Items Wednesday

"He said almost exactly the same sort of things about John Gutfreund, after Gutfreund had given him a sweet deal to rescue Salomon Brothers from oblivion. The moment Warren was forced to choose between Gutfreund and his money, he chose his money.

...Be careful not to say or do anything now that will constrain our ability, after this crisis has passed, to do whatever we want."
-Blaming Merill, Michael Lewis

"The only mark-to-market on home loans that I have ever seen was for super jumbo loans ($1 million and up).

Bank regulators generally allow banks to aggregate reasonably-sized home loans into “homogeneous risk pools.” And rather than mark an individual performing home loan to market, they might insist that the bank create a provision for homogeneous pool losses. Those provisions have tended to run anywhere from 0.25% to say 3.0% of the pool and are based on past loss history. Obviously looking in the rear view mirror these days doesn’t help very much. Moreover, that percentage provision in the sand states is typically less than the legal and brokerage costs of a foreclosure sale. So this provisioning works if:(i) only a few mortgages in the pool default, and (ii) if the historical underwriting Loan-to-Values(LTVs) aren’t breached by declining real estate values. But if the mortgages in these pools are highly correlated (which they are), then LTV-breaching declines in home values will create bank charge-offs that tend to look like a steep step function, e.g. a 3% historical charge-off rate goes right to say a 20%-30% OREO loss rate.

So you are correct. Many home loans may be paying for now but are significantly impaired. Even if the average home loan underwriting at inception was a relatively conservative 70-80% LTV (which was the exception as the market got exuberant), loans in markets that have experienced 40%+ price declines (sand states)have significant unrecognized impairment losses."

-Comment from Negative Equity Data Point of the Day, Felix Salmon

PAUL: It's not easy. You're starting to be a man, to be macho. Actually,
that was one of the things that brought John and me very close together:
He lost his mum when he was 17. Our way of facing it at that age was to
laugh at it--not in our hearts but on the surface. It was sort of a wink
thing between us. When someone would say, "And how's your mother?" John
would say, "She died." We'd know that that person would become incredibly
embarrassed and we'd almost have a joke with it. After a few years, the
pain subsided a bit. It was a bond between us, actually; quite a big one,
as I recall. We came together professionally afterward. And as we became
a writing team, I think it helped our intimacy and our trust in each
other. Eventually, we were pretty good mates--until the Beatles started
to split up and Yoko came into it.

-1984 Paul McCartney Interview

If a movie doesn't hook Cowen, he reads a book outside while his wife remains in her seat. Most recent movie they both left: "Greenberg," starring Ben Stiller.
-My Tyler Cowen obsession, Wapo Edition

Bret Easton Ellis, author of the 1998 book Glamorama, about a dimwitted male model who finds himself embroiled in a terrorist ring with roots in the fashion industry, sued Ben Stiller following the release of Zoolander (2001), citing copyright infringement. The case was later settled out of court.
-IMDB