Mortgage Backed Securities Going Up in Flames: Burning Down the House

Wall Street Bankers to Lesser Mortal Homeowners:

"What, Us Worry?"

It’s time to travel the Watchworld to see what other watchers of the Liquidity Crisis and the Housing Crash are seeing from their perches looking down . . .

I think I will do this exercise more often . . . whereby I open three or four random links on my blog's margins . . . and see if I can thread them together as a mental exercise which might enlighten and educate.

So, let's get on with it.

From Jim Kuntsler’s Clusterfuck Nation latest “Margin Call”

“What you're seeing now is a simple matter of financial sector players trying desperately to evade the consequences of their own actions. The fake wealth generated by the synthetic securities they created is now being recognized for what it is: a swindle. The hallucination is over. The collective denial that supported that hallucination is dissolving. The losses are become manifest. Even worse, the losses are growing exponentially because the synthetic securities were used as collateral to leverage far greater multiples of "positions," bets, and plays in a casino-like global electronic trading arena.

This is what happens when investment gets de-coupled from real productive activity and becomes an end in itself. It has been terrifically enhanced by computer programming. But no amount of digital legerdemain --with the "sugar-on-top" of accounting trickery -- can now hide the fact that there is no "value" there. What's more, the losses are going to have to show up somewhere. If you try to suppress them in one area, they'll pop up in another. If the Federal Reserve tries to cover the losses racked up by the Big Fund Boyz by giving "cash" away, they'll only succeed in destroying the value of the cash itself, i.e. the US dollar.

The upshot is that we are going to find ourselves a poorer nation. There will be far fewer people with money. There will be far fewer buyers of repossessed McHouses, bass boats, etc. Even the houses in Sagaponak and the Manhattan apartments will go cheap. The effort to pretend our way out of a financial crisis will fail. Sooner or later the recognition will set in that all that "boo-yah" was dreamed up. The United States swindled itself. We became a nation of such greed-crazed clowns that we committed financial suicide in an orgy of self-deception.”

Whew. Don’t hold back, Jim. Tell us how you really feel.

From KRCA News in Sacramento, CA, we get this enlightenment about how the Housing Crash is playing out in California:

“A new report says Stockton's foreclosure rate is the worst in the country, and Sacramento is not far behind.

Foreclosures have skyrocketed in California, Ohio, and the Northeast. Nationwide, there are about 600,000 properties in foreclosure. By the end of the year, 1 million properties are expected to be in foreclosure.

Stockton isn't alone with this dubious distinction. Sacramento is No. 5 nationwide, Fresno checks in at No. 14. Oakland is No. 19 and San Francisco came in at No. 78

Homebuilding in the Central Valley skyrocketed in 2000 and home prices doubled over a period of four years, thanks in large part to Bay Area commuters.

"It was a cheaper source of housing, the investors, there was a lot of greed in the market, everybody got very greedy, and everybody wanted to make a quick buck," said Matt Davies of Partners Real Estate.

Stockton now has the highest foreclosure rate in the nation, more than 8,000 foreclosures for the first part of this year, which is one foreclosure for every 27 households. This is a 256 percent increase compared to the same time period last year.”

One out of every 27 households is in Foreclosure in Stockton? Can it get any worse? I think so.

Foreclosures sold at auctions will further depress Real Estate in neighborhoods with high foreclosure rates. Homeowners still surviving on hopes and dreams want a return to EZ Home Equity Loans and Slam Dunk Refis. But that nastiest of all four letter words, D-E-B-T, is now now on everyone's tongue. No one will buy your debt off you if they can't afford or no longer qualify for "Liars Loans".

The Ponzi Economy is collapsing, and what is happening in California's Housing Market will surely be trumped by what is about to happen in South Florida.

In a Huffington Post from Eric Linden, we are reminded on the One Truth which American Schools need to drive into the heads of all students . . .

Credit is NOT Money

Or as Linden explains it . . .

“We are in the beginnings of the collapse of a fiat currency. Actually, it's the collapse of a type of credit that has been treated as though it was currency, but it's rise and fall closely mimics the natural history of fiat currencies.

Back in the 19th century banks would issue their own currency, backed by government bonds that would be held as security by the Treasury Department. Starting in the 1990s, financial institutions began doing something like this again, although this time around the currency has been the triple-A rated tranches of mortgage-backed securities (MBS) and collateralized debt obligations (CDO). And, while our forbears in the 19th century could assure themselves that a bank note was supported by the credibility of the U.S. government, this new currency was backed by the paid-for opinion of the rating agencies.

Assured by Triple-A ratings that these instruments were money good and completely liquid, bankers thought they had discovered the philosopher's stone -- a risk-free, high-yielding asset -- and this new credit/money has found its way into every corner of the financial system from teacher's pensions to commercial paper to money market funds.

Moreover, once the printers of this new fiat currency realized that there was an appetite for their product among yield-starved institutional investors, they did what every unrestrained ruler with a printing press has done since the dawn of money: they began minting more of it.
In this case, credit/money was inflated through the re-securitization of already securitized assets. The Mugabes of hyperinflation in this case were the rocket scientists in structured finance, and the Zimbabwian extreme are so-called synthetic CDOs, arcane confections which invest in tranches of CDOs.”

(Rock’s note: there is an excellent, easy to understand video in the next link explaining how crap Mortgage Backed Securities of the highest risk, i.e. sub-Prime MBS’s, were bundled and then sliced into five tranches, the highest being rated AAA. Trust me. This short video will finally click on a lightbulb in your mind if you’ve had trouble understanding how MSBs were packaged and sold off in “tranches”. When you master this concept of MSB’s being slided into tranches, and how through alchemy, very risky securities were suddenly turned into AAA paper, you are on your way to understanding how the Ponzi Economy is built on air.)

