Bailout Treachery Sequel?

BUSINESS DAY | Five Years Later, Poll Finds Disapproval of Bailout

The simple answer is yes, there will be another bailout attempt and it appears likely that the Banks will continue to confuse things enough so that it again happens only “this time” there will be some “stern regulations”. The reason is not some esoteric financial mumbo jumbo, nor does it take brilliant economic insight — and shame on Democrats who “concede” the bailout was necessary. A little realism from my fellow Democrats in joining with Republicans on this pervasive issue might just be the stepping stone to loosening the idiotic gridlock being engineered by Republicans, who are dead right about the last bailout, and dead right about the next one.

The reason the attempt will be made is because the last one worked. The banks got trillions of dollars as compensation for creating the illusion that they had lost the entire economy. It was a lie then, it is a lie now and it will be a lie when they try it again. I agree that magicians as entertainers are worth whatever the market will bear. But I don’t agree that Wall Street bankers are entertainers and I agree with the vast majority of Americans who say the bankers or gangsters. They belong in jail. They won’t go to jail because of agreements made by law enforcement under Political pressure.

The last bailout worked because nobody understood securitization other than the investment bank collateral debt obligation (CDO) managers. If your sole source of information, analysis and interpretation is the perpetrator, it should come as no surprise that they lead you down a path that belongs in fiction, not reality. The result was we turned over the control of our currency to the bankers and we have never retrieved it. We gave them the country and indeed the world because our leaders were ignorant of the true facts and failed to ferret out the real ones, and therefore never had a chance to refute or corroborate the narrative from Wall Street.

Things haven’t changed much. Even the witnesses and lawyers for the banks in Foreclosures don’t understand securitization. When they say this is a Fannie Mae loan, everyone but me thinks that is the end of it. Nobody can answer my questions because they don’t understand them. Fannie is not a lender. If the statement is that “this is a Fannie Mae loan”, the question is how did it get that way? There are only one of two possibilities: (1) it was guaranteed by Fannie and then sold into the secondary market to a REMIC pool where in the master Trustee is Fannie and the individual trustee is the manager of the asset pool or (2) Fannie paid the loan or the loss off and is considered to own the loan even though the documents are absent showing the transfer. Either way you want to see reality — the movement of money to determine who is the lender, and to determine the real balance owed rather than the fabricated story of the subservicer.

So as long as ignorance prevails in government, there will be yet another bailout for losses that never happened on fictional transactions. Regulators will see no choice because they see no facts and have learned nothing from the last round of securitization. The new round is already underway and the stealing, lying, and treachery continues while pensioners’ money is flushed down the toilet for processing at the Wall Street money conversion plant where losses are turned into pure profit.

Whose Risk Is It Anyway?

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Editor’s Comment:

Now that securities analysts are looking at investments the way I was trained to see them, it is now possible to see the way the mortgage bond market should have operated, why it didn’t operate according to industry standards and why it is continuing to drain the economies of the U.S. Economy and the economies and societies of the western world.

There are two general types of risk in any investment. The first type is return of principal and the second type is the rate of return. The rate of return is the amount of money paid to the investor in addition to the principal. In today’s markets the two main contenders for investment money are equities (stocks) and liabilities (bonds). The price of an investment depends upon risk more than anything else: “is this price worth the risk that I will get my money back along with the targeted rate of return (interest in the case of bonds).

The inescapable rule has always been and always will be that if an issuer is seeking investment capital they must pay higher and higher interest rates for every degree of increased risk. If the risk is return of capital they are junk bonds. If the risk is that the rate of return (interest) on bonds may vary from the stated or targeted return, that too will increase the cost of capital to those issuers seeking investment capital.

My conclusion is that mortgage bonds have so destabilised the markets and confidence in the bond markets, that they are difficult to evaluate using common sense industry standards. Sure enough we see here that the slightest move away from the bonds with the absolute lowest risk of return of principal results in huge jumps in the cost of capital. And if the issuer of that bond is downgraded to a higher risk, their bonds will take a beating. Each beating amounts to a reduction in the open Market price paid for the bond — which means that the investor who bought at or near par value is now considered likely to receive less of his principal back and most probably will take a “haircut” on both principal and interest.

The obvious solution is to remove mortgage bonds from the bond Market through whatever means are necessary and to show the world that such bogus bonds will not be tolerated in the U.S. Or anywhere else. Yet we continue to kick the can down the road. Not only have we failed to give recognition to what world bankers have understood for four years — that mortgage bonds are worthless — we compound the problem by having government entities sell these “securities” under circumstances that ought to land any issuer or broker in jail.

