It’s been in the news for qute some time now. Underwater homeowners with no skin in the game (no down payment) are “walking away” from their homes and intentionally going into foreclosure. Here are a few story links describing the situation, which shows no sign of slowing down:
There is quite a bit of debate on both the law and the ethics of walking away. Many think that signing a legal contract with a bank for a loan comes with an ethical obligation to adhere to the terms. But others cite the clear distinction between ethics and the law.
Here is one of my favorite comments on the subject from a reader on Mish.
Mortgages are not ethical documents, they are legal contracts. The typical residential mortgage for an owner-occupied home gives the borrower two options: pay on time and in full, and keep paper title to the house, and full entitlements to any appreciation upon its later sale after the mortgage is satisfied; or, stop making payments, and hand the keys back to the lender.
Morality and ethics don’t even enter the equation. Either option is perfectly legal for the borrower, and the only criteria should be business-based. All the ethics you need are contained within the four corners of the pages of the mortgage contract.
There is no doubt that consumers do have a legal right to walk away from any contractual obligation, as long as they are willing to accept the legal penalties of that obligation, as stipulated in the contract.
As for ethics, you decide.
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Andrew Hall, one of the gamblers oil traders working for Citibank, wants the firm to pay him a $100 million dollar bonus for his performance on winning the coin toss bet prediction he made with taxpayer money. From Mail Online:
Hall, 58, is in line for a $100million bonus from his employer Citigroup.
The bank wants to pay the money because it wants to hold on to Hall and his money-making expertise, which is reckoned to have reaped hundreds of millions of pounds in profits for Citi-group through its oil-trading offshoot Phibro.
But Citigroup – which was bailed out with £27billion of US government funds – is under pressure from the Obama administration’s ‘pay czar’ Kenneth Feinberg to cap payouts to traders who take big risks on behalf their bank employers.
Hall, a British-born graduate of Oxford University, lost money as a trader during the first Gulf war when oil prices fell.
The real question for Citibank, which is technically insolvent and living off of taxpayer donations, is what would be the fate of Hall had he lost the oil bet and squandered away hundreds of millions of taxpayer dollars in the process? The answer is simple – more bailout begging, and more coin flipping gambles on the direction of oil. Eventually, everyone gets it right, and eventually everyone gets it wrong. Wouldn’t it be wonderful if all the wrong sided bets were cancelled out with taxpayer funds, and all the right sided bets were rewarded? That there is the essence of the financial world.
Options trading seems to be following the same trend as poker – at least in terms of the number of books. Poker used to be a niche game played by a few old men in cowboy hats until they started putting it on television. Walk through the gaming section of your local bookstore and you are bound to find at least a few dozen books on poker.
Trading is the same way, especially options trading. The relatively new Mad Money, Fast Money and Options Action are so popular that authors and publishers are racing to put out the newest books to capitalize on the trend. Here is the latest spread trading book from Greg Jensen – Spread Trading, an Introduction to Trading Options in Nine Simple Steps.
I’m not sure if I agree with the title of comparing options trading to something simple, but in browsing through the book, it does look like its well written and with some great content. Click on the book below to purchase.
Spread Trading: An Introduction to Trading Options in Nine Simple Steps by Greg Jensen
Here’s a personal finance tip that I’ve used occasionally with great success. If you are the “do it yourself” type, but just need a little guidance, look no further than your friendly neighborhood youtube. There are tons of free instructional videos of varying quality that will teach you how to fix your car, fix your bike, cook dinner, fix a leaky faucet and much, much more. Here is a sampling of some of the short and sweet videos I have learned and practiced from over the last few months:
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Trading in Mosaic (symbol MOS) was very active Friday, with trading volume over 27 million shares in a name that averages only 7.9 million shares per day. The activity was sparked by rumors that Brazilian mining firm Vale was considering a buyout of Mosaic. The shares were up substantially, and briefly touched $54.36, before settling at the end of the day to $49.56.
Option activity in Mosaic was just as hectic, as can be seen from a snapshot of Friday’s chain below.
While its not possible to know exactly who exercised which strategy, it is clear that there was a lot of activity, and the bulk of the activity was on the upside call side. August calls from the 50 strike all the way to the 80 strike had option volume exceeding the total open interest, and in some cases at over 7:1 – the August 70 strikes. Some possibilities are the following:
- A large strangle trade (~13,000 contracts) in the August 50 CALL / August 45 PUT combination
- Large upside directional CALL plays in the August contracts between the 55 and 70 strikes
Note that since Friday’s close, more news has come out about the rumored buyout. FromYahoo Finance on Saturday:
Brazilian mining giant Vale says it is not interested in acquiring fertilizer companies, denying a recent press report that it was eyeing potash and fertilizer producer Mosaic Co. of the United States.
It will be interesting to see where Mosaic opens on Monday. But if the shares take a big dip based on the rumor denial, all those upside call buyers could get washed out. The 13,000 unit strangle player on the other hand, could fare much better. His expiration day low end breakeven point is roughly $38.80 (45 – 2.20 – 4). With so much time premium left before August expiration, his breakeven point would be quite a bit higher. Depending on where the shares open tomorrow, he may already be in the money.
Disclosure: Current positions in Mosaic.
According to this Marketwatch article, Illinois is gearing up to broaden its gambling appeal, and looking toward the money losing slot machine players to plug a whole in its budget.
Under the measure, bars, restaurants that serve liquor, social clubs and truck stops can have up to five machines. The state gets 30% of the take, which some estimates put at $300 million a year once in place. The Illinois Gaming Board has about two months to come up with regulations.
