Subprime Primetime

Copy of letter to Senator Mikulski on Subprime meltdown and one rescue by German Government, yes RESCUE!


Hello Senator Mikulski,

I called your office yesterday to alert you to the ongoing problems with the mortgage industry in the US. I urge you to call the Treasury and Fed and request they take action to halt the meltdown of the mortgage industry.

The problems at hand are not unlike the meltdown in 1998 of Long Term Capital. Tuesday American Home Mortgage reported they failed to fund $650 million in promised mortgages to Americans on Monday & Tuesday. This is likely to have continued with millions of promised mortgages not going to closing because of Wall Street’s refusal to further fund mortgage companies.

Basically, Wall Street firms, in their infamous greed, managed to shift 40% of the home mortgage business to themselves over the past 5 years. Unfortunately, these firms are not banks so they depend on investors to provide the capital to fund mortgages. In addition, mortgage companies were financially incentivised to put higher and higher interest loans up for sale to beef up the fees and interest rates on the products Wall Street then sold.

The entire cycle will be looked on in the future as a great travesty on the American public with fraud and greed of Wall Street preying on potential homeowners as a way for them to cash in on rising property values around the country. Wherever there is money being made in this country, Wall Street will find a way to securitize it and make money off of it. This is what free market capitalism is about, OK, but when unregulated investment pools creep into the regulated economy of the American homeowner with Wall Street firms acting as the middleman you get a foul stew to say the least.

To have several of the top 10 mortgage companies in the US facing bankruptcy because the firms that funded them until now have forced massive write downs on their mortgage portfolios held as collateral causing them to have to put up more cash then they have on their books is wrong and poses grave risk to the entire debt markets.

Our nation unfortunately is founded on debt, period. To have the debt markets collapse in any category is dangerous and requires immediate attention by those at the highest offices in the US.

You may recall the letter I sent to you echoing my concerns to Mr. Paulson to pay attention to the debt markets and not to pay attention to Sarbanes-Oxley. Now my words ring true and I urge you to force action on Wall Street to fund these companies and stop the dominoes from falling.

Sincerely,

Patrick Henry

Ps: Please find this piece from the FT today where the German Government has intervened to stop an investment firm from collapse in that country.

Germany rescues subprime lender

By Our International Staff

Published: August 1 2007 21:49 Last updated: August 2 2007 00:40

US mortgage turmoil hit investor confidence on the other side of the Atlantic on Wednesday as details emerged of a German government rescue of a domestic lender that suffered heavy losses on subprime investments.

The rescue of IKB, a specialist lender based in Düsseldorf, began on Sunday when Peer Steinbrück, German finance minister, called top banking executives to discuss a bail-out. According to people who took part in the conference call, Jochen Sanio, head of Germany’s financial regulator, is said to have warned of the worst banking crisis since 1931.

IKB surprised investors this week with a profits warning after a multi-billion euro fund it managed was hit by problems stemming from its US subprime exposure. The news sent its shares plunging and prompted KfW, the state-owned development bank, to step in with a pledge to guarantee obligations of more than €8bn ($10.9bn) – more than five times IKB’s stock-market value.

The further government intervention suggested that the problems at IKB were much worse than thought. Mr Steinbrück phoned several banking executives – including Josef Ackermann, chief executive of Deutsche Bank – on Sunday to bring them on board.

Deutsche Bank, Commerzbank and other German lenders are taking a 30 per cent stake in a rescue fund worth €3.5bn, FT Deutschland, the Financial Times’s sister paper has learnt, with the rest shouldered by KfW.

The report on the German intervention came as more bad news from hedge funds and the housing sector roiled markets.

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