HawthorneVillager.com

from my paid source...and remember..you get what you pay for

Anyway, those two nuggets were on my mind last night when my friend in the subprime arena emailed me with this alert: "It has gone from bad to worse. Things are so bad now, it almost seems like it cannot get worse. Goldman says book value of FF [First Franklin, which Merrill Lynch purchased four months ago for $1.3 billion] is now worth $300 million at best. Goldman and several others have pulled out of second market completely. Watch for second rates to explode and thus price many out of business. I have no idea what happens next. If things went in orderly fashion, we should implode now. If the market stayed like this, the ripple effects through real-estate market would be enormous. The dominos are ready to fall. Goldman says five months before things stabilize."
When I received that email last night, I thought we might finally be in for a little "contagion," as subprime problems were starting to spread, and deemed to be serious enough that the big brokers/financial institutions were pulling their warehouse lines. (I had in fact queried him about stories I'd heard of this, and his email was in response to my query. When I looked at the charts of some of these big brokers last night, it looked like trouble was already starting.)


the real problems are those emanating from the subprime sector and starting to spread beyond it. Which obviously makes sense, in the ATM economy that I have described ad nauseam over the last few years. To repeat myself: The whole economy will be impacted when the ATM machine and its financing mechanisms begin to stumble.
Perhaps we saw a little more of that preopening, when it was reported that durable goods, which were expected to be down 3%, were actually down 7.8% (though this is just one volatile data point). Post-opening, we learned that existing-home sales were actually a little better than expected in January, though given the warm weather, I guess that's not shocking.


The real problem will be this spring, when even more people put their houses up for sale and find that they don't sell, really because buyers can't get financing. (Would-be home sellers were dealt another blow today when Freddie Mac announced much higher lending standards.) I cannot emphasize strongly enough what the change in the bowels of the ATM-financing mechanism means to the economy. There is just no quick fix to the unwinding of that credit bubble.