Continuing on with Linden’s post:

“These "innovations" leverage the underlying subprime assets to dizzying multiples so that tens of billions of dollars in subprime originations might ultimately support a trillion dollars in CDO tranches. At the tail end of this whip, tiny variances from the assumptions about the performance of the underlying assets can vaporize the value of these supposedly rock solid assets.

This new fiat currency exploded during the period of skyrocketing home price appreciation, but it should be noted that almost everything worked during that period. What securitizers and holders are discovering, however, is that a fiat currency rests on nothing more than the willingness of someone else to accept it. And, now that the market, most ominously the vast commercial paper market, has discovered that credit is not money, the contraction has begun. The question of the moment is whether anything can be done to slow it, much less stop it?

If the Federal Reserve lowers rates, it risks a precipitous fall in the dollar and a big rise in long term rates, which would only worsen the situation for over-indebted consumers and homeowners. Similar risks accompany other Fed strategies by which they might inject liquidity (the only reason that the euro did not fall more after the ECB's massive liquidity injection was that central bankers around the world were all doing the same thing).”

Most likely, the best we can hope for is an orderly blood-letting with pain apportioned where it is deserved. The device that might help accomplish that might be a public-private corporation (largely funded by the big banks that promoted and profited from this mess) set-up to exchange currently illiquid CDO/MBS tranches for tradable notes in the enterprise.”

Rock’s note: . . . and who will force these big banks to fund such an effort? The Big Banks ARE the banking cartel which has the Federal Reserve operating in their behalf. Any bailout will surely have banks and the government, i.e., We the People, bailing out the wealthiest members of our society who took on the most risk, in my opinon.)

Linden ends . . .

“This will not solve the many other problems attending this credit contraction (including counter-party risk in the CDS market), but it will buy time, and time is everything when bills come due. We've done this before (Felix Rohayton's creation nicknamed Big MAC calmed markets during New York City's financial crisis in the 1970s), and it will help supply liquidity and price transparency in this vast market. A fix like this won't much reduce the pain for either investors or overstretched homeowners, but it could reduce the growing risk of panic, paralysis and systemic collapse. It will also minimize moral hazard by doling out financial punishment mostly to those who deserve it."

To which I will ask, “Where is Elliot Spitzer when we need him most?”

Lastly, I will link you to an excellent short video of CNBC’s Power Lunch. This short video segment, titled “Burning Down the House”, is an outstanding explanation . . . with simple flip chart graphics . . . showing how Mortgage Backed Securities are packaged, sold, and resold again.

Steve Liesman, CNBC’s Senior Economics Reporter, also explains how you can take the worst “junk” paper, i.e. sub-Prime loans, and repackage them with a twist so they got AAA ratings with high returns (while the Housing market was going great guns) and how these AAA rating products are now prone to major blow ups wiping out billions in wealth.

As I have yet to learn how to post videos directly to my blog wit a big start button, I will simply ask you to click on the following red highlighted title of the video short’s title here: “Burning Down the House”.

Good reading, good viewing, and good thinking.

And as always,
Caveat Emptor

France's Biggest Bank Halts Run on 3 Hedge Funds

France's Biggest, Bank BNP Paribas, Answer's the Question, "Liquidity Crisis? What Liquidity Crisis?"

“The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating” BNP Paribas

Rock Trueblood's Watchworld Adds the New "Hedge Fund Implode-O-Meter" to Its Links You Can Use

So I am waking up and I haven't even had my coffee and Bloomberg TV has talking heads talking about the 2.59% drop on the French Bourse of stocks because of the the BNP Paribas freeze of 3 of their managed hedge funds.

And I ask the TV, "WTF?"

So, playing catch up, I run to Bloomberg News on the net to get the story:

BNP Paribas Freezes Funds as Loan Losses Roil Markets

Aug. 9 (Bloomberg) -- BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds because it couldn't ``fairly'' value their holdings after U.S. subprime mortgage losses roiled credit markets.

The funds had about 1.6 billion euros ($2.2 billion) of assets on Aug. 7, after declining 20 percent in less than two weeks, spokesman Jonathan Mullen said today. The bank will stop calculating a net asset value for the funds, which have about a third of their money in subprime securities rated AA or higher.

BNP's announcement sent its shares down as much as 5.5 percent, pulled the benchmark European stock index lower by more than 2 percent, and helped U.S. Treasuries rally for the first time in four days. Investors are shunning bonds backed by home loans after late mortgage payments by borrowers with poor credit histories rose to the highest since 2002.

``The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating,'' BNP Paribas said in a statement.

The French bank joins Bear Stearns Cos. and Union Investment Management GmbH in stopping fund redemptions. Dutch investment bank NIBC Holding NV said today that it lost at least 137 million euros on U.S. subprime investments this year.

No Surprise Here the Blow Up Has Moved Overseas

Our biggest Wall Street Banks sold the world on buying our risky Mortgage Backed Securities and Collateralized Debt Obligations. And now we have the biggest bank in France telling shareholders of 3 Hedge Funds that they can no longer liquidate their holdings. Yep, the world learned from the US, "You too can set up your own hedge funds with 10 or 15 times the leverage you'd get in a regular margin trading account and reap the same rewards."

The US Federal Reserve's Ben Bernanke just a few months ago . . . with his brethern from Wall Street's biggest banks . . . were assuring us that the "sub-Prime mess" was contained.

And then last month we had three Bear Stearns hedge funds stop paying out funds to investors trying to liquidate their holdings. In one fund alone, the hedge directors racked up 57% losses in the first month of Summer. With "Smart Money" management such as this, does it ever occurr to wealthy folks they could do better on their own?

