John Wasik

Bleak fall of the $100 billion mortgage bubble

Oct 29, 2010 17:05 UTC


We’re entering the “Bleak House” period of the mortgage bubble. The action has shifted to the courts. Worse, it will drag on for years and cost hundreds of billions of dollars.

As with Dickens’ mid-19th century tale of the English legal system, lawyers become enriched and families and communities get shattered one court file at a time.

So, what will the courts discover in our mortgage mayhem? That thousands of documents were ill prepared and possibly fudged because Wall Street couldn’t wait to get their hands on them for securitization. It was all about the bond market, stupid. Mortgages literally became back-of-the-envelope ways to get rich.

How much will this cost investors, banks and middlemen? I’ve seen estimates of $100 billion, although it certainly will be more if it swiftly envelopes mortgage and title insurers like Ambac, Assured Guaranty, MBIA and others; banks like Bank of America, Citigroup, Wells Fargo, et al; and mortgage servicers and ratings agencies like S&P, Moody’s.

To see what’s going on, I visited the nation’s largest unified court system in Chicago’s Cook County. To say that the chancery court, where foreclosures are heard and decided, here is swamped, as it is in other cities, is like saying the Pacific Ocean has a few drops of water.

A ‘pure’ savings plan for college can still work

Oct 25, 2010 17:18 UTC

A graduating senior waves as she arrives at the commencement for Barnard College, where U.S. Secretary of State Hillary Clinton spoke, in New York, May 18, 2009.  REUTERS/Chip East You can still put aside enough money for college if you save. Is this the latest American myth?

According to reader Bill H., a “pure” savings approach worked for his children. It also helped they were good students, obtained scholarships and went to state schools.

“When my kids were born I just started putting money away,” Bill tells me. “Mainly, I would save the entire paycheck from any outside income I had…I usually had about $3,000 a year in outside income.”

How I beat Yale’s David Swensen

Oct 19, 2010 11:34 UTC

YALE/INVESTMENTIt’s not every day that one’s portfolio beats David Swensen, the great money manager of the Yale endowment.

According to the blog Seeking Alpha and MyPlanIQ, that’s what I did over the last year with my humble “Nano” portfolio. How is it possible that I (narrowly) beat Swensen’s portfolio, the product of a man widely considered to be one of the best institutional money managers in the world?

Created in 2006, the Nano is about small expenses, simplification and asset classes that don’t always move in the same direction. There are only five funds in it (see below), and I spread out my money evenly — 20% in each fund. I tried to cover most stocks and bonds with some real estate and Treasury Inflation-Protected Securities (TIPS).

Hollywood’s Hagman un-fleeces Wall Street

Oct 15, 2010 20:43 UTC


It would be great if investors who got fleeced by a bad broker got most of their money back like Larry “JR Ewing” Hagman.

The actor who played the rapacious Texas oil baron got more than $11 million in damages and legal fees from Citigroup’s Smith Barney brokerage (now run by Morgan Stanley) unit in a securities arbitration award. Despite his instructions to the contrary, his broker had shifted most of Hagman’s portfolio into stocks, which got burned in the 2008 meltdown. Citi denies any wrongdoing.

Yet Hollywood is not Main Street. Not by a Texas mile. Most investors aren’t made whole when burned by brokers, nor do they reap punitive damages. Most are offered — and agree to — settlements from the brokers.

Don’t hold your breath on home appreciation

Oct 11, 2010 10:23 UTC

FINANCIAL/MORTGAGESYou may see two full moons in a month before home prices start rising again across the U.S. The rip tide of a huge home inventory, increasing foreclosures, unemployment and more bank woes continue to roil the housing market in most regions.

If you think you’ll see a profit from selling your home or hope to get a home-equity loan based on recent appreciation, you may have to wait a while — maybe a few years.

A host of demons continue to bedevil the U.S. home market. The worst of these gremlins is unemployment. Home sales and prices are directly linked to the number of people working. A jobless rate around 10 percent doesn’t spur home sales.

The bailout was a bust for most taxpayers

Oct 4, 2010 18:49 UTC

Was the bailout of the U.S. banking, auto and insurance industries worth it?

As the Troubled Assets Relief Program comes to a close, I won’t be popping any champagne corks. The Federal Reserve and U.S. taxpayers are still owed at least $2 trillion and at least two black holes remain in the bailout scenario.

The conventional wisdom is that life as we knew it was preserved and a 1930s-style depression (or worse) was averted.

Yet for millions of Americans, the bailout hasn’t helped them a bit. They are still punch drunk and often jobless from Wall Street’s and the bankers’ Las Vegas benders.

Top investment scams gone wild

Oct 4, 2010 14:48 UTC

MADOFF/BAILIt’s not hard to find the hottest investment scams. Just read the business headlines. What’s making money?

The who’s who of scamsters are not household names like Bernie Madoff. They are guys working the Internet, selling the next “green technology” or smoothly working Ponzi schemes in church groups. They might even be your neighbor.

I just got an email from someone I didn’t know in England who claims he was beaten and stranded. And all he needed was about $10,000 to get back home! Coincidentally, I also met a fellow with the same story on the streets of Baltimore, although he was asking for considerably less.