Some of the top secret AIG bailout info is out. Guess who's at the heart of it, making money by creating straight trash, selling it to its clients then buying insurance to benefit from its inevitable crash? I have been warning about Goldman's ability to sell trash to its clients for some time now.

This is not a short post, for it is packed with a lot of supporting information, analysis and data. If you are looking for quippy paragraph, soundbyte or quick headline to get an overview of,,, well whatever, click here, or better yet, click here. For everyone else who may be looking for deeper investigative analysis and the unbridled TRUTH for a change, please continue on.

First a little background info. Goldman is supremely overvalued in my opinion. It is even more so considering much of its profit is generated solely from the raping of its clients. I say this holding absolutely no ill will towards Goldman. This is strictly factual. Let's walk through the evidence, of profit potential, valuation, and the stuff behind some of the value drivers in their business model, like brokerage and investment banking...

Some of the top secret AIG bailout info is out. Guess who's at the heart of it, making money by creating straight trash, selling it to its clients then buying insurance to benefit from its inevitable crash? I have been warning about Goldman's ability to sell trash to its clients for some time now.

This is not a short post, for it is packed with a lot of supporting information, analysis and data. If you are looking for quippy paragraph, soundbyte or quick headline to get an overview of,,, well whatever, click here, or better yet, click here. For everyone else who may be looking for deeper investigative analysis and the unbridled TRUTH for a change, please continue on.

First a little background info. Goldman is supremely overvalued in my opinion. It is even more so considering much of its profit is generated solely from the raping of its clients. I say this holding absolutely no ill will towards Goldman. This is strictly factual. Let's walk through the evidence, of profit potential, valuation, and the stuff behind some of the value drivers in their business model, like brokerage and investment banking...

Here are some very interesting facts on the latest trend in Alt-a mortgages that have been in the news as of late. The following charts were culled from my mortgage default model which was built primarily from date gathered from the FDIC and the NY Fed.
Here are some very interesting facts on the latest trend in Alt-a mortgages that have been in the news as of late. The following charts were culled from my mortgage default model which was built primarily from date gathered from the FDIC and the NY Fed.

As illustrated in my last post, Goldman Sachs has upgraded the US REIT sector, an action that was obvious to those who know that Wall Street analyst departments are basically marketing arms for their broking, trading and underwriting arms. Tyler at ZeroHedge saw it coming months in advance (see Is Goldman Preparing To Upgrade The REIT Sector?) and the writing on the wall had already cured as they hawked their first CMBS offering in quite some time (see Reggie Middleton Personally Contragulates Goldman, but Questions How Much More Can Be Pulled Off).

We all know what's next. The products that they are hawking to finance these ailing companies must have their paths paved by glorious upgrades and buy recommendations - damn be the facts and the obvious observations (which you will definitely get from me). Many of these actions can easily be seen as a REIT pump and dump scheme by Wall Street - "Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!." I have already released independent and unbiased subscription research on Taubman (TCO Report - Professional, TCO Report - Retail), whom Goldman Sachs has issued a buy recommendation on. I am also researching the CMBS that contain the properties from the REITs that I am analyzing (part and parcel of the analysis is an independent review of the property portfolio) and will be creating reports on the actual performance of assets behind the CMBS. You know, the type of work that the rating agencies should have done before they stamped these things with that AAA market, yet you know they never bothered to perform.

As illustrated in my last post, Goldman Sachs has upgraded the US REIT sector, an action that was obvious to those who know that Wall Street analyst departments are basically marketing arms for their broking, trading and underwriting arms. Tyler at ZeroHedge saw it coming months in advance (see Is Goldman Preparing To Upgrade The REIT Sector?) and the writing on the wall had already cured as they hawked their first CMBS offering in quite some time (see Reggie Middleton Personally Contragulates Goldman, but Questions How Much More Can Be Pulled Off).