"More of an image problem"

Chief Executive Officer Baudouin Prot said the bank's exposure to U.S. subprime was ``absolutely negligible'' when the company reported a 20 percent increase in second-quarter net income last week.

BNP Paribas Investment Partners oversees about 356 billion euros. ``On BNP's scale this isn't too significant,'' said Benoit deBroissia, an analyst at Richelieu Finance in Paris. ``It will impact clients. It's more of an image problem.''

The three funds are Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia.

The Hague-based NIBC, which is owned by a group including J.C. Flowers & Co., said ``severe instability'' in U.S. credit markets reduced the value of its U.S. asset-backed securities.

The company expects ``further mark-to-market losses."

So, what BNP Paribas told you last week about US sub-Prime not affecting their bottom line? Forget that. That was last week which is a really long time ago.

"Relax, Wealthy People, your money is safe with us. If you want your money back at any time, we'll call a meeting and ask everyone what they think your investment is now worth.

Keep dreaming, Mr. Trueblood. The sharks on Wall Street have already re-deployed that money as bonuses to buy expensive cars, vacations, homes, jewelry. You can't take candy from a baby who ate it all.

This "mark to market" crap is simply an admission that, "We don't know what your original investment is worth today, so, we must stop you from further attempts to liquidate so we can save you from yourselves."

What they are really saying is, "We can't afford a run on our bank which would put us out of business."

Crack Cocaine Accounting in the Ponzi Economy

More from the Bloomberg . . . just so you know I'm not making up the following:

Union Investment, Germany's No. 3 mutual fund manager, stopped withdrawals from one of its funds on Aug. 3 after investors pulled about 10 percent of the assets.

Frankfurt Trust, the mutual fund manager of Germany's BHF-Bank, halted redemptions from a fund after clients removed 20 percent of their money since the end of July.

Two hedge funds run by New York-based Bear Stearns filed for bankruptcy protection in the Cayman Islands on July 31 following subprime losses. The New York-based securities firm then blocked investors from withdrawing money from a third fund.

``For some of the securities there are just no prices,'' Alain Papiasse, head of BNP Paribas's asset management and services division, said in an interview. ``As there are no prices, we can't calculate the value of the funds.''

The 10 largest holdings of the BNP Paribas ABS Euribor fund on March 29 included bonds backed by U.S. mortgages to good-credit borrowers who could pay some interest by increasing their balances, and securities backed by U.S. subprime mortgages and risky U.K. home loans. Other holdings included debt backed by commercial properties in Singapore and U.K. credit-card receivables, according to information compiled by Bloomberg.

Wow. Another Hedgie admits to his dysfunctional business with that line you got to love, ``As there are no prices, we can't calculate the value of the funds.''

Yep, I don't know about you, but I got to have me some of that hedge fund action where real values are unknown and where for every $1000 bet, you can lose up to $15,000 or more.

Smack me for not "getting" how "Smart Money" thought Hedge Funds are virtually risk free when there is no SEC or comparable government Policeman keeping the Crack Cocaine Accountants at hedge funds honest.

Your Last Caveat Emptor and Understatement of the Day

Blocking investors from withdrawals ``was a very good decision because it avoids huge redemptions,'' said Jean-Edouard Reymond, who helps manage $63 billion at Union Bancaire Gestion Institutionelle SA in Paris.

``If they had had redemptions they would have been obliged to sell the securities they might have in their portfolio at very cheap market prices.''

Reymond doesn't hold any BNP Paribas stock, he said.

The funds had assets valued at about 2 billion euros on July 27, with 700 million euros in subprime-related investments.

Ha. Good thing I haven't made the coffee. I'd be spitting it out on the computer screen.

p.s. Please click on the new Implode-O-Meter-Hedge Funds link on the right hand side margin of this blog to follow the hedge fund blow ups. By the way, the Implode-O-Meter-Lenders link shows 114 USA lenders have now gone the way of tumbleweeds in a hurricane.

Meanwhile, as Hedge Funds begin to blow up and as Housing continues to crash, President Bush is telling the sheeple losing homes and money "America's economy is the envy of the world!!!"

Okay, count the President as our last Caveat Emptor of the day.

DJ Rock . . . Power Shields Down

Adam Lashinsky's Blog: "Imagine this: Straight talk on the housing market."

Imagine this:

straight talk on the

housing market

Sometimes you run across a photo on the Internet which makes you laugh out loud and shake your head in disbelief and anger at the same time.

Eventhough the photo caption above of an expectant mother, smoking a cigarette, tells us she is worried about the effects of jackhammer noise on her unborn child, any sane person would "get" the real story not being told by the photo.

The woman is the bigger risk to her unborn baby, yet here she is casting accusations a construction workers.

In the same way, in Housing circles for way too long, homebuilders and Realtors have been telling a story which doesn't jibe with the pictures painted by bloggers all over the nation.

Every once in a while, you run across a blogger or writer on the net who sees through the bullshit and tells it like it is and makes it really funny to drive home a point. And you laugh out loud. And you want to share that laugh at the expense of a prevaricator or petty tyrant or crank who doesn't know when they are the cause of much humor.

Hence, today I reprint Adam Lashinky's recent CNN/Fortune Money blog which puts words into the mouth of Toll Brother's CEO, Robert Toll.

To show how Lashinsky and I think alike, I will add my comments in itlaics colored in purple under his comments printed in black italics.

So, what we have here is Adam Lashinsky and Rock Trueblood having a little fun at the expense of one of the biggest egos in Housing, Robert Toll.