Meanwhile, across the world, Russia has taken a different approach, outlawing gambling completely, except for in special zones which do not yet exist.
Russia’s casinos are getting the boot, but the specially designated zones where they are to move are not ready. Casino owners say they are ready to leave the country, while millions of Russians lament the savings they lost in cheap casinos and slot machines. Will the new law help?
In the days of the USSR, the authorities strictly forbade any games of chance: even the word “chance” was excluded from the Soviet dictionary.
The first gambling establishments appeared after the collapse of the Soviet system. The casinos became a kind of symbol of a new era, when money could be conjured out of the air and just as easily lost at the roulette wheel. The number of gambling es-tablishments in the country grew steadily, from about 800 in the mid-1990s to more than 60,000 by the beginning of the new century.
At the same time, respectable casinos with luxurious rooms and high stakes were in the minority. For the most part it was about gaming machines, which started appearing in just about every baker’s shop. Any pensioner or schoolchild could easily try their luck.
No one even suspected the existence of “gambling addic-tion”. According to Vladimir, founder of the Moscow Gamblers Anonymous society, neither he nor those close to him could imagine that he was seriously ill.
“I would lose my money, then other people’s money; I borrowed money from banks and lost that too. It got to the point where I’d gambled away all the furniture from my flat. One day, I was so ‘drunk’ on gambling, I carried the fridge out of the flat, sold it to the first taxi driver who came along, and within 15 minutes I’d put all the money into a slot machine. My friends and family couldn’t understand why I couldn’t stop gambling.”
According to Russia’s Ministry of Health, in Moscow alone approximately 300,000 people suffer from gambling addiction. Gamblers Anonymous puts the overall number of gambling addicts in Russia at about three million.
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Don’t listen to the Associated Press, who in their latest article stated that “budget deficit tops $1 trillion for the first time”. From their recent article,
The federal deficit has topped $1 trillion for the first time ever and could grow to nearly $2 trillion by this fall, intensifying fears about higher interest rates, inflation and the strength of the dollar…
The mainstream media is generally ignorant about anything related to budget deficits or national debts. A yearly budget deficit is the difference between what we bring in from taxes and what we spend in services. The national debt is the total accumulation of all those deficits. A quick way to find the REAL yearly deficit is to subtract the total national debt from any day in one year from that same day in the previous year. By those realistic calculations, our annual deficit has already topped $2 trillion. Here are a few snapshots from the United States Treasury website.
The national debt (portions of which are not hidden) is already at $11.524 trillion. It was $9.502 trillion one year ago today. The Associated Press has it wrong. The annual budget deficit did not just break the $1 trillion dollar record. It took a giant leap beyond that record and jumped to over $2 trillion dollars!
Way to go Obama! Let’s see if you can hit the $10 trillion dollar mark before you leave office!!
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According to the Associated Press, Obama is rejecting a second economic stimulus. They just published an article entitled Obama rejects 2nd stimulus: Give Recovery Time. Here is an excerpt below.
President Barack Obama on Saturday dismissed the idea that the United States might need a second stimulus to jolt the economy out of recession and urged Americans to be patient with his economic recovery plan.
The views from the AP article came from Obama’s weekly Internet address to the nation, the full transcript of which can be found here. Here is an excerpt from that address:
Now, I realize that when we passed this Recovery Act, there were those who felt that doing nothing was somehow an answer. Today, some of those same critics are already judging the effort a failure although they have yet to offer a plausible alternative. Others believed that the recovery plan should have been even larger, and are already calling for a second recovery plan.
But, as I made clear at the time it was passed, the Recovery Act was not designed to work in four months – it was designed to work over two years. We also knew that it would take some time for the money to get out the door, because we are committed to spending it in a way that is effective and transparent. Crucially, this is a plan that will also accelerate greatly throughout the summer and the fall. We must let it work the way it’s supposed to, with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity.
Obama stopped short of rejecting another stimulus, but with a national debt over $11.5 trillion, and a financial disaster bailout cost of $12.8 trillion, lets hope Obama has finally come to his senses and does actually reject any additional stimulus.
The IMF just published their updated World Economic Outlook Update. 2009 continues to show a negative growth rate of -1.4%, but the IMF is predicting a 2.5% growth in economic activity for 2010. A few highlights are below, or check the full story at the link above.
- Russia has the lowest projected 2009 growth rate, at -7.5%. Mexico is second worst with a projection of -7.3%.
- The United States is expected to decline by 2.6% in 2009, but expected to grow by .8% in 2010
- The “Euro Area” (German, Spain, Italy and France) is expected to decline in 2009 (-4.8%) and 2010 (-.3%)
- Oil prices expected to decline by 37.6% in 2009, but rise 23.1% in 2010
It’s pretty difficult to find unbiased information on housing price trends in any of the local press. Take the Seattletimes as an example. They used to generate significant income from selling ads in their real estate section. And the staff writer stories accompanying that section were always positive – even at the height of the bubble. If you pick up a Seattle newspaper today, the real estate section is mostly void of paid advertisements. But the staff writers haven’t stopped pushing their obviously biased opinions in the hope of luring back their potential real estate advertising customers.
Consider a recent article in the Seatltetimes - June home sales are highest in King County since Oct 2007.
A new report provides the strongest evidence yet that buyers are starting to return to the local real-estate market.
The number of closed sales of single-family homes in King County in June was up 4 percent over June 2008 — the first year-over-year increase since the market peaked nearly two years ago, the Northwest Multiple Listing Service said Monday.
The county hasn’t recorded that many sales in a month since October 2007.
As for the headlines from national publications, which don’t depend on local advertising from struggling home developers, the take is a little different.