalities.

My wife is a dog person.

One of our cats is dog-like though.

100   apostasy   2007 Nov 9, 6:39am  

@Peter P

...your morality is the competitive advantage of others.

My experience has been the opposite, perhaps your experience is industry and market dependent. Moral business ethics when well-marketed (which generally means not touting it in your marketing activities) in my experience acts as a shorthand for trust in many business settings. It is far harder in the beginning, but it leads to compounding results once it gains traction.

The reason it seems to work is because many business dealings are complex enough without having to worry about whether or not someone will screw you over. If you build and maintain an honest reputation as a straight dealer, and that reputation spreads, you will find that it short circuits a lot of activity that distrustful parties usually engage in to build trust. To my atonishment, trust also builds profits; once you build a trust network, a lot of sales gets booked largely on a trust component, and the margins are much higher because trust is intrinsically an opposing force against commoditization, a leading factor in margin erosion in my industry.

I eventually discovered that my clients were fully aware they were paying me a large premium; they simply decided that even after accounting for the premium my offerings still made financial sense to purchase because they knew that once they made the purchasing decision, they just didn't have to worry about it. The first time I was told how pleased a client was because they didn't have to worry about my offerings after purchasing, I didn't realize how signficant it was; after the fifth time a client said that I decided to look into it. Convenience has always been a key sales benefit, but I when I started my business it hadn't occurred to me that trust is a form of convenience which translates into greater profits. Especially when the convenience is linked to reputation (of my clients) and lower overall costs (due to rework for botched jobs), it is very easy to sell when the trust is pre-established.

There is a difference between moral business ethics and acting as a spineless floor mat. For example, unreasonably difficult clients will find we will deliberately bend over backwards and lose money on the account to make them happy...once. They will then find we are unaccountably busy and our rates much, much higher the next time they call us, unless we find out the management structure has been completely replaced.

We had a client who twisted a verbal promise to demo a new product into a full-blown proof of concept and evaluation commitment. We lost loads of money on that, I was no end pissed, but the product vendor's sales force never forgot us falling on our sword for them with nary a complaint (internally in the vendor the client was blacklisted as well), and now we have all the work we can handle as gratitude. Much later we found out the manager responsible for stabbing us in the back did this to other vendors; it was his way of making himself look good to the director by getting far more work out of vendors than his peers, by deliberately miscommunicating and throwing a titanic, red-faced fit over it. He shamelessly did call us back, and because we were so "busy" at the time, we were happy to introduce them to our nearest competitor.

Internally, our CRM system has that manager marked down; we will never deal with him, ever again, no matter how big the potential deal, no matter who the company is. Finally, for an extra sweet ending, for all the money I lost on that deal, I have made back to date 9 times as much in follow-on sales from the vendor's sales force who knew us from that incident, up from zero referral sales preceding the incident (even though we knew that sales force beforehand). When I started out, I shared your exact same concerns over the moral business being its' competitors' competitive advantage. This is only one of many such stories I have that convinced me that as long as there is effective and long-term accountability, the moral business actually has the edge over the long-haul.

101   DinOR   2007 Nov 9, 6:44am  

I'm so happy for SQT. Especially on a Friday, what a great way to go into the weekend. This is what this blog is all about. Research, discussion, research, execution, entry point and Pay Off!

Not to mention her taxes should be about 2/3rds of what her neighbor pays (or soon will be). It's great to know this hasn't all just been polite (and sometimes not so polite) chatter. There ARE rewards!

Hell, $135 a s/f!? That's huge! The daughter and son-in-law are supposed to stop by this evening and I was thinking... Coors? Oh HELL NO! Now I'm thinking... Corona's at least! I'm open to suggestions, and don't just limit it to beer. I want your very best Bubble Bustin' Booze suggestions!

102   StuckInBA   2007 Nov 9, 6:48am  

apostasy Says:
@Peter P

…your morality is the competitive advantage of others.

My experience has been the opposite, perhaps your experience is industry and market dependent.

I agree with you apostasy. But Peter P is our resident philosopher. He likes to pose questions in form of cryptic / discomforting / challenging / witty etc on liners.

When he philosophizes, it just means he is hungry and is craving sushi.

103   StuckInBA   2007 Nov 9, 6:55am  

Congrats SQT. And not just because you got a great deal.

104   Duke   2007 Nov 9, 7:03am  

Thank you apostasy for making concrete my ramplings for the need for business and social morality. It actually reminds me on another industry that heavily depends on this: housing contractors.

The guys who underbid on prupose to win the bid, then carefully show how everything is slightly out of the initial contract only to have massive run-ups will get business from any given client once. Once. Thus they have to spend all of their time underbidding to keep wining new clients since the have no return clients.

However, the bidder that comes with a solid reputation for being fair and reasonable can even charge a healthy premium as the down-side risk is known to not exist.

In strict terms: Contractor A bid $1k knowing he will run the job up to $2k. Contractor 2 bids $1.5k but is known to never go over his bid. Most would choose bidder 2 unless you just love the acramony of fighting the first guy to hold to his $1k bid.