(for the unedited version showing none of my comments, click on this link)

http://gowest.blogs.fortune.com/2007/07/25/imagine-this-straight-talk-on-the-housing-market/

July 25, 2007
Imagine this: Straight talk on the housing market

by Adam Lashinsky

Reading word of the debacle at class-act mortgage lender Countrywide (CFC), I couldn’t help thinking about a fascinating interview my colleague Jon Birger did recently with Bob Toll, eternal optimist and CEO of luxury home builder Toll Brothers (TOL). When I read the Q&A in the magazine, I was struck by how there seemed to be a sub-text to everything Toll said, a sort of What-He-Says versus What-He’d-Say-If-You-Injected-Him-With-Truth-Serum.

So with apologies to Jon and Bob, here is an imagined annotation to Toll’s responses, were he being more candid than the situtation allowed. (To read the full interview, follow the link above. I’ve edited it for space below. The bold are Birger’s questions, the plain text are Toll’s published answers, and the bit in italics is my contribution.)

How bad is it out there?
I don’t see the market getting better until, at the earliest, April of 2008. But I do think that when a recovery occurs, it will be much quicker than it has in the past because of pent-up demand.

Sounds good. Of course we all know there is no pent-up demand for homes. Everyone who wanted one bought one. Or Two. Or Three. Gosh, I loved the early 2000s. By the way, I just know Countrywide will predict no recovery until 2009. Most folks will find them more believeable than me.

I hope these guys have forgotten that I was once predicting that if Americans didn't buy a home in 2005, they would never be able to afford a house again in their lifetimes. I hope they also forget that I predicted a new landed gentry with those who owned, and those who would always be sentenced to rent from the new landed gentry. Why should I worry? Americans have short term memories. Jesus, Angelo Mozilo at Countrywide just said he doesn't see a turn around until 2009. Is he spending too much time at the tanning bed or what? How come he can't get on the same page as me and start spinning the proper spin?

Weren’t you worried about speculation in Florida and elsewhere during the boom?
There wasn’t anything we could do about it. We would make people sign in triplicate swearing up and down that they weren’t speculators, but we couldn’t control whom the builder next door was selling to.

Worried? Are you kidding me? We LOVED it. Do you realize how much our stock went up in three years?

Worried about the run up in home prices which caused a huge panic buying wave and made people all the more addicted to buying Real Estate, no matter what the price? Are you crazy? Our stock price rocketed, our board paid me more options and bonsues, and the mania allowed me to be King of the Universe for a few years there.

Some analysts think new-home prices would have fallen even further if not for all the incentives - high-end kitchens and the like - that builders are offering.
When you start selling homes for $400,000 that were $500,000, all the homeowners who paid $500,000 are going to be in your sales office complaining, saying, “Why are you doing this to me? Why don’t you just put a sign on my lawn saying, ‘I’m a schmuck?’ ” So you’ve got to give incentives instead of lowering prices because you don’t want to be rude, crude and barbaric to your clients.

Believe it or not, most are too stupid to realize that the giveaways are the same thing as lowering the price. Is America great or what?

Americans are to dumb to realize incentives not only lower prices, but also keep the median home price artificially high. If more homes were selling for a real price without incentives, homes in all neighborhooods . . . be them of new housing or old used housing . . . would have to adjust their prices downard, dramatically I might add. We can't weather reality based pricing. Hence, incentives help us hide our pain and nervousness and incentives helps us keep a straight face when we tell homebuyers and the press that prices are not coming down that fast or not coming down at all.

There’s been a lot of speculation that with homebuilder stocks down so much, they might be takeover targets for private-equity funds. Do you see that happening?

I think that every builder has been approached and had conversations, but obviously they haven’t gone anywhere. Say an LBO fund approaches a builder, saying, “Look, your stock was $50, it’s now $25. I’ll give you $30.” Well, why should I sell for $30 when every time the market has come back we’ve gone to new highs?

It’s a good negotiating position, don’t you think? Look, I’m a smart guy. I know that $30 is a GREAT price because we’ll never see another housing boom like the last one in anyone’s lifetime. Truth is, I doubt even the shopaholic private-equity guys would pony up for overvalued stocks like homebuilders right now.

If some private equity guy . . . who are having trouble finding money to borrow after the Bear Stearns debacle a few weeks ago dried up liquidity lending . . . wants to buy us out for $30 a share, I'll kiss his ass and be the Godfather of their children. I'd be happy to make them the last bagholder in line. I'm over this. I need a long vacation.

An Open Response to a Whiny Email Writer: 13 Reasons Why . . . Off the Top of My Head . . . There Is a Downturn in Key West Tourism and Housing

" If you and other crybabies would quit complaining about Key West tourism and housing, then maybe this town would get back to what it was a few years ago."

And that was just the warm up first sentence of a nasty email I received from a local reader of this blog.

Being an opinionated person who thinks for himself, it never ceases to amaze me how many"adults" love to blame me for their crowd mentality decisions to buy real estate or business at market highs.

The person in the above email was blaming me and others like me (I am guessing bloggers such as Cayo Dave and Sally O' Boyle) for his badly timed purchase of a Key West business suffering declining numbers.

I wrote back to this person that I did not know who he was in real life, nor do I ever remember wrestling a prospective Key West business buyer to the ground and forcing them to sign a piece of paper requiring them to buy a business . . . or home . . . at a market top.

I've been asking this question a lot lately: "Where are the adults out there?"

When I lost a good deal of money in the stock market at the turn of this Century, I examined my losses in minute detail. I blamed myself for not having taught myself value investing at a much earlier juncture in my earliest years of purchasing stocks. Instead of learning the true value of a company, I simply listened to unabashed cheerleading of stocks by analysts who . . . unknown to me . . . had interests in "pumping and dumping" those same stocks to sell at a top.

For instance, back in the go go days of the dot.com craze, buy side analysts, i.e., cheerleaders of stocks who were making these incredible calls for "Amazon to go to $600" or "Qualcomm target of $1000", were usually from the same investment bank which had issued shares of the companies in which they were making such outlandish calls. There was no "Chinese Wall" between analysts and their investment banker brethern all in the same bank. Hence, the inbred and vested interests of all in the same bank were put above those interest of small investors such as myself.