The U.S. Government and the U.S. treasury have become co-conspirators in the largest economic crime in human history and to add insult to injury they think we are all too stupid to see it. Francois Hollander as the new president of France stands as living testimony that the people will neither be apathetic nor stupid on the issue of the Banks and finance. As leader of the socialist party, the election if this marginalised candidate sent Sarkozy packing for Hollande’s arrival on May 16, 2012, which is less time than the ordinary eviction takes in the United States.

Pretending the mortgage bonds have value is hurting us. Failing to get restitution to the victims of this fraud is hurting us even worse because it is retarding our efforts at economic recovery. And the failure of all three branches of government to assure that this fraud will end, that stolen property and money will be returned, and that criminal perpetrators will go to jail is perpetuating a widening income inequality that often presages social upheaval. If we keep going like this, the United States of America might become a confederation of regions. China will become the next bully on the block and we will all be learning mandarin whether we want to or not.

How to Play the Bond Market Now

Many pros are bracing for higher interest rates but are willing to shoulder some risk of defaults

By MICHAEL A. POLLOCK

Bond investors, pick your poison.

Interest rates are pitifully low for old standbys like Treasurys and highly rated corporate bonds. But the risk factor increases so rapidly the more one tries to reach for higher returns that it is hard these days to know how to allocate fixed-income dollars. Before investing, one has to carefully weigh and compare risks including rising rates, possible defaults, currency swings and liquidity.

To get the best balance of risk and return, the answer may be mixing various types of taxable and municipal bonds for maximum diversification.

In the current climate, many pros also suggest that investors say yes to moderate credit risk but limit their exposure to an eventual rise in rates.

Here’s how to strike a good balance between risk and reward in today’s bond market:

Know the two basic types of bond risk and how those risks compare

Many people mistakenly believe bonds are entirely safe. Actually, bondholders continually face two major threats to the value of their investments: interest-rate risk and credit risk.

The first stems from expectations that stronger economic activity will fan inflation, eroding returns on securities that pay fixed rates of interest—as most bonds do. Such worries can spark selling. And as prices fall, that pushes up yields, which move the opposite way. You might not be affected if you hold individual bonds and don’t sell before maturity, although rising yields do entail an opportunity cost: You’re stuck with low rates while newer securities would offer better returns. But if you own a bond fund, the risk is greater: Funds don’t have a final maturity and lose value as long as rates are rising.

The other key concern, credit risk, results from fears that a bond issuer can’t make interest payments or repay principal at maturity. The trade-off is higher-risk issuers have to pay higher interest to lure bond buyers, boosting investors’ income if the bond doesn’t go bad.

Robert Hall, a fixed-income fund manager at Boston-based MFS Investment Management, is among those who say it makes sense now to base bond-investment decisions more on credit risk than on rate risk.

Most bond professionals believe rates are going to climb eventually. But “trying to anticipate rates has been a losing game,” says Mr. Hall. During the economic recovery so far, U.S. rates have remained near historic lows because of strong global demand for lower-risk investments and central-bank actions to keep rates low in order to spark growth.

Assessing an issuer’s credit risk is an easier exercise, by comparison. “You can get your hands around credit risk” by scrutinizing an issuer’s financial reports, Mr. Hall says.

Some investors have been taking more credit risk this year. According to fund tracker Morningstar Inc., MORN -0.66% high-yield funds—which hold below-investment-grade, or “junk,” bonds—attracted nearly $15 billion through March. Tax-exempt and emerging-markets funds, where credit risk also plays a big role, saw good inflows, too.

To temper rate risk, climb lower on the corporate credit ladder.

Corporate bonds are rated according to perceived default risk. And the more default risk a bond carries, the less it tends to trade in sync with U.S. Treasurys. That means a portfolio of lower-rated bonds isn’t as vulnerable to any broad rise in rates.

Currently, 10-year investment-grade corporate bonds yield around 3%, or about one percentage point over 10-year Treasurys. That yield premium doesn’t adequately compensate for the principal loss they could suffer if rates were to spike, says Mr. Hall of MFS.

He arrives at this conclusion by doing some basic bond math. This involves computing a bond’s so-called duration, or interest-rate sensitivity, which is determined by its yield and time left until maturation. For a highly rated 10-year corporate bond, the sensitivity measure is about 7. If you multiply 7 by a hypothetical percentage-point increase in yields, you get the amount by which the bond’s price is likely to fall in response.

