I was lying awake the other night, worrying about all of the
debt on my credit card. The jet ski, mink socks, the ATV, my new plasma TV,
ruby encrusted dog food bowl, surround-sound stereo – they are great, but
darn they cost a lot. And then it dawned on me: it wasn’t my fault! It
was the credit card company’s fault! All of those radio ads that claim to
help people “Get back at those credit cards companies” must be
telling the truth. Seriously, yes, the credit card companies are guilty of
making it easy to purchase goods, including necessities, and charging some
pretty hefty rates, but they add liquidity to the economy. Really, who is
responsible for spending beyond their means in the first place? Despite the
radio ads, it is not the credit card companies, or the retail vendors…
Who is AIG (American International Group), and why should
you care about them? AIG is a worldwide conglomerate made up of hundreds of
businesses all over the world, although many of AIG's subsidiaries wrote insurance
of various types. They are believed to be the world’s largest insurer in
spite of not being a household name here in the US. Interestingly, the plan was to
have business cycles in some businesses offset cycles in others, giving AIG a
steady stream of revenue. Smart. Lately, as we all know, AIG is bogged down in
the mortgage crisis, since a) they insured many intra-bank and loans and
mortgage securities, along with insuring complex mortgage debt derivatives, and
b) some of its insurance companies own large mortgage-backed securities
holdings. The Fed believes that the complexity of AIG 's business, and the fact
that it does business with thousands of companies around the globe, make its
survival critical. The US
government, thereby the taxpayer, loaned them $85 billion for two years and now
owns 79.9% of AIG! (Along with 100% of Fannie and 100% of Freddie.) Taxpayers
are all hoping for a rally in AIG’s stock!
Were your locks up last week? Join the crowd. As pipelines
move among lenders (which may eventually catch up with them!) the MBA Mortgage
Applications Index showed a 33% increase over two weeks ago. Refi’s
almost doubled, up 88%. (Purchase applications were up 2.4%.) Housing
Permits, which were announced today, dropped to a 26-year low. Starts of new
homes fell 6.2% to the lowest in 17 years, and much weaker than expected.
Lehman is peeling off parts of their business. For example,
Barclay’s reportedly purchased their investment bank and trading
operation. Oil is up $3 per barrel, and the Fed left overnight rates unchanged.
How is the market reacting to all of this? Treasury rates are down more (the
10-yr is down to 3.36%!) but 30-yr fixed rate mortgage prices are worse by
about .250. As one dealer put it, “A flight to quality right now means U.S.
Treasuries, not mortgage-backed securities.”
As I careen towards retirement, I saw a story that the
Senate is investigating deceptive sweepstakes practices.
These companies target the elderly and make them think they will receive sums
of money, but in reality senior citizens never see any of it.
The most popular of these scams is called “Social Security”.
Rob