Had I listened to Warren Buffet, Anotn Van Den Berg, Sir John Templeton, or any other of the great value investors of the 20th Century, who were warning in 1999 about the insane pricing of Nasdaq stocks and what would surely befall investors who believed they hype, I would probably have a million dollars in my trading accounts today.

The dot.com Bust was my expensive education in "following the herd" and listening to sharpies with "vested" interests in keeping a Ponzi Scheme alive where the "Greater Fool" is the next buyer of the overvalued asset in question.

How am I responsible for your stupidity?

If you, the writer of that nasty email to me, are reading this, I want to tell you what you need to do to cut your losses short: educate yourself and admit it is you, not I and others who are trying to help educate you, who is the baby.

I don't even know what kind of business you are in, yet if you were smart, you'd go to town learning how to market your services or wares better than you are doing now.

As it is, the bar where I work has just expanded our size in a major down market. And we are kicking ass in the biggest block of Duval by paying attention to details our competitors give no thought to.

Our hard earned "winners" knowledge has come at the expense of taking notes, experimenting, using the Scientific Method and Scientific Advertising to crush our competitors. You can apply these same methods to whatever business you might be in.

Okay, I'll give you one secret: use headlines in all your advertising . . . and test those headlines over and over to see which work best.

As the DJ in our business, I use "spoken headlines" which I've tested over the years to make our customers laugh, think, and then try out new features in our club, or come back 2 or 3 times a night.

Every winning headline is something I've documented by asking customers and my co-workers, "Are you back because of A or B?" "Did your client come back because of A or B?" "Am I repeating this headline too many times in a night?" "Am I not saying that headline enough?"

Many times, locals will come in and chat for a second or two and tell me, "Yeah __________ Bar is already closed . . . ." and here my bar, in the same business, is kicking ass with 130 people inside at 2:00 AM.

The competitor just down the block has no cover charge, beers are $2.00 cheaper than our place, and still, I keep hearing how they are going to kick our ass when they get their new addition open. In fact, the head carpenter on the property at this bar I'm telling you about recently told me how their new bar was going to "put us out of business." And then he went on complaining about how our drinks are overpriced, how he would never pay a cover to come in any bar in Key West, and so on and so forth.

And I thought, "Yep, YOU, may not want to come in our place, but tell that to the hundreds of people who visit us nightly and who are staying longer." The reason we charge our price (on the mainland stripclubs charge 4 times what we charge at the door, and many charge more for beer and drinks than we charge) is we offer a superior product which people feel no problem paying for once they've seen what we've got. Once you come into our club . . . especially if you visited our two competitors . . . you would gladly pay four times what we are charging at the door and more than what we are charging for drinks for now.

Put it like this: let's say you have a choice of visiting Sloppy Joe's tomorrow night to hear the best generic Classic Rock band on the island. Okay, they might charge you $3.00 cover. Meanwhile, let's say I've got a maximum occupancy of a club space down the block of 300. I hire this little band called the Rolling Stones who owe me a favor from the 60s. I charge $1,000 per ticket. I sell out and have people massing on the sidwalks in such big lots that the KWPD has to close off Duval Street while Sloppy's sits empty.

It's a case of getting your money's worth. Would I pay $1000 to see the Rolling Stones for four hours in an intimate bar setting? You bet I would. And millions more Boomers would do the same.

Hence, you get what you pay for. You can demand more for a superior product. In fact, I will go so far as to say our competitors are stupid in having cover charges only on weekends for the same entertainment you can see free on the other five nights of the week. We don't play no games at our place. We don't have "All You Can Drink - $10" or "Heiniken - $3.00 a bottle" nights or whatever. Why? We don't need to. We've got the best show in town with the best looking entertainers.

Our competitors in this town will never come close to matching our growing business until they learn the hard earned "secrets" of marketing our business correctly. The way they market stamps "Loser" all over their name.

I am telling you this because I not only know you can survive during down times, you can thrive too. I know this as my club is doing just this right now. If you want to succeed like us . . . or the successful mom and pop coffee stand owned by some hard working Mexicans I know and love . . . you simply have to go to school on your business and execute it better than any of your competitors. If you spen your energy whining about outside factors you cannot control, you will not be in busines much longer. Period.

I love competition

What I don't like is for expletive filled finger pointing email from an insecure business person claiming I and other chroniclers of Key West's current downturn in Housing and Tourism are the main reason for your suffering. That's so ludicrous that I laughed many times at your email and wondered how it is, yet again, that another Key West worker/business owner can't understand they are doing something wrong.

Look, I've worked with many good people in this town who got fired for disobeying rules and who made it hard on the good employees who always show up to work on time, sober, and who don't rely on drugs or alcohol to get through a night. Still, to hear it from these employees who were fired, or who quit and badmouthed our club and who now want to come back, you'd think their problems were caused by outside "bad people" who threw them under a bus somehow.

It's like you, you are blaming your bad business on bloggers and negative people from Key West.

If I knew who you were, I would bet I could walk into your place and see 101 things wrong which I would change immediately to improve business. I'll bet you are like 99% of all businessowners who don't even have a monthly, quarterly or even yearly personal message sent to your best customers.

And I'll bet you don't treat customers like clients. And I'll bet you don't know the difference between the word "customer" and "client".

As it is now, there are dozens of things in my successful nightclub which I would be doing differently. But I don't own my club. I can only make suggestions. But the difference between you, the writer of that ugly email, and my bosses of my club is that my bosses are risk takers who never stop innovating and experimenting with the way we do things. We do a little something differently every day.

