The upshot: Investment firms and ratings companies have become ``the unofficial regulators of the subprime industry.'' That makes them most to blame for the housing crisis, he argues. What about the destruction wrought by mortgage wholesalers like Bitner? While he's generous in criticizing others for lowering standards, his own ``confessions'' fall short of confessing, barring a mea culpa in the book's last two pages.
In 2005, for example, Bitner was forced to repurchase a loan from an investor to whom he'd sold a mortgage. The borrowers were a South Carolina couple who had a credit score in the 500s (out of a possible 850) and $250 left in their checking account after the closing. They never made a single payment. Bitner goes back to review the files, searching for what he may have done wrong.
``Then it hit me,'' he writes. ``We did nothing wrong. Our underwriter approved the deal, we funded it, and the investor purchased it from us because it fit their guidelines.''
And there you have it: In this business, the players wrote the rules and no one asked whether the rules made sense. Including Bitner. As for that South Carolina couple, Bitner got them to sign the deed back to him -- after agreeing he wouldn't report it to the credit agencies.
``Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud and Ignorance,'' is published by John Wiley & Sons, Inc."
A great deal of similar institutional money went into the commodities markets right after it became apparent that the upside in real estate was becoming...tenuous. And now, we have this - from Bloomberg's Millie Munshi:
"Tumbling prices for natural gas, nickel and corn are turning July into the worst month for the Reuters/Jefferies CRB Commodity Index in 28 years. The CRB Index of 19 commodities slumped 9.7 percent since June 30, the biggest decline since a 10.5 percent drop in March 1980, when the U.S. economy was mired in recession. Natural gas plunged 31 percent to lead July's biggest losers. Corn and nickel slumped 14 percent.
The dollar's rebound from a record low against the euro eroded the appeal of raw materials as an alternative to stocks and bonds, especially for investors who snapped up commodities earlier this year and sent prices to records. Demand also is easing in China, which expanded at the slowest pace since 2005 in the second quarter, Lehman Brothers Holdings Inc. analyst Edward Morse said in a report on July 23.
``This is one of the biggest tests in this cycle because the economic background is so poor,'' said Sean Corrigan, who helps oversee $8.5 billion at Diapason Commodities Management SA in Lausanne, Switzerland. ``Many don't like the fact that they missed the boom, so there's a great deal of rejoicing when there is a big correction.''
Commodities may face ``a very severe correction,'' said Dennis Gartman, an economist at the Gartman Letter in Suffolk, Virginia, who said in June that prices for gold and other commodities may fall. ``The unwillingness of the dollar to hit new lows and the idea of slower demand means it won't be surprising if these markets have further down to go.''
At the same time, the outlook for the dollar and the prospect for rising interest rates hurt demand for commodities as an alternative asset class. The U.S. currency has rallied 2.9 percent from a record low of $1.6038 per euro on July 15 and may reach $1.50 per euro by the end of the year, according to the median of 36 forecasts in a Bloomberg survey. ``A speculative bubble could be bursting,'' said Stuart Flerlage, who helps manage more than $600 million at NuWave Investment Corp. in New York. ``People had been pouring money into commodities over the last couple years, and especially earlier this year. That might have been the last big push.''
While GDP stats (showing a 1.9% growth pace) and oil could still be calling the shots today, the immediate focus is on the 44,000 additional jobless claims figures. Resistance remains at $925/932 while a close above $915 would be beneficial. As mentioned yesterday, bargain hunting sprees ought not to be discounted.
Jon Nadler is a Senior Analyst with Kitco Bullion Dealers Montreal
