Florida money fund gets subprime indigestion

December 4, 2007

A delicious theme of the subprime debacle is that otherwise smart people, who ARE PAID TO KNOW BETTER, got themselves and their investors involved in dodgy debt. Like Florida’s Local Government Investment Pool. Money fund managers who put investor capital in CDO debt, SIV commercial paper and similarly sketchy instruments deserve their own circle in mortgage hell. Investors like a good yield in a money market fund, sure, but at the end of the day, do we care so much about that extra 25 basis points that we’re willing to put our capital at risk? Money market funds are supposed to be ultra safe. That’s why people buy them. We’ve heard fund managers argue that Moody’s rated this stuff ‘AAA.’ It’s not their fault if the paper turned out to be unsound. Come on: take some responsibility guys. Investors don’t pay you to outsource investment decisions to Moody’s!

You want a high yield money fund that doesn’t carry added risk? I recommend Vanguard’s Prime Money Market Fund. They offer you a better yield for the right reason: the expense fee they charge is lower. You, the investor, get the incremental yield. I happen to be a very satisfied investor in Vanguard’s Prime MMF and am pleased, without any sort of compensation from them, to recommend it to others.

[An aside: it was also refreshing that a Vanguard phone representative could tell me that the Prime fund had no investments in risky asset-backed paper. The rep at Fidelity I spoke to had no idea what a mortgage backed security is…..]


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FINALLY the nation is getting this…………THIS WAS NEVER A SUBPRIME CRISIS AS CRAZIES SAID, this has and will be a supply and demand Depression. “A” paper, good loans are foreclosing as high as those “mean evil subprime” WHY –well because the collateral is worth 30% less and will be worth 50-60% less by next March. If you have to move you are screwed and will send the keys back. Now do the math, 38% of all investments in the world are full of “mortgage backed securities” as collateral, now figure in the good loans tanking and you got a DEPRESSION TRAIN on the tracks in front of you and no where to go(affects pension plans, 401K,everyone)……….this is stock and housing holding hands and jumping off the cliff together, something we have NEVER, EVER seen in this country. Both industries tanking together is PAIN. Lowering rates won’t help, rates can go down to 1% AND THERE ARE STILL 5 HOUSES FOR EVERY BORROWER, Accounting 101, supply and demand………….

Posted by catherine | Report as abusive

This is extremely wide-ranging and potentially devastating to everyone and in many countries. But Option ARMs have been around since I first got into the mtg biz circa 1990. I never liked them or tried to ‘push’ them but they did and do have a purpose – but not for 1st time homebuyers.The pymt only ‘explodes’ upward because the loan balance reaches 115% (or in some cases 125%) so it is reset, which is when the minimum pymt is no longer an ‘option’. Then the balance is reamortized for the remaining term with IO as the minimum option. All the rates are known upfront, as is the approximate time period to reset if only minimum pymts are made for entire time period.It’s entirely controllable by the borrower. The more IO or P&I pymts are made prior to reset, the longer the period before reset.The borrower’s received a statement MONTHLY, showing their pymt OPTIONS and balance – but they didn’t understand it?BTW, it’s easy to verify employment history w/o a paystub or W2 – just call or send a VOE w/no income info.The big problem – Wall Street types are the ones who approved the various reduced and no doc guidelines – and said they would buy these programs. The brokers and borrowers didn’t just make them up.The other big problem is in the values in ‘bubble’ areas. Who was pushing the market? And making home ownership ‘right’?Naturally, the best places to live were the fastest growing – FL, CA, AZ. And BankUnited loaned mostly in it’s home state – what a concept!Now that the same Wall Street types have decided not to invest in the loans they wanted, literally overnight, the banks and other investors are left holding the bag.And some borrowers are upside down. But if they make their pymts, they have no problems.CAJones

Posted by CAJones | Report as abusive