Sometimes my bosses do something and I go, "What in hell are we doing that for?" And then their suggestion works in Spades and kicks up revenue and earnings another notch. And I learn from their successes as well as their disappointments.

On the other hand, sometimes I or a manager will over-ride one of the bosses decisions which doesn't work, and our change in format, lighting, position of tables, whatever, works better than the initial decsion our bosses made. My bosses don't fight us. They don't feel like we've slighted them.

From my end, I never, ever quit experimenting with spoken headlines pushing our benefits of our club and the whole entertainment complex. What I make look or hear simple, took many years of experimenting in seeing what worked. I also keep our music fresher than any club in town . . . and this includes the dance club down the block, the big bar which hires bands and has a DJ on break, the new hip hop club down by Mallory Square, and all the gay clubs in town.

My next new idea for music is to have cards printed up with our business logo and the words, "Artist" and "Title" printed on the face of the card with a "Thanks for dropping by, DJ Rock" printed at the bottom with my signature in blue. Now this may seem like a small thing to those of you who have never deejayed, but let me tell you, since we've opened up the new addition of our club a few weeks ago with the best sounding PA in Key West and a deejay booth which is more accessible to the public . . . our numbers of clients who come to me to ask the names of songs has skyrocketed. If I as a DJ can take a 60 year old man and turn him onto a new "Gabriel and Dresden" trance fan, I know I am excelling as a DJ. If I can write that on an officially pre-printed card, it tells clients that we are so cutting edge that we are constantly breaking the freshest music in town and going the extra step to provide them with the knowledge of this new music . . . no sweat to the DJ.

I am not the reason we are so successful in this market downturn.

A good business takes teamwork. I am but a cog in the machine. But our machine runs better than our competitors.

Most importanlty, we know what business we are in and how we can keep getting closer to perfection in the selection of our Number One asset . . . which I'm not going to discuss here.

But I am going to give you, the writer of the scathing email to me, another ace suggestion: you need to find your Unique Selling Proposition of your business. You need to push that top selling USP in all your advertising...

And you need to execute better at whatever it is you do.

Here are 13 reasons why off the top of my mind there are fewer tourists in Key West

Again, if you are the owner of the business who cried about your problems and blamed me and others for your downfall and the downfall in Key West housing and tourism, you need to educate yourself.

Here are just a few things you might want to think about:

1. Nationwide, this is shaping up to be the worst Housing bust since the Great Depression. No less an authority than Angelo Mozilo, ( and this blog's first Real Estate Weenie of the Week) CEO of Countrywide Financial, the nation's biggest lender for home loans, said last week this is the worst crash in new housing since the Great Depression.

CEO Angelo Mozilo of Countrywide Financial also said last week:

• The housing market will not "return" until 2009. (Note: In 2005, he said the bad Autumn figures were just a bump in the road and that housing would come back and take off again in 2006. In 2006 he said the worst of the "slump" was already factored in and housing would bottom by 2007. Now it's 2007 and the "Moz" is warning the "return" is not in 2008 but 2009. You see how his cheerleading has been revised time and again?)
• Alt-A borrowers with better credit than sub-Prime borrowers are "starting to miss payments at a higher rate". What the "Moz" did not mention is that Alt-A borrowers are now growing in default at a faster growth clip (percentage wise) than sup-Prime borrowers. (Famous economist Ed Yardeni called Mozilo's confession " the first piece of hard evidence that the subprime mess may be spreading.")

2. If you paid attention this past week, the Stock Markets in the USA all had 5% or greater losses for the week. For the summer, retailer and restaurant stocks have been particularly hammered.

This past Thursday was a big down day. The news which moved the markets downward that day was new home home sales fell 6.6% this past June and that the National median price of all homes has fallen 2.2%.

(Please pay attention to the Key West's NAR sponsored ad in today's Key West Citizen . . . which I will run out and purchase in an hour or so . . . as it will contain the ad with many bullets of lying "facts" to get you to buy Housing today and which they have been running for months without any corrections whatsoever . Among their "facts" is housing median prices are going to go up this year. Never mind the new reality of numbers coming out of the Fed and elsewhere.)

3. America's Gross Domestic Product, or GDP, has been kept alive by the almighty American Consumer who has maxed out credit cards. We are a nation of negative savers and Nationwide consumer debt is at an all time historical high.

4. America's GDP has been kept alive by consumers tapping into what seemed a few months ago was an inexhaustible Housing ATM. Now, however, with declining home prices, many consumers owe more money on their home loans than their houses are currently worth in a declining market of prices. They are "upside down" on their loans.

Realizing that EZ Credit, Liars Loans and Home Equity Loans are drying up, you will begin to understand another important reason for the disappearing tourist: You cannot borrow from your house by refinancing yet again if your $555,000 starter home is now only worth $400,000 on today's open market. There's just no way it's going to happen. Hence, the "wealth effect" is turning into a "poverty effect". And when Americans can't borrow more to live a lifestyle they are accustomed to, they cut back on expenses.

One of the first things to always go is that "expensive" vacation far from home. Instead of Key West, well, if they are in Virginia, they might do daytrips to the beaches up there, Busch Gardens, Kings Dominion, etc. Vacationing close to home is the new reality this summer. Just read USA Today.

5. Margin loans for stock purchases are at an all time high. The majority of this margin (as documented in Barrons Weekly last week) in this market has been used by big time funds and firms, not individuals such as myself. This is a reverse from the days of the NASDAQ wipeout in 2000. Back then, everyone you knew was margined to the hilt and we were all going to become millionaires because "it's different this time."

Why is this larger misuse of margin by Wall Street important to understand? Because Wall Street uses black box modeling to buy and sell stocks. Hence, future downturns are likely to be more dramatic than past volatility if a panic to sell ensues. Firms selling millions of shares of an issue their black box says to sell will play havoc with our markets, crushing stocks which are assigned to companies which use Crack Cocaine Accounting.