We all know what's next. The products that they are hawking to finance these ailing companies must have their paths paved by glorious upgrades and buy recommendations - damn be the facts and the obvious observations (which you will definitely get from me). Many of these actions can easily be seen as a REIT pump and dump scheme by Wall Street - "Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!." I have already released independent and unbiased subscription research on Taubman (TCO Report - Professional, TCO Report - Retail), whom Goldman Sachs has issued a buy recommendation on. I am also researching the CMBS that contain the properties from the REITs that I am analyzing (part and parcel of the analysis is an independent review of the property portfolio) and will be creating reports on the actual performance of assets behind the CMBS. You know, the type of work that the rating agencies should have done before they stamped these things with that AAA market, yet you know they never bothered to perform.

I have finally updated my Alt-A and Subprime delinquency, charge-off and loss data using FDIC, NY Fed, Corelogic, First American, and Bloomberg (among others) as sources. If you thought things looked bad last year or this spring, they are getting worse - with no reprieve for the 3rd quarter despite the extreme amounts of liquidity and capital thrown at the situation by central bankers and the US government. As soon as I started writing this piece, CNBC comes out with "US to Push Mortgage Lenders To Modify More Home Loans: The US Treasury announced plans to push lenders to modify more loans after the administration's $75 billion housing rescue plan, called Making Home Affordable, fell short and foreclosures continued rising."

Hmmm... $75 billion is a lot of money. Mayhap the problem is that the banks know how useless pushing on a string is, or mayhap $75 billion is not enough to stem $304 billion (and counting) in Alt A and subprime losses that are still in the pipeline (see graphic below). 

It gets worse though. Let's glance at the non-conforming loan losses that have already occurred in comparison to the SCAP projections that justified the return of TARP in many cases. Recovery rates had the illusion of increasing ever so slightly due to an increase in prices as illustrated by the Case Shiller index. I have expressed my doubts about this housing price recovery for several reasons, the least of which is the construction flaws in the index itself which fail to capture the nature of the transient price increases, namely the activity of short term investors and flippers (see On the Latest Housing Numbers). There are some areas that have witnessed some firming of pricing though, but that firmness is the result of the Fed and Treasury trying to blow another bubble within a bursting bubble and is more than outdone by the rampant deterioration in credit quality of loans that result in the dumping of foreclosures -> REOs -> short turnaround sales/flips (via investors, which are not captured by Case Shiller, hence the illusion of a firming market in the lower end of housing prices) all over the place.

image019.png

Subprime delinquency, charge-off and foreclosure rates are still flying through the roof - with many other categories rushing to keep up. This is as I described from the beginning (2007) through the Asset Securitization Crisis series - there was an underwriting induced crisis and never a true "subprime crisis". As such, there is a very strong chance that many other loan categories may outstrip subprime loans in terms of aggregate losses. It hasn't happened yet, but the Alt-A category is hot on subprime's heels (see below). Construction and CRE will follow up the rear with unsecured consumer (ex. credit cards) and commercial loans fighting to get into the race.

image021.png

Below, you see the loss trend as of October 2009. These are losses that have most likely NOT been claimed by the banks, and they are significant. In addition, the credit deterioration trend is climbing, not falling. If I am correct in my assumption on the validity of the Case Shiller index in capturing true inventory price depreciation across investor related sales and bank "hold outs", then prices will soon start dropping again, killing recovery rates and causing losses to spike even further.

image015.png

I have finally updated my Alt-A and Subprime delinquency, charge-off and loss data using FDIC, NY Fed, Corelogic, First American, and Bloomberg (among others) as sources. If you thought things looked bad last year or this spring, they are getting worse - with no reprieve for the 3rd quarter despite the extreme amounts of liquidity and capital thrown at the situation by central bankers and the US government. As soon as I started writing this piece, CNBC comes out with "US to Push Mortgage Lenders To Modify More Home Loans: The US Treasury announced plans to push lenders to modify more loans after the administration's $75 billion housing rescue plan, called Making Home Affordable, fell short and foreclosures continued rising."

Hmmm... $75 billion is a lot of money. Mayhap the problem is that the banks know how useless pushing on a string is, or mayhap $75 billion is not enough to stem $304 billion (and counting) in Alt A and subprime losses that are still in the pipeline (see graphic below). 

