Wednesday, January 30, 2008

Keep Your Hands Inside The Car - The Financial E-Ticket Ride Is About To Begin

Sources close to the situation indicate the Institute For Economic Reality is preparing to issue a CRASH-CON 1 rating.

This letter has the potential to start the chain-reaction of financial implosion in the United States.

Ernst Stavro Bloviator was asked how people should prepare for the coming carnage and what would be a safe investment.

"Short the phonebook. It's too late to sell your overpriced Bainbridge real estate."

Further updates as time permits. The IER is busy preparing for CC-1 and will update this station as scheduling allows.

Until then, you are reminded to keep your crash helmet at the ready.

We now return you to the indecypherable display of fiscal incompetance that Wall Street/Washington has forced upon us.

Tuesday, January 22, 2008

Stand Down From CRASH-CON 1

The Institute For Economic Reality has cancelled its CRASH-CON 1 rating after the US financial markets stabilized when the Federal Reserve lowered the Federal Funds Target 75bp to quell the abject panic in the US markets.

Ernst Stavro Bloviator, Senior Fellow at the IER, issued the following statement:

"Today was a contest to see who would panic loudest, and the Federal Reserve won. Either the Federal Reserve member banks have had a complete collapse in commercial lending, or the FED has gone insane. Either choice is not good for the long-term health of the financial markets. Market activity in commercial credit will be interesting to watch in the next few weeks."

"I am sure that some of the dim bulbs that sell real estate will be chirping about how this solves their problems. My challenge to them is to show the linkage between the Fed Funds Target and mortgages and consumer credit. It isn't there, but they will insist it is."

The IER has reduced the CRASH-CON alert system to CC-2B, and could issue a CC-1 at anytime. People are advised to keep alert for deterioriating fundamentals.

We now return you to the mindlesss speculation and historical ignorance that created this problem in the first place.

Monday, January 21, 2008


Poulsbo (IER)- The Institute For Economic Reality, a one-man think-tank, based in Poulsbo, Washington, has upgraded the Crash-Con rating system to CRASH-CON 1, citing worldwide stock market plunges over the King Holiday in the United States.

People would be well advised to prepare for major swings in market averages, and the potential for a short-lived "Bear Market Rally" that should last until early next week, before plunging further.

IER Senior Fellow, Ernst Stavro Bloviator, issued the following statement with the CC-1 rating:
"It appears that the investing public is starting to connect the dots between bond insurance defaults and overall market risk. This could not have come at a worse time for the Babyboomer Generation, as their eldest members are now approaching their peak asset accumulation years. Come to think of it, their peak asset earnings may have come and gone on October 10th, 2007."

"The overrepresentation of Babyboomers in Bainbridge Island real estate ownership, sales, and management will likely make this asset class particularly vulnerable to this market eventuality."

Stay tuned to this channel for further updates. We now return you to your regularly scheduled crash, already in progress.

Thursday, January 17, 2008


Poulsbo (EB) - The Institute for Economic Reality has raised its CRASH-CON rating from CRASH-CON 2 to CRASH-CON 2 - LEVEL Bravo. The IER has been tracking the rapid and relentless deterioration of the financial network of the United States, and has concluded that the next level of awareness must be set.

The IER issued the upgrade from CC-2 to CC-2B, which is a heightened state of CC-2, but not quite a full-blown crash warning. Take the time to prepare. Get in cash. CC-1 will likely come before April.

Earlier today, AMBAC (ABK) was warned by Moody's that it's AAA rating might be in jeopardy.

Moody's Investors Service has placed the Aaa insurance financial strength ratings of Ambac Assurance Corporation and Ambac Assurance UK Limited on review for possible downgrade. Moody's also placed the ratings of the holding company, Ambac Financial Group, Inc. (senior debt at Aa2), and related financing trusts on review for possible downgrade. Moody's stated the rating action follows Ambac's announcement of record losses, a capital raising plan, and the retirement of its CEO.

The IER believes that once the monoline insurers of structured debt get downgraded, the financial instruments they insure will also be instantly downgraded. Given that these insurers are ridiculously undercapitalized, it will only take a default in one or two percent of these insured obligations to fully bankrupt the insurer.

At that point, we roll back to the 70s in terms of our finances - if we are lucky.

Big Bank A has $100B worth of structured debt on its balance sheet. It carries these assets at full value of $100B, and carries no reserve against their default.

Why no reserve?

They don't need reserves because they have insurance in the form of a CDS (credit default swap) that is issued by another large financial institution.