6. Leveraged hedge funds are using Great Depression type margin of 10 to 1 or 15 to 1 on their overexposure to deriviatives in stocks, bonds and especially mortgage backed securities. A few weeks ago, we saw the first pop in Hedge Funds when Bear Stearns saw two of its hedge funds become basically worthless as their over-leveraged bets on Mortgage Backed Securities dressed up as CDOs went wrong. If you were a big investor, say a doctor, lawyer, or CEO of a company, who bet millions of dollars by handing all of your investment money to either of these two Bear Stearns hedge funds, today, you have nothing.

7. Peak oil is a certainty. And more oil is becoming nationalized while 3 billion new Capitalists are helping demand outstrip supplies. I feel $100 a barrel oil is just around the corner.

Goldman Sachs recently said they feel $100 a barrel oil will happen in the next 2 years.

Matt Simmons, respected oil analyst and writer of "Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy" was quoted this week on Bloomberg TV saying he feels $200 a barrel oil is going to happen sooner than most analysts think. As oil prices continue to increase (we are only $1.00 and change away from another all time high) people see "vacation" drives or boat excursions as some of the first "expendables" when looking for ways to cut expenses from their housing budgets.

7. Boat repossessions in Florida are at an all time high. Inventory of used and new boats in marina yards are at an all time high. If you own a house, a car, and a boat, the first thing to cut loose is the boat when you are a strapped homeowner. Stocks for boat manufactureres are down 60 to 80% across the board. This is one durable goods sub-sector of the stock market which is actually in the crapper with homebuilder and lender stocks.

8. Last week a front page article in the Key West Citizen told of Scientists discovering raw sewage in the waters of our reefs. As documented on this blog and others by first hand observations, our reefs are dying quickly. Complaints are numerous on sightseeing snorkel trips to Sand Key and other nearby reefs which now look like moonrock instead of the heatlhy colorful coral which was flourishing and protecting many fish species just a short 15 years ago.

9. In 2004 and 2005 we had 8 hurricanes brush or directly hit the Keys. If you don't think foreigners and American tourists who lost deposits due to forced evacuations haven't traded stories on Internet travel sites, then you simply ignore one of the best "free" business research methods I know for any business anywhere. Find out what people are saying about our product or service. Go online.

10. Foreigners hate George W. Bush, and right now, America is the nation most feared on the planet thanks to an uncompromising, stupid, foreign policy directed by corporate policy. There has never been a time in my life where "The Ugly American" has been bigger in Foreigners minds. Thanks to Neo-Cons expending all the 9-11 good will the world sent our way, we no longer are a country where foreigners feel wanted, nor do they love us for our meddling in other countries.

11. As jobs get tighter in Construction due to the fall off in housing starts, you will hear more and more calls to boot immigrants out of the country. Indeed, without the immigrant workforce in Key West, whether illegal or legal, this town would fold as more businesses would not be able to find Americans who are willing to work for minimum wage or thereabouts.

11. Minimum wage increased, by law, from $5.15 to $5.85 just recently. This time next year, that will rise to $6.30 per hour. Two years from now, minumum wage will be $7.25. (Senator Ted Kennedy is calling for a minimum wage of $9.50 by 2009.)

This is the fastest rise in minium wage ever. And this will pressure inflation of prices on everything you buy at the store and if you own the store, from your suppliers. As minimum wage forces more cutbacks on businesses everywhere in the USA, unemployment will rise sure as the sun rises and sets every day. Get ready for massive layoffs and further rising prices.

12. The goverment has inflation clocking in at 3%, give or take a few percentage points. However, Austrian school economists see US inflation running at a current real rate of 8 to 10% at this time in history when oil and food stocks are seeing double digit gains in prices year over year for the past four to five years. Tell a local cab driver that "inflation is in check" (as the Fed would have you believe) after he or she has to fill up their gas tank at the end of every shift with Key West gas which costs 100% more than it did not even three years ago.

13. Lastly, fewer hotel rooms are on the market. And the new ones coming online will cost more to stay. Look at the Santa Maria condo/hotel. It is empty during the week. Its $400 a night rooms draw no buyers while a half-block away, rooms going for $150 at any of six smaller motels are busy. Although there are plenty of "vacancy" signs all over Key West . . . even during season this year . . . the hotel and motel rooms which are more reasonably priced were selling out during high season.

This week, the Key West Citizen ran a front page photo of the demolished Atlantic Shores with accompanying story of rooms which used to cost $175 during high season tells us the new prices of the new rooms will go for more than double.

Question: Do you think the owner of the Atlantic Shores is doing the right thing when he could simply look right across the street at those empty Santa Maria condos which aren't renting during the week?

A price wall has been hit. $300 to 400 a night in Key West is way too much. Tourists are voting with their wallets. A room is a room. You don't come down here to spend all your money on a room which sets you back 3 or 4 C notes a night. A room doesn't entertain you. It doesn't get you actively invloved with our beautiful outdoor surroundings. Who needs to overspend on a room when you can rent cheaper digs and use the savings to buy a four course meal at one of our 5 star restaurants, or pay for a couple of jet ski rentals for a few hours?

. . . and there are other factors I could quote to you, Mr. Whiner, the writer of the nasty email to me.

But I feel just these few facts I've stated to you will go right over your head. You strike me as the type who expects riches to come to you easily, as long as observers of failing economics will shut their mouths and not try to to warn others of the new reality. By blaming me, instead of market and ecological forces, for your downturn in business, you show an immaturity that sets you up to be fleeced by moneyed people who study markets, marketing, business and money.

All I can say is "educate yourself".

Smarten yourself up.

And always question authority.

Especially question those who look at you as their next commission check.

