Archive for April, 2007

Something to keep you awake at night….

Saturday, April 7th, 2007

If you are looking for something to worry about, read this paper called China’s Global Quest for Energy by Cindy Hurst (a Lieutenant Commander in the United States Navy Reserve). It is a bit of dense read, but well worth the time if you have not been keeping up on China has been doing lately.

It is natural that China should pursue energy security. It is natural the China’s growing economic might would grant it more leverage in that pursuit. It is also natural that China would be untroubled by any ethical scruples in the pursuit of their energy goals.

But what is natural is rarely pleasant. China’s headlong pursuit of oil has already has been destabilizing the world. As Ms. Hurst’s puts it….

Chinese oil companies are taking more risks in order to acquire oil assets
overseas. These risks are already having major geopolitical consequences. For
example, in deals made with Sudan, China has become the country’s chief arms
supplier and diplomatic ally, as Sudan wages a genocidal war against its African
tribes. In another example, China’s deals with Iran, going against the Iran-Libya
Sanctions Act (ILSA) of 1996, have paved the way for other countries to do the
same, opening up more opportunities for trade in arms and weapons of mass
destruction. The selling of arms and weapons technology is a growing trend
used by countries such as China and Russia, to meet their own economic needs.

One could argue that such adverse consequences are no worse then those brought about by the US pursuit of oil. In fact, I think that many people welcome the idea of strong China to counterbalance the arrogant Untied States.

But if you pay attention to what China is doing, I think it is clear that rise of China ability to balance the US will lead to double trouble. Not peace and stability. One super power may be bad, but two superpowers will be worse.

This makes me mad…..

Thursday, April 5th, 2007

I am allowed to drive a car. I am allowed to use a chain saw. If I so choose, I can climb a mountain. But I am not allowed to drink raw milk (h/t Path to Freedom Journal)….

Richard Hebron, 41, was driving along an anonymous stretch of highway near Ann Arbor, Mich., last October when state cops pulled him over, ordered him to put his hands on the hood of his mud-splattered truck and seized its contents: 453 gal. of milk.

With all the problems in the world, you would think I would find something else to worry about, but this issue never fails to get me mad.

Okay, so drinking raw milk is dangerous, so what?

If I know what I am buying what is it that to you?

You might argue that if I get sick it will impose a burden on society so society has a right to regulate the issue. But I guarantee you that if every one in American drank raw milk; it still would not put the burden on the health care system equal to motorcycles, four wheelers, and other such legal forms of entertainment.

I have drunk a lot of raw milk in my younger days, and I would do it again in heart beat if I had the chance. I know a lot of other people who drank even more raw milk then I did. And I do not know one person who got sick from it.

On the other hand, I know a lot of people who have gotten sick eating at fast food restaurants. Go figure….

Fleeing into Darfur?

Sunday, April 1st, 2007

For those who don’t know, Darfur is a place that people have leaving in droves. Arab thugs have been killing every black man that they can find in Darfur. Naturally, the residents of Darfur who posses a personal coloration darker then the average Arab have fled the area. So when I saw the headline that said “Desperate Chadians flee into Darfur“, I was puzzled.

Chadians are as dark skinned as anyone under the sun. Why would they be running towards the Arab militias?

When things seem bizarre, you can usually blame a bureaucrat. And this case is no exception, though you would think you would be safe from bureaucrats out in the middle of Africa.

You see, the Arab militias have been crossing border into Chad to continue their little killing spree. Naturally, this has been as hard on the Chadians as it was on the black residents of Darfur. But the people of Chad cannot get any help from the UN camps that are located in Chad.

Why? According to this article in The Times…

International protocol does not permit the displaced to enter the camps, and they could not go back to their destroyed homes. So the villagers sat down where they were, outside the camp, clinging to its fringes for safety.

That was three months ago and they are still there, with no food, no clean water, and only straw huts for shelter.

In other words, the UN camps will give you food and clean water only if you can prove that you have crossed a border. Never mind the fact that the people who are killing the Chadians have crossed the border. They are still internally displaced people, not refugees.
(more…)

The problems at M&T Bank….