They have reserves, right? Nope. They have insurance.

The insurance company has reserves, right? Wrong. That's why the monoline insurerers have lost 90% of their value in 3 months. ABK lost 60% on this morning's opening trade, and it is still AAA rated!

So, what is backing up the debt? Bank reserves? Nope, they have insurance. Insurance reserves? Nope. They are undercapitalized. The insurer has a signature that says the debt is AAA.

Bank A's $100B is backed up by two signatures and the full faith and credit of the insurance company.

At least when the US government issues debt on "full faith and credit," it has 8,000 nuclear warheads, 12 carrier groups, and 110,000 IRS agents to carry through on that promise.

So, if the mortgage backed security defaults, because we actually come to find out that real estate, even Bainbridge Island real estate, can go down in value, and this causes people not to pay on a depreciating asset, and the bank eats all the depreciation due to lax lending, what happens?

CDO defaults.
Bank makes claim to issuer of CDS (credit default swap).
CDS writer can't pay.
CDS writer makes claim to insurer.
Insurer can't pay.

Original bank now has to dip into reserves to pay. This results in massive writedown of company assets. Now, BANK A is insolvent and suing BANK B (CDS writer) who is now insolvent, who sues insurer, who is out of business.

BOOM! Down goes Frasier! Down goes Frasier! Down goes Frasier!

The entire US banking system goes "poof" in a chain-reaction of bad, uncollateralized debt explosion.

This is not some freaky, tinfoil hat theory. This is Wall Street circa 2008. This is happening right now.

The entire expansion of credit (money) in the past 6 years has been driven by this kind of uncollateralized debt that is called "collateralized debt." The collateral is nothing more than a signature. The assumption was that, "real estate always goes up."

If that were true, none of this would be happening. Unfortunately, it isn't true and we are now going to pay dearly for believing a lie.

We now return you to your regularly scheduled financial immolation...already in progress.

-Ernst Stavro Bloviator,
Senior Fellow, IER.

Oh, and if it was not enough that the US financial system was resting on dumb, debt-laden "home owners" who believed their RE agent's line of BS...

If you really don't want to sleep for a week, read how safe your
"insured" deposits
are at your favorite deposit institution.

2008 will be the year nobody forgets.

Saturday, January 12, 2008

Shotgun Wedding: Wall Street Style

Well, the eventuality of Countrywide finding the end of its rope finally came. For those who are surprised by this, I would like to warn you that a large bright light will appear on the Eastern horizon in the early morning. Don't worry; it is supposed to happen. Seriously, this was as predictable as the sunrise.

Earlier this week, Countrywide was rumored to be preparing for bankruptcy. Naturally, the company officially denied it. A day later, Countrywide was in talks to be purchased by another likely insolvent puking dog - Bank Of America. This rumor was true.

I actually believe that the CFC BK rumor was genuine and they were preparing to file. It fits. It makes sense. We all know it. That's why The Tan Man looted the company over the past year. Actually, Countrywide is just the first bank in the conga line to federal bankruptcy.

Now, the press would want us to believe that Bank Of America sees value in Countrywide. Perhaps they see this in the servicing portfolio, but when you buy the company, you buy everything, including the crap and the legal exposure.

Why do this if you can get it cheaper in bankruptcy court?

Good question (if I say so, myself).

Well, if you are holding several tens or hundreds of billions of dollars of financial toxic waste on your balance sheet, and you just had your financial results certified for your upcoming annual report to the SEC, the ABSOLUTE LAST THING YOU WANT is for the value you assigned to your assets to be marked at 20% of what you say they are worth.

So, here is my theory on how the Countrywide buyout went down.

Try this scenario:

Countrywide General Council: Moz, we are in trouble, and we won't make it through the end of January. You gotta declare BK.

Tan Man: Getouttahere! We are just fine.

CWGC: Nope. Accounting says we are down to pawning our toner cartridges and your suits. Your suits only pawn in Miami and in Tijuana, so that leaves us with the toner.

TM: No kidding? Hmmm...

(places phone call to airport)

TM: Hey! This is Moz. Get my G-IV fired up. Destination? Hawaii.

CWGC: Moz, I don't think that will work. You are going to be the posterboy for the entire mortgage mess. Think Ken Lay...

TM (talking to airport): Hey! You still there? Make the destination Paraguay via the Caymans.

TM (to CWGC): Paraguay doesn't extradite, do they?

CWGC: How about dealing with the situation. You can reorganize the company, but you will probably be out.

