Thursday, October 16, 2008

WSJ: Downey Curtails some lending

Downey Curtails some lending at the WSJ

Downey Financial Group Inc.'s savings and loan unit will close its wholesale loan department and shrink its retail operation, affecting about 200 employees, as it said fewer borrowers are able to qualify for loans amid the ongoing credit crisis.

Downey has been on the bank watch list forever. If it wasn't for their parent company trying to rescue them... they would already be done.

What is really telling:
Of all the large lenders that wrote option-ARMs, in particular so-called Pick-A-Pay mortgages, Downey is one of only two -- along with BankUnited Financial Corp. -- that remain independent. Wachovia Corp., Countrywide Financial, Washington Mutual Inc. and IndyMac Bancorp were among the top five issuers of the failing loans. All of them have been forced to sell themselves at fire-sale prices to healthier banks -- or, in the case of IndyMac, to be liquidated after being seized by regulators.

Easy credit is not going to resume shortly. Too many companies are having trouble rolling over their debt.

FYI, I'm reading a book titled "The Panic of 1907" by Robert F. Bruner and Sean D. Carr. I've changed my mind on which recession we're imitating. Why? Parallels to 1907:
1. Over investment of capital in real estate.
2. Liquidity crisis. In particular, the inability of governments and companies to roll over debt.
3. Government (treasury) and banks wasted their remaining capital on treating the symptoms and not the issues.
4. Much denial and mockery of the bears, but 'sophisticated money' left the troubled banks and trusts early (often six+ months before these institutions failed).
5. It was an interconnected bank crises that fell apart when member banks called in their loans.
6. The role of President Theodore Roosevelt will apparently be played by a new president...
7. Other governments are putting in place laws to restrict the flow of capital to the US.

I'm sure there are more... But I also believe in Mark Twain's quote, “History doesn't repeat itself - at best it sometimes rhymes”. We're seeing a pretty bad rhyme of 1907 in 2008. I'll blog more on this as I'm fascinated by this book and the historical similarity.

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sandman said...

OT comment that you might be interested in.

I've noticed a lot of moving vans around here lately. It hit me tonight when I saw them in front of 2 houses and a condo in a one mile stretch. Anyone else noticing this?

Something tells me people aren't moving in...

wannabuy said...

Yes. The number of empty units in my complex is HUGE! I was able to negotiate down my rent. Ok... only about 1%, but still... ;)

The number of homes available for rent is amazing. We're packing/throwing out/preparing for a move into a rental house to ride out 2009. :)

Anyone else anticipating the United Van lines survey? ;)

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