My New Blog

The party is Over, Over, Over and the mother of all hangovers is not going away anytime soon. The cleanup is just beginning with the Fed’s refusing to bail Lehman Brothers out of their financial jail ; AIG is rumored to soon topple and Bank of America (Ken Lewis, CEO, really is Superman, by first saving Countrywide) swooped in and picked up Merrill Lynch for stock only. The party-hardy boys of 2003-2006 preening their greed and creative book keeping have fallen far and fast. What were they serving at the party to have it end so badly? The toxic cocktails included mortgage securitizations: the banks and lenders selling mortgages (some of them tainted with buyers that should have never been allowed to purchase homes) to investors who bundled them together into bonds - the securitization process- and sold them to global investors, injecting obscene amounts of money into making even more mortgages. Out-of-control Wall Street greed allowed for looser underwriting guidelines and the process was aggressively and continually repeated. The spiked punch was the credit derivatives, a type of “insurance” issued, just in case any stock purchased went south (2005: that will never happen to the triple AAA banks, lenders, and brokerage houses!). It is going to cost someone (that will be us) trillions of dollars. The real buzz came from Fannie Mae and Freddie Mac, the conservative wunderkinds of the mortgage industry who went on their own drunken brawl by using their profits to purchase over 250 billion dollars in subprime mortgage-backed securities in 2005 and 2006; successfully eroding any cushion or capitalization for when this party ended. Uncle Sam has decided the remainder of the financial world will need to serve out their sentence. No bail, no parole.

Diane Gerdes

Diane Gerdes

The Mortgage Advantage, Inc.

Truth In Lending Promotes Trust in Lending

800-499-2183 Office Phone

480-235-5667 Cell Phone

Good morning comrades. “Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the heart and minds of men… there must be strict supervision of all banking and credits: and investments, so that there will be an end to speculation with other people's money." President Bush? John McCain? Barack Obama? Jon Stewart? Nope. Franklin Delano Roosevelt, President from 1933 to 1945. By 1933 depositors had lost over 140 billion dollars due to the frolics of Wall Street. Along with the stock market crash of 1929 it began a downward spiral into what is known as the “Great Depression”.

The U. S population then was a mere 123 million souls compared to over 305 million today. Through the years we have allowed Wall Street to ease back to take control of our money and our country. As a result the 700 billion dollar proposed bail out plan may be the socialist answer to save our economy, but it may be the only answer. While our leaders on Capitol Hill are posturing for a plan to carve their initials, Washington Mutual was taken over last night by the Fed and will be chopped up and a big slice will be given to Chase. This is by far the largest bank failure in U. S. history. Why is the government stepping in when our capitalist motto is for the government to stay out of our companies? The sins of Wall Street have seeped into virtually every business (think 401k’s) in the U. S. and the world. We all should be mad as heck, but if we do not have banks or have lending - we do not have an economy. This time around it is not just about us. Banks, investments, all ethnic groups, culture’s, careers and savings are intertwined throughout our globe.

FYI: Get Out!!! We, as a country will get through this. Houses are selling. Fannie, Freddie, FHA and VA are all controlled by the government, so there are loans for home buyers. Step away from the T. V. , your P.D.A, and talk radio and take yourself and family on a drive to Sedona to the State of the Art Festival, or to the high country and take a hike, or visit a museum for free, compliments of the Smithsonian on Saturday. Take in a happy movie. Eat at your favorite restaurant.

Lenders were skipping and singing this week with interest rates taking a swing downward with Uncle Sam’s dramatic Sunday morning take-over of Fannie Mae and Freddie Mac; orchestrated by Hank Paulson, Secretary of Treasury, and friend of all things Chinese. Mr. Paulson, former CEO of Goldman Sachs, has visited China over 70 times. Fannie was not in immediate distress, with Freddie there was some worry; but the major factor may have been that the Asians are one of our biggest investors, and Uncle’s Hank and Sam needed to calm their fears to keep them playing in our markets.

Wouldn’t it have been cool if we had been offered “loan protection insurance” for our homes, just in case they were to devalue? If we had taken out insurance and our property values eroded, the insurance company would have taken the hit, not us. Don’t call me, because it doesn’t exist. However, the soothsayers have access to their own insurance, called credit default swaps. These insurance derivatives allow investors to bet on a company’s health and insulate against losses. Isn’t that cool? Except the insurance losses may now go into: get this, trillions of dollars on this Wall Street “soothsayer secret”. Who is holding the bag, oops, I meant insurance?

FYI: Southwest Airlines stopped accepting cash for their drinks. Credit cards only. Good thing, since I have not had any cash since 2006.

It is time to drive the SUV out of the front yard landscape and away from the gnomes since oil prices have dropped over a third from their high in July. (Hmm….why haven’t the pump prices dropped a third?). Our best buds over at the OPEC(Organization of Petroleum Exporting Countries): Iran, Iraq, Kuwait, Qatar, Saudi Arabia, the United Arab Emirates, Libya, Algeria, Nigeria, Angola, Venezuela and Ecuador are making loud noises that they will not let oil get back to below $100.00 a barrel, since its high of $147.00 in July. Tell me again, why is the U. S not in OPEC? Because we do not have enough oil that is currently drilled and available for export. The unemployment numbers were the big news today when the figures announced that 6.2% of our typically employed, non-farm population is not employed. Yes, people are losing jobs, but should we consider the number of jobs that were added in 2005 and 2006 during the economic boom? (Especially in lending, and all things real estate) The soothsayers are arguing among themselves that the numbers are too low or too high. Time will tell. The stock market has taken a beating with stocks dropping over 15% off their high of this year based on rumor and fears that the economy will not see a recovery until the first quarter of 2009. The bear market has returned and not the cuddly, snuggly teddy bear market that you can sleep with at naptime and leave at home, this market is snarling and sticking. The stock markets grade their performance on an ongoing basis by either a bull market (good) or bear market (not so good). And with the dollar’s still climbing against foreign currency, the Fed is less likely to raise interest rates.

FYI: Professors at ASU received backing to continue their alternative fuel project by growing algae farms that can be processed into oil……and food. Maybe not the same process.

Diane Gerdes

The demise of the American Economy was put on hold this week with several items of good news; starting with the announcement of April to June’s Gross Domestic Product, one of the measures of national income and output for a our country's economy. GDP is defined as the total market value of goods and services produced within our country in a given period of time. Exports were stronger (food) and inventories were higher than originally expected. The Durable Goods report released on Wednesday was buoyed by the orders of big ticket items such as commercial jets, and the increase of purchases of cars, appliances and machinery. I guess cancelling my order for my P. J. (personal jet) did not hurt their numbers. The long suffering dollar has quietly begun its climb back to its position of world prestige. The strength of the dollar has an impact on imports and exports because goods and services from a foreign nation are usually purchased in the currency of the producing nation. So if our currency is strong, it costs us less to buy the things we need that we can only get outside of our country (such as oil and all things Prada). Did you read about the home prices increasing in 10 metropolitan markets? Didn’t think so. Home prices actually rose in Minneapolis, Boston and Denver. No, Phoenix was not on the list. Not yet. So don’t give up on us, no matter what the media says.

FYI: Arizona is redefining our state’s transportation. With the record number of Amtrak passengers, and the timely beginning of our light rail; the Arizona Department of Transportation has applied to the government for federal funds for rail transportation between Phoenix and Tucson. For those of us that think the Interstate 10 corridor between the two cities is an autobahn for crazed drivers, we welcome the alternative.

Diane Gerdes