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[I'll explain this as best I can. Financial types please forgive ignorance.]
JP Morgan is going to buy WaMu. As part of that, they're having a conference call tonight, presumably to explain the deal. They posted their presentation materials online, including a breakdown of projected "loss" on the home loans. They break it down by California, Florida and US; current to bottom and peak to bottom. They also break out differences in projections for no recession to severe recession.
Anyway, thought it might be useful and/or interesting:
Basically, they have no concluded the obvious. Prices are going to return to their inflation adjusted pre-bubble prices. If there is a bad recession, they they will return to their pre-bubble nominal prices.
Apparently the financial institutions just met Captain Obvious.
Unless you can see the underlying data they used to get these numbers, it's impossible to analyze it. And another thing: the psychology of the market is so totally chaotic right now there's no way to properly weigh the numbers anyway. Everyone is too emotional, almost irrational. I'm still reeling from the idea that Henry Paulson got down on one knee before Nancy Pelosi. Bizarre.
If you want to look at some info that's really illuminating, take a look at the Wikipedia articles on financial panics in America. I was a history major in school, and I never knew we had been through so many of these in the past. The panics themselves are generally very short, just a couple of months of mass insanity, followed by an economic hangover that lasts anywhere from one to ten years. Behavioral economics people think it has something to do with human hature, and can't be totally prevented.
Anyway, IMO this JP Morgan chart looks like the typical EOTWAWKI stuff you get at the height of a panic. And you also have to question their motivation. JP Morgan is evidently in a position to pick up assets at cheap prices. Spreading doom and gloom is self-serving-- they benefit by keeping confidence down, as long as they can control the panic. It's an extremely risky play, but it's not the first time in history that the house of Morgan has tried to manipulate the markets. Nobody on Wall Street ever does anything with perfect honesty, or selfless kindness. It's about the money, always.
Nobody REALLY knows what's going to happen. The JPMorgan projections look reasonable for a worst case scenario - given the massive increases in home prices over the last decade. And I would hope that any company taking over a risky asset like WAMU would consider the possibility of doom and gloom. Indeed, I would have been worried if JPMorgan would not have considered these possibilities!!
Orange County home prices are destined for a huge fall, perhaps 40%+ from the current value. The economy here is terrible and this area is ground zero for all the exotic loans that were made in the last few years. If you look at all the listings on the MLS for OC right now you see that most of the listings are all underwater! These will just end up as REOs at fire sale prices sooner or later.
Unless you can see the underlying data they used to get these numbers, it's impossible to analyze it. And another thing: the psychology of the market is so totally chaotic right now there's no way to properly weigh the numbers anyway. Everyone is too emotional, almost irrational. I'm still reeling from the idea that Henry Paulson got down on one knee before Nancy Pelosi. Bizarre.
If you want to look at some info that's really illuminating, take a look at the Wikipedia articles on financial panics in America. I was a history major in school, and I never knew we had been through so many of these in the past. The panics themselves are generally very short, just a couple of months of mass insanity, followed by an economic hangover that lasts anywhere from one to ten years. Behavioral economics people think it has something to do with human hature, and can't be totally prevented.
Anyway, IMO this JP Morgan chart looks like the typical EOTWAWKI stuff you get at the height of a panic. And you also have to question their motivation. JP Morgan is evidently in a position to pick up assets at cheap prices. Spreading doom and gloom is self-serving-- they benefit by keeping confidence down, as long as they can control the panic. It's an extremely risky play, but it's not the first time in history that the house of Morgan has tried to manipulate the markets. Nobody on Wall Street ever does anything with perfect honesty, or selfless kindness. It's about the money, always.
Here's your saltshaker.
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I think those numbers are reasonable
Good post!
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