Sunday, April 1st, 2007

M&T bank happens to be a bank that we in the Ethereal Land have some familiarity with. So it was of great interest to me to come across this post from Calculated Risk(be sure to read the comments). The post by CR called to my attention this Reuter’s news story…..

M&T Bank Corp. said on Friday that problems with mortgages that have limited income documentation will hurt first quarter profit.

As far as that goes, no big deal. Everyone has down quarters. It is the reason for down turn in profits and the way that M&T is handling the down turn that bothers me. From the M&T press release….

Recent, well-publicized problems in the subprime residential mortgage lending market have had a negative effect on the rest of the residential mortgage marketplace, specifically with regard to alternative (“Alt-A”) residential mortgage loans that M&T actively originates for sale in the secondary market. Alt-A loans originated by M&T typically include some form of limited documentation requirements, as compared with more traditional residential mortgage loans. Unfavorable market conditions and lack of market liquidity impacted M&T’s willingness to sell Alt-A loans in the first quarter. At a recent auction of such loans fewer bids than normal were received and the pricing of those bids was lower than expected. In accordance with generally accepted accounting principles, loans held for sale must be recorded at the lower of cost or market value. As a result, the carrying value of M&T’s Alt- A portfolio that had been held for sale was reduced by $12 million in the first quarter of 2007, which M&T estimates will result in an after-tax reduction of net income of $7 million in the quarter, or $.07 per diluted share.

Management of M&T believes that the value of the Alt-A residential mortgage loans it holds is greater than the amount implied by the few bidders presently active in the market. As a result, $883 million of Alt-A loans previously held for sale (including $808 million of first mortgage loans and $75 million of second mortgage loans) were transferred in March to M&T’s held- for-investment residential mortgage loan portfolio.

In addition, M&T is contractually obligated to repurchase previously sold Alt-A loans that do not ultimately meet investor sale criteria, including instances when mortgagors fail to make timely payments during the first 90 days subsequent to the sale date. Requests from investors for M&T to repurchase Alt-A loans have recently increased. As a result, during the first quarter of 2007, M&T accrued $6 million to provide for declines in market value of previously sold Alt-A mortgage loans that are expected to be repurchased. That loss will reduce M&T’s net income by $4 million or $.03 per diluted share.

The big question here is whether M&T is correct in thinking that their portfolio of Alt-A loans is worth more than the market is willing to pay for or are they throwing good money after bad and hoping that things will get better?

If most of M&T losses stemmed from market panic in the secondary market, I would be inclined to give them the benefit of the doubt. But given that a lot of M&T losses stem from a very real failure of their Alt-A loans to pay according to contract, I would guess that they are throwing good money after bad.

Another reason for thinking that it is going to get worse is this….

M&T has initiated changes in its origination and sales practices as they relate to Alt-A lending that will likely result in lower originations of Alt-A mortgage loans in future quarters.

In one sense, this is good thing. They should tighten up their standards. But in the short term, this is only going to increase their losses. After all, tightening their standards means that there is going to be less people approved for mortgages. Less people approved for mortgages means less buyers on the market. Less buyers on the market means that M&T is going to see even more defaults (because distressed borrowers will not be able to unload their property on the market) and bigger losses on those properties that do default (because M&T will have a hard time finding buyers for the property that they repossess).

What we are seeing at M&T and at other banks is the reversal of the virtuous cyclical. For the last decade or so, low interests rates made it cheaper to borrow money to buy housing. This increased the value of housing overall at a faster rate than the economy as a whole. This gave people a lot of housing “equity” that they could borrow against to pay off their credit cards and send their kids to college. It also gave bankers the confidence to make risky loans because they felt that rising home values would cover them in the event of a default.

For a while, this all worked out. Housing prices kept going up and up, and credit kept on getting easier and easier to get for the average American. This enabled American consumers to spend far beyond their means and still not decrease their debt-to-equity ratios by any significant margin.

But now we are going to see the reversal of that cycle. Credit is going to get harder and harder to get and housing prices are going to keep going down.