TM: What then?

CWGC: You will probably be indicted on any number of fiduciary violations and SEC infractions.

TM: ...and?

CWGC: Does a public disembowelment mean anything to you?

TM: Prison?

CWGC: Possible. They didn't get Ken, so they are going to be looking for someone else.

TM: White collar?

CWGC: No. Federal "pound-me-in-the-ass" prison. No tanning bed, and I don't think you will like the pinstripes they wear in that place. (thinks to himself) Yeah, but the suit will be an improvement.

TM: No kidding?

CWGC: No kidding.

TM: Hmmm...I have an idea. (pages secretary) Get Paulson on the phone.

(5 mins elapse)

Secretary: Mr. Mozillo, Hank Paulson on line 2...

TM: Hank, how are you doing?

HP: T-t-t-ter-rr-rr-ible. Markets are going to crash next week when the financials report. We are out of tricks and Bernanke is being an academic.

TM: Hey, "we" have a problem.

HP: Skin cancer? Sorry to hear that.

TM: NO! you idiot. We are bankrupt.

HP: Yes, we have been bankrupt since the first Bush Administration.

TM: NO! Countrywide is bankrupt.

HP: Really? Can't you hide it?

TM (looking at CWGC who is shaking head): Uhhh...not this time. It's not like August.

HP (puts TM on hold and pages secretary): Can you get the Paraguayan Ambassador on the horn. I might need to move the family. Also, get me the customer service desk at Banco Cayman...and the Goldman Sachs Derivatives Desk on a scrambled line.

HP (takes TM off hold): S-s-sucks to be you.

TM: No, Hank. I don't think you get it. It sucks to be "you."

HP: How so?

TM: Picture this..."mark to market", "acceleration event," and "bank run." We got lots of stuff that is level 3.

HP: (silence)

TM: Are you hearing me? Is this going in, Hank? Do you understand what I'm talking about? If I go to BK, all my toxic waste gets marked to market, which is zero.

HP: (silence)

TM: You there? How would you like all the financials to report earnings and have marked their waste well above what I am about to report. It would ruin the entire industry.

HP: (big thud as he falls out of chair)

TM: How about this. You need to find someone to buy this crap and do it without using the open market. I've got an appointment at Malibu Tan, so I can't do it. Thanks, Hank, you are a pal.

HP: Th-th-that's n-n-not m-m-my j-j-j-j-job.

TM: OK Hank, have it your way. (hangs up phone)

TM (to CWGC): Float a rumor that we are about to declare BK. Do it in an unofficial way that we can deny.

CWGC: No problem. (leaves room)

TM goes to Malibu Tan.

[[later that afternoon]]

CW secretary: Hello, Countrywide Executive Offices, can you hold?

HP (shouting): I WILL NOT HOLD FOR ONE...

CWS: Thanks for holding, how can I help you.

HP: I need to speak to The Moz ASAP!

CWS: Whom may I say is calling?

HP: Hank Paulson. Page that overgrown pimp right now or the IRS will probe every orifice in your rotting corpse!

CWS: Please hold.

CWS (to Moz): Mr. Mozillo, Hank Paulson on line 2.

TM: Hank! Good to hear from you.

HP: You slimy, overaged, melonoma ridden pimp! What in the world are you doing with leaking that you are going BK? Did you see what that did to the markets? I've got more crap coming down the next two weeks than you can possibly fathom.

TM: Hank, calm down...Do we have a deal?

HP: Yes. I had a raging party out in the Hamptons and got video of Lewis and a goat.

TM: Convenient.

HP: Here is the deal. You "officially deny" your BK rumor and BoA buys your rancid company and keeps your trash off the street.

TM: I want IRS immunity...and $115million...and use of the G-IV...and free tans for life...and a gift certificate for "Guido's Custom Apparel of Brooklyn."


TM: That's very unbecoming of you. Perhaps I should just retire right now...

HP: NO NO NO!!! OK, you win. You get the pimp suits.

TM: Thanks Hank. I always liked working with you. Tell Kenny Lewis that I want an up-front parking spot. Good day, bro.


How likely is it that this was orchestrated to keep Tan Man's junk off the market? BOA would have lost a minimum 10X what they paid for CW if it was marked to reality. So would everyone else. The financials all report next week and their reports would have been a prelude to a system-wide bankruptcy, had they marked all their assets to market, rather than to the fantasy they now are valued.

This is a shotgun wedding, where Mozillo was wearing the wedding dress, but the BoA shareholders ended up being the bride.