Subprime Nightline
Monday, November 26, 2007
Maybe it was the holiday shortened week or maybe someone slipped something into somebody's coffee, but Nightline reporters Vicki Mabrey and Eileen Murphy seem as clueless as subprime "victim" Edward Jordan in this Nightline report from last week.
Come on Nightline, you're supposed to be one of the smart ones! What is this?
In another sad story about another homeowner who might lose their home due to the ever-widening mess that is the U.S. mortgage market, these Nightline reporters merrily skip past the "elephant in the living room" in Mr. Jordan's housing story:
Yes, they were probably just looking for yet another story about the subprime mortgage mess, but, jeez, maybe it would have been appropriate to say a word or two about the irresponsibility of the owner who has clearly lived beyond his means for many years.The opening segment of the report makes clear where the blame should not lie - after all, when you think about it, everyone is entitled to their own goldmine as long as they own their own home.
Edward Jordan should be sitting on a goldmine. Thirty years ago, when others saw poverty and crime in the Bedford Stuyvesant section of Brooklyn, N.Y., he saw opportunity. He bought a four-story brownstone at auction for $30,000; since then, he says, property rates have gone "through the roof."
The difference between a goldmine and real estate is that, unless you sell your house, the only way to get at all that money is to take out a loan - an important distinction that seems lost on both these reporters.
Jordan should be set for life, with his investment now appraised at $750,000. Instead, he's holding a financial time bomb that threatens his golden years and his only economic asset.
It seems that about 90 percent of the comments for the online version of this story point out the personal responsibility deficiencies in this report. It's actually kind of refreshing to read through some of these comments - maybe there is some hope.
In a partial defense of Ms. Mabrey's work, she did do a good job of bashing Angelo Mozilo of Countrywide Financial and, during a discussion about incentives with a former Countrywide employee, asked whether there were ever any contests to see who could sell "the most fixed rate loans that were best for the customer". It sounded like she was joking, but, then again, maybe she wasn't.
Vicki and Eileen - you two may have some 'splainin to do when Martin Bashir and Terry Moran get back from their holiday break.
2 comments:
1000% hedge fund wins subprime bet
By James Mackintosh in London
Published: November 25 2007 22:20 | Last updated: November 25 2007 22:20
A Californian hedge fund has made more than 1,000 per cent return this year by betting against US subprime home loans, making it one of the world’s best-performing funds of all time.
Lahde Capital, set up in Santa Monica last year by Andrew Lahde, last week passed the 1,000 per cent mark, after fees, following the latest leg of the credit market turmoil. The fall in the value of subprime-linked securities has boosted a group of funds which spotted the problems in advance.
The decision to use derivatives to short, or bet against, low-quality US home loans taken by a select group of hedge funds last year appears to have become the most profitable single trade of all time, making well over $20bn in total so far this year. John Paulson’s New York-based Paulson & Co, the biggest of the group with $28bn under management, is said by investors to have made $12bn profit from the trade already.
However, Mr Lahde, whose fund is one of the smallest specialists shorting subprime, has now begun to return money to investors, telling them in a letter: “The risk/return characteristics are far less attractive than in the past.”
In his letter, Mr Lahde said he expected the collapse in value of subprime mortgage-linked securities to be repeated for bonds backed by commercial property loans in a deep recession – which he also predicts.
“Our entire banking system is a complete disaster,” he wrote. “In my opinion, nearly every major bank would be insolvent if they marked their assets to market.” He also said he would be putting some of his own profits into gold and other precious metals.
Mr Lahde has used the phenomenal returns to boost his business, launching a fund to bet against commercial real estate this autumn – which made 42 per cent in its first two months – and is in the process of creating a third fund to short credits with a broader mandate.
Lahde’s first fund, US Residential Real Estate Hedge V Class A, soared 712.8 per cent in the year to the end of October, before this month’s sell-off pushed it past the 1,000 per cent mark.
There is no reliable data on how many other funds have made 1,000 per cent, or ten times the investment, in a year. But RAB Capital, London hedge fund manager, shot to prominence in 2003 when it returned 1,475.5 per cent in its Special Situations fund, which now runs $2.4bn and is the biggest shareholder in troubled bank Northern Rock.
Bigger subprime top performers include Paulson’s Credit Opportunities fund, up 550.8 per cent to the end of October, and the Subprime Credit Strategies fund run jointly by Texas-based Hayman Capital and Corriente Advisors, up 526.5 per cent.
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