So, for the 10-year corporate in question, if rates rose by one percentage point, the impact would be a 7% decline in the value of your investment before any interest is paid.

But if you move lower on the ratings ladder to double B, the top tier for high-yield, below-investment-grade bonds, you’ll get around 6% to 7% in yield and a rate sensitivity around 4. If yields rose one percentage point, such bonds might still have a positive return after interest.

Another reason to own lower-rated corporate issues is that default risk has been falling, says Sabur Moini, a high-yield bond manager at Payden & Rygel, Los Angeles. As more investors have warmed to lower-rated bonds, their issuers “have done a very good job at reducing debt, keeping costs low and building up cash balances,” he says.

Mix in some municipals for possible tax savings.

Last year, muni prices plummeted as investors fled the sector amid fears of surging defaults by financially strapped local governments. Now, although prices have recovered somewhat, munis still offer very good value, says Dan Genter, who heads RNC Genter Capital Management in Los Angeles.

The interest that munis pay is exempt from federal income tax, and generally also from state tax in the state of issuance, so munis historically have yielded only about three-fourths as much as taxable Treasurys. But in an unusual situation, munis now yield about the same as Treasurys. That makes them cheap—not only to people in the top tax bracket, but to everyone, says Mr. Genter.

At around 2.5%, the current yield of top-quality, intermediate-maturity munis is the after-tax equivalent of nearly 4% on a taxable bond for an investor with a 33% marginal federal tax rate. The after-tax equivalent could be higher if federal tax rates increase next year, as scheduled under current law.

As muni investors have been focusing more on credit risk, the market has been trading less in sync with Treasurys. That means munis other than those with long maturities could offer some protection against any broad rise in Treasury yields, says John Miller, co-head of global fixed income at Chicago-based Nuveen Asset Management.

Illustrating the divergence, Nuveen All-American Municipal Bond returned 5.1% in the first four months of 2012, even after Treasury rates blipped higher in March. In contrast, the iShares Barclays 7-10 Year Treasury IEF -0.02% ETF returned just 0.6%, according to Morningstar.

Own emerging-markets bonds for yield and diversification.

Bonds of emerging-markets nations such as Brazil and Malaysia have yields five percentage points or more above those of government bonds in developed countries. And owning such bonds essentially means you are lending money to governments that are in a stronger position to repay it than governments of many developed countries, says Robert Stewart, a managing director and emerging-markets specialist at J.P. Morgan Funds in London.

The chief downside to these bonds is their volatility. These nations may have stronger growth prospects and smaller debt burdens than the U.S., for example. But at times of financial uncertainty, investors tend to rush back to the perceived safety of U.S. Treasurys.

Last September, as Europe’s financial woes prompted a flight to safety, the average emerging-markets bond fund tracked by Morningstar posted a negative 7.5% return for the month.

The answer for many investors is to add a modest helping of emerging-markets bonds to your plate—perhaps around 5% to 10% of your overall bond allocation, says Mr. Stewart.

Volatility-averse investors should choose a fund that invests mostly in U.S. dollar-denominated bonds because in uncertain times, bonds denominated in local currencies may be hurt more by flight to safety than those issued in U.S. dollars.

For instance, about 90% of the bonds owned by TCW Emerging Markets Income are denominated in dollars. The fund, which yields 6.5%, has large holdings of bonds issued in Brazil, Mexico and Russia.

To simplify things, consider funds with a diverse mix of securities.

Because institutional players dominate the credit markets, people with less money to invest who want credit exposure are usually better off owning mutual funds than individual bonds. Funds offer much better liquidity than individual corporate bonds, meaning that it is easier to buy and sell a position.

You could get moderate credit exposure through a fund in Morningstar’s multisector bond-fund grouping. Such funds invest in a mix of U.S. government, corporate and high-yield securities and periodically adjust holdings based on market conditions and manager expectations. Multisector funds also may have some holdings of non-U.S. bonds.

Among strongly performing multisector funds, Loomis Sayles Bond recently had about 60% of its holdings in corporate debt securities for an average portfolio credit rating of double-B and a moderate interest-rate sensitivity of 5.5. The fund also had about a third of its portfolio in non-U.S. securities. Over the 10 years through April, it ranks in the top 6% of Morningstar’s multisector group, with an average annual total return of 10%.

Michael Collins, who oversees multisector fund strategies at Prudential Investments, believes it is unclear whether U.S. rates will rise significantly in the near future. Still, in the funds he helps manage, Mr. Collins has been loading up on high-yield bonds because of the cushion they can provide against rising rates. Says Mr. Collins, “High-quality bonds don’t pay much, and you potentially have a lot of downside there.”

