Saturday, September 27, 2008

Naked bankers

And no dollar bills for figleaves

The whole family was quite surprised when my nephew grew up to become a Washington Mutual mortgage broker. My nephew not excepted. After all, “Mike Chamberlain” had had a stellar career as a college clown and academic cut-up. Truly, we never saw it coming.

He recently send me a message from within the dyspeptic bowels of the American financial industry:
Hey uncle,

Well, yesterday was indeed very difficult... I realized that I was out of “Laughing Cow” brand cheese, oh yeah, and my company folded.

For now, it's business as usual. On Chase's investor call last night, I learned that they maintain a similar model to ours with a focus on home loan origination from bank branches. The question at hand is whether those loan consultants report to the branch managers or if they have separate management (i.e. - me).

A sharp operator like me always has a back-up plan... I have a firm offer from Wells already. Time will tell...
Mike was remarkably successful in his career in the financial sector. Even before turning thirty he had been elevated from the cubicle farm of the office drones into the ranks of junior management. Mike had dark suspicions about why there was so much room at the top. He figured that incompetence was thinning out the executive ranks. It seems likely that he was correct. Unfortunately, plenty of incompetents were left.

I recall that Mike was puzzled at the fondness among his colleagues in the loan division for poorly secured adjustable-rate mortgages (ARMs). He regarded them as dicey instruments and described the 30-year fixed-rate mortgage as “the gold standard of the industry.” (I have, mercifully, a gold-standard mortgage. Thanks, Mike!) He did, of course, understand what was at the bottom of the enthusiasm for creative financing. ARMs made it possible for more prospective homeowners to persuade themselves (with the help of a friendly broker) that buying a home was feasible.

Mike tells me that many of his senior colleagues have had their retirement plans shattered by the failure of Washington Mutual, their 401(k) accounts stuffed with now-worthless WaMu paper. It may well be a condign punishment, if the people who hoped to profit by pushing clients into untenably creative financing are now beggared by the collapse of same. As Mike says, “They were wiped out”

And what about Mike and his own 401(k) portfolio? Not to worry. The boy knows a poor risk when he sees one, both in potential mortgage customers and investment opportunities:
Fortunately for me, I had only bought a handful of [WaMu] shares years ago and selected other investments… which have been growing at a rate of -15% ytd. Yeah!
Minus fifteen percent? That's a hell of a lot better than a wipeout, isn't it? Whoo hoo!

1 comment:

Anonymous said...

Baa! This Time Magazine article has some priceless phrases in it.

Foreclosures: Did God Want You to Get That Mortgage?

Has the so-called Prosperity Gospel turned its followers into some of the most willing participants — and hence, victims — of the current financial crisis? That's what a scholar of the fast-growing brand of pentecostal Christianity believes.

...this encouraged congregants who got dicey mortgages to believe "God caused the bank to ignore my credit score and blessed me with my first house."

...Although a type of Pentecostalism, Prosperity theology adds a distinctive layer of supernatural positive thinking. Adherents will reap rewards if they prove their faith to God by contributing heavily to their churches, remaining mentally and verbally upbeat, and concentrating on divine promises of worldly bounty supposedly strewn throughout the bible.

...the believer's note to his minister illustrates how magical thinking can prevail even after the mortgage blade has dropped.