It gets worse though. Let's glance at the non-conforming loan losses that have already occurred in comparison to the SCAP projections that justified the return of TARP in many cases. Recovery rates had the illusion of increasing ever so slightly due to an increase in prices as illustrated by the Case Shiller index. I have expressed my doubts about this housing price recovery for several reasons, the least of which is the construction flaws in the index itself which fail to capture the nature of the transient price increases, namely the activity of short term investors and flippers (see On the Latest Housing Numbers). There are some areas that have witnessed some firming of pricing though, but that firmness is the result of the Fed and Treasury trying to blow another bubble within a bursting bubble and is more than outdone by the rampant deterioration in credit quality of loans that result in the dumping of foreclosures -> REOs -> short turnaround sales/flips (via investors, which are not captured by Case Shiller, hence the illusion of a firming market in the lower end of housing prices) all over the place.

image019.png

Subprime delinquency, charge-off and foreclosure rates are still flying through the roof - with many other categories rushing to keep up. This is as I described from the beginning (2007) through the Asset Securitization Crisis series - there was an underwriting induced crisis and never a true "subprime crisis". As such, there is a very strong chance that many other loan categories may outstrip subprime loans in terms of aggregate losses. It hasn't happened yet, but the Alt-A category is hot on subprime's heels (see below). Construction and CRE will follow up the rear with unsecured consumer (ex. credit cards) and commercial loans fighting to get into the race.

image021.png

Below, you see the loss trend as of October 2009. These are losses that have most likely NOT been claimed by the banks, and they are significant. In addition, the credit deterioration trend is climbing, not falling. If I am correct in my assumption on the validity of the Case Shiller index in capturing true inventory price depreciation across investor related sales and bank "hold outs", then prices will soon start dropping again, killing recovery rates and causing losses to spike even further.

image015.png

You know, I happen to really, really appreciate the blogoshpere. There are a select handful of blogs that offer unique, insightful and very difficult to come by expertise, opinion and commentary. Much more so than the mainstream media and even more so than the more specialized media. Despite this, there are certain components of the MSM and corporate America that still do not respect the blogs. Now, why is that? Well, I dare you - no, I double dare you - to find an MSM outlet that performs investigative analysis at the level of the top blogs. I'm not even going to bother to mention who those blogs are (hint, hint), but just want to throw the challenge out there as I show how PNC may have possibly pulled the wool over the collective media, sell side and market's eyes.

Just a few hours ago, I posted my review of PNC's 3rd quarter earnings for 2009 (please look here to see the media, sell side brokerage and equity market's accolades for said results as well as my opinion -For those that didn't notice - Reggie Middleton on PNCl Q3-09 Results). In that review, I actually gave management kudos what appeared to be operational excellence. While typing the review and pondering the data trends, that annoying thing called common sense kept nagging me. I thought to myself, how can their 90 day late loans and charge offs trend downwards after just buying one of the largest junk loan manufacturers in the country amid near record (and rising) unemployment? Even more to the point, why the hell didn't anyone else press this point? Well, I asked my analytical team to dig in a little deeper, and it didn't take long to come up with an answer...

 

You know, I happen to really, really appreciate the blogoshpere. There are a select handful of blogs that offer unique, insightful and very difficult to come by expertise, opinion and commentary. Much more so than the mainstream media and even more so than the more specialized media. Despite this, there are certain components of the MSM and corporate America that still do not respect the blogs. Now, why is that? Well, I dare you - no, I double dare you - to find an MSM outlet that performs investigative analysis at the level of the top blogs. I'm not even going to bother to mention who those blogs are (hint, hint), but just want to throw the challenge out there as I show how PNC may have possibly pulled the wool over the collective media, sell side and market's eyes.

Just a few hours ago, I posted my review of PNC's 3rd quarter earnings for 2009 (please look here to see the media, sell side brokerage and equity market's accolades for said results as well as my opinion -For those that didn't notice - Reggie Middleton on PNCl Q3-09 Results). In that review, I actually gave management kudos what appeared to be operational excellence. While typing the review and pondering the data trends, that annoying thing called common sense kept nagging me. I thought to myself, how can their 90 day late loans and charge offs trend downwards after just buying one of the largest junk loan manufacturers in the country amid near record (and rising) unemployment? Even more to the point, why the hell didn't anyone else press this point? Well, I asked my analytical team to dig in a little deeper, and it didn't take long to come up with an answer...

 

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