105   HeadSet   2007 Nov 9, 7:13am  

Coors? Oh HELL NO! Now I’m thinking… Corona’s at least! I’m open to suggestions, and don’t just limit it to beer. I want your very best Bubble Bustin’ Booze suggestions!

San Miguel's. I can't believe you ignored that fine product!

106   Peter P   2007 Nov 9, 7:14am  

When he philosophizes, it just means he is hungry and is craving sushi.

I am hungry. :(

107   SP   2007 Nov 9, 7:20am  

Peter P Says:
which forex broker

I now go through a full-service management firm that helps me with the rest of my asset management. Their fees are a little high if you just use a specific service, but all my trades get thrown in for "free" into their basic management fee. It is a lazy solution, so may not be the best deal around.

In the past, I used an agent who used Dukascopy via Deutsche Bank's DBFX.

(Not FX advice)

108   SP   2007 Nov 9, 7:25am  

SQT Says:
we’re buying this place at $135sqft.

Congrats. Just for scientific reasons, when was the last time in the 1997-2005 timeframe was it at $135/s.f.? Curious to know how far Sacto has unwound.

109   OO   2007 Nov 9, 7:40am  

Yen 110.

I think Yen will move drastically up very soon. Time to short US indices further.

110   Peter P   2007 Nov 9, 7:42am  

I think Yen will move drastically up very soon. Time to short US indices further.

If Yen goes up, all those carry trades will begin to unwind. Watch out for positions in GBP and AUD!

Not investment advice!

111   DinOR   2007 Nov 9, 7:44am  

San Miguel! Now why didn't "I" think of that!

112   DinOR   2007 Nov 9, 7:46am  

SP,

Me too. I took a "swag" and said... 2002? Anyway you slice it, she got a pretty good deal.

113   Peter P   2007 Nov 9, 7:50am  

Anyway you slice it, she got a pretty good deal.

Anyone who can buy a long-term home with comfortable financing has a good deal.

114   HARM   2007 Nov 9, 8:14am  

@SQT,

You did very well and should feel proud, not the least bit ashamed. Sorry if any "falling knife-catcher" comments made you feel otherwise --they don't apply to the "Posse", who know a real "bargain" when they see one.

$135/sft anywhere (populated) in CA? We should all be so lucky. "Fortress L.A." (Pasadena, San Marino, South Pasadena, Palos Verdes, Beverly Hills, Westwood, Brentwood, Marina Del Rey, Santa Monica, etc.) is starting showing a few chinks in the armor, but is still far away from full-blown capitulation. I doubt I'll see anything in those areas below $250/sft for at least a couple of years, probably more.

115   HARM   2007 Nov 9, 8:18am  

People face morality versus competitve advantage decisions every day. And as more and more people feel they have to head towards to the side of competitve advantage we get the mess we are in. A system must collapse, by definition, once more and more people migrate towards the gaming brinksmanship that undermines the rules of the game.

Well said (and Google "Zimbabwe, recent history" for a real-world example).

116   Richmond   2007 Nov 9, 8:23am  

SQT,
Congratulations!
The last time I saw $135.00 sq/ft. in that region was 2001. Given cost of living since then, things would have to get pretty bad for you to lose money. And with a ten year time frame, you got it made.
And as for your neighbors, oh well - sucks to be them.

117   Peter P   2007 Nov 9, 8:28am  

Well said (and Google “Zimbabwe, recent history” for a real-world example).

My favorite golfer is a Zimbabwean. :)

118   HARM   2007 Nov 9, 8:40am  

Perhaps we can never legislate or regulate human behavior into a form of "morality" that we can all agree on 100%. However, we can most certainly design laws and regulate business in such a way as to incentivize /reward behaviors that most of us deem to be socially and economically desirable, such as: transparency, fair playing-field competition, economic productivity, promoting sane/fair compensation (that reflects individual work and achievements, not just birth lottery status), and protecting the commons (environment, air, water, etc.).

We can also regulate to dis-incentivize/punish those behaviors that we deem to be anti-social and anti-free market: monopolies/oligopolies, nepotism/cronyism, corruption, bribery, coercion, excessive pollution, artificial barriers to entry, perma-subsidies, tax loopholes, etc.

We'll never reach perfection, but we really ought to be able to do a whole lot better than we are today. I recall a somewhat more level playing field, more even distribution of wealth, more opportunities to reach a middle-class lifestyle, a somewhat less debt-addicted public & government, and a little less legislation-by-lobbyist when I was growing up. But perhaps I remember wrong. Any old-timers out there care to comment?

119   Peter P   2007 Nov 9, 9:30am  

However, we can most certainly design laws and regulate business in such a way as to incentivize /reward behaviors that most of us deem to be socially and economically desirable

The market can do all that... can't it?

120   SQT57   2007 Nov 9, 9:35am  

Awww, thanks everyone.

SP

I saw a chart that showed the Sacto region at $135 between 2001-2002. I still think we got especially lucky because most homes around here aren't really that low yet.

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