U.S. TREASURY IS THE CREDITOR AND CO-CONSPIRATOR

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM

GOVERNMENT IS PAID TO LOOK THE OTHER WAY

EDITOR’S COMMENT: The U.S. Treasury is reported to own $4.6 TRILLION in mortgage bonds, which would make it the creditor in millions of homes that (a) have already been “foreclosed” (b) are in “foreclosure” or (c) going to be foreclosed. Yet not once in any court action is the U.S. Treasury named as the creditor or having any interest in any mortgage. They paid 100 cents on the dollar  to save the big powers on Wall Street (ignoring the smaller players who had played fair and square) and now they are going to test the market by starting to sell these mortgage bonds back into the marketplace.

[PRACTICE SUGGESTION: UNDER FREEDOM OF INFORMATION OR SUBPOENA, GET THE DETAILS AND DOCUMENTATION OF THE DEALS IN WHICH THE U.S. TREASURY ACQUIRED THOSE “ASSETS”]

So if you want to know why the government’s programs have been so anemic in confronting the fraudulent, illicit and  immoral behavior of Wall Street and the pretender lenders out there foreclosing on homes they never financed, you don’t have to look any further than the $4.6 TRILLION that the government says it is holding in mortgage-backed bonds that are backed by fatally defective and fraudulent mortgages and notes.

If the government were to tell the truth the way Elizabeth Warren says should be done, then the government would have to admit that (a) under the best case scenario they spent 100 cents when the speculative value was only 2-3 cents and (b) there is something fundamentally wrong with the mortgage backed bonds and the underlying fatally defective, fraudulent mortgages and notes. THAT WOULD AMOUNT TO ADMISSION THAT THE TAXPAYERS GIFTED $4.6 TRILLION TO WALL STREET.

To put this into perspective: 7 million homes have been fraudulently sold at auction on credit bids submitted by non-creditors. Not one penny was paid at these auctions nor any money before that because the bidder never lent any money nor did they purchase the receivable. The bidder was paid as a stand-in for the undisclosed and potentially unknowable creditor just like the “loan originator” was paid to stand in as the lender.

Applying the $4.6 TRILLION from the U.S. Treasury to cover losses to investors and homeowners caused by fraudulent appraisals, fraudulent ratings, and deceptive lending practices, (instead of giving the money to Wall Street) would have allowed an average of $657,142 to be applied on each so-called mortgage transaction providing more than enough to provide substantial relief to investors, and correcting the bogus loans to fair market value levels, thus leaving the investors where they intended to be and the homeowners where they intended to be. Oops!

Instead, the U.S. Treasury maintains the illusion of authenticity of the mortgage bonds and the mortgages, obscures the identity of creditors in foreclosures, and continues to indirectly prop up balance sheets of mega institutions on Wall Street. The true value of the Citi group is not $129 Billion as reported but more like a negative figure. Let it fall, and do what is right for investors and homeowners and the economy is largely fixed. Continue with current policy and our credibility in world markets will continue to erode. I’m not the only one who figured this out. Central Bankers and world economists understand this perfectly well.

It’s not too late. Don’t sell the bonds. Use them to make things right with investors and homeowners and go after the assets of the mega banks including the off-shore money that management took in the tier 2 yield spread premium that nobody wants to talk about. There management cheated not only investors and borrowers, but stockholders as well.

BBC: US Treasury to sell $142bn of mortgage assets

US house for sale The US housing market is still fragile

The US Treasury has said it will start selling off $142bn (£87bn) worth of mortgage-backed securities that it bought during the financial crisis.

It said it would look to sell up to $10bn worth every month and expected to generate a profit of between $15bn and $20bn from the sales.

The money will help to reduce the government’s high budget deficit.

The Treasury bought the securities in 2008 and 2009 as part of its attempts to combat the financial crisis.

“We’re continuing to wind down the emergency programmes that were put in place in 2008 and 2009 to help restore market stability, and the sale of these securities is consistent with that effort,” said assistant treasury secretary for financial markets Mary Miller.

“We will exit this investment at a gradual and orderly pace to maximise the recovery of taxpayer dollars and help protect the process of repair of the housing market.”

The government stepped in to buy the mortgage-backed securities when investors began lose confidence in the instruments when the housing market slumped during the financial crisis.

The housing market is still fragile in the US, with figures released on Monday showing a fall in existing home sales in February of 9.6% compared with the previous month.

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