And don't believe a damn thing coming out of the mouths of our politicians . . . especially this dangerous bunch in power for the past 7 years. These guys have set you up . . . and tens of millions more hard working Americans . . . as their fall guys by using your ignorance against you.

Blame me all you want, but if you persist in your stupid prejudices and short sighted opinions, you will only continue to wipe out your wealth.

Be a man. Look yourself in the mirror. Admit your mistakes. I didn't bend your arm to buy your business in a declining tourist market with the worst Housing Crash since the Great Depression while oil and food prices are skyrocketing. I am not the cause of your pain. You are.

'Nuff said.

p.s. Buy any number of books from either Gary Halbert or Dan Kennedy on marketing. Put their smarts to work for you in your business. Quit blaming others for your immaturity and sloth.

Ohio: "A tsunami of Foreclosures is on the way!"

So Many Mortgage Related Problems in Ohio, Legal Aid Can't Handle Them All . . . What's More, It's Going to Become a Lot Worse . . .

Every once in a while, you read a short news item on the web which doesn't make the front page of say the New York Times, Raw Story, the Drudge Report, USA Today, etc., yet the story contains something which tugs at your heartstrings.

I read such a story just moments ago.

Ohio’s Foreclosure Prevention Task Force held its fourth meeting today in what was billed as an opportunity for borrowers facing foreclosure or people who’ve been through the foreclosure process to tell their stories.

Instead, almost all of the 21 speakers who signed up were officials from agencies that represent borrowers or businesses involved in mortgage lending – and all had an opinion on how to stem foreclosures in Ohio, which rose 24 percent in 2006.

Mark Lawson, a senior attorney for the Legal Aid Society of Southwest Ohio, told the panel that his organization has so many people calling for help with mortgage-related problems that it can’t begin to handle them all.

“This is an epidemic. You think it’s bad now? You have a tsunami of foreclosures on its way,” said Tom Conley, a self-described foreclosure intervention specialist from Columbus who said he went through a foreclosure a year ago.

Investor seminars are being offered around the country teaching people how to profit from people saddled with overvalued houses and mortgages they can’t afford, Conley warned.

Gov. Ted Strickland set up the task force this spring to foster foreclosure prevention, as well as intervention and strategies to assist distressed mortgage holders. The task force includes representatives from local governments, lenders, non-profit sector and private sector..

Inside this story is vignette about a scumbag Realtor who also wears the hats of mortgage broker and construction contractor. This man took advantage of an ignorant working woman. Here's the few paragraphs detailing how this poor woman was deceived by a black hearted businessman who is probably still out there making more deals of this type.

(I know a similar Realtor/Mortgage Broker in Key West with the same sociopathic tendencies. I pass this along as a public service. The more stories like this you read, the lower your chances you will be taken advantage of in the future when you decide to finally buy Real Estate.)

As I've said before on this blog: don't put your trust in strangers who only look at you as a big hefty commission:

Lawson cited one example of an unidentified woman who bought a two-family house in 2005 with an adjustable-rate mortgage that started with an interest rate of 9.5 percent.

The property was appraised at $130,000, although an earlier appraisal put its value at only about $70,000.

She bought it on the recommendation of a real estate agent who, Lawson later discovered, was an owner of the company that arranged the mortgage.

The loan included $15,000 for repairs necessary to make the second unit rentable, which the real estate agent contracted to perform himself, Lawson said. The repairs were never completed, and the woman will probably have to give up the property, he said.

Real Estate Weenie for This Week: Angelo Mozilo

Yo, Angelo, You Might Be Full of It . . . But You Look "Mah-velous"!

Meet the CEO of Countrywide Finance, one of the biggest lenders in the USA for people seeking to buy a home.

In a Reuter's newswire story from yesterday, Mr. Mozilo shows that he is not altogether cognizant of the abuses his industry has pushed upon American homeowners.

The story is short . . .

Countrywide Financial Corp Chief Executive Angelo Mozilo on Monday said regulation in the subprime mortgage industry will help crooks while hurting lenders and the housing market.

"It's better for the crooks," Mozilo told Reuters before speaking at a Mortgage Bankers Association conference in Manhattan.

"It's only the good people who have to comply. Regulation, in my opinion, has caused part of the problem. When they attacked the pay option and interest- only loans, that really put a dent in a lot of the product, which is perfectly good product."

Mozilo also said current guidelines proposed by regulators will exacerbate problems in the housing market.

"The reason why people can't sell their houses is there is (sic) no buyers around," Mozilo said. "And there are no buyers around because they can't get the financing."

Now let me get this right: the lending industry is filled with crooks and white collar slime who've taken advantage of ignorant working class folk who could no more afford a $550,000 home in 2001 than they could in 2005 when they were pushed to just forget the 24 pages of the loan application and sign on the dotted line.

But all of a sudden, these swine have sprouted halos and angel wings and now these pigs really can fly?

Let's get real here, Mozilo. You and your cronies went on a feeding frenzy during the Housing Bubble. You sharks handed out loans to anyone who could leave vapor trails on a mirror held under their nose. And now you want to blame the problems of your business on there not being enough buyers because the government is stepping in and ruining your Ponzi Scheme by actually tightening up on things like falsified No Doc loans? Is your brain connected directly to your rectum Mr. Mozilo? I ask, because your thinking sure is stinking.

Mozilo, if you ever lose your job, you could go to work spinning the Big Lie for Fox Network, Muqtada al-Sadr, Vladimir Putin, Rush Limbaugh, CNBC, Hillary Clinton, Alberto Gonzales, the NAR, the Neo Con side of the Republican Party, Fidel Castro or Hugo Chavez. Take your pick, you're a lock and a crock, Mr. Coppertone.

Mortgage Payment in Key West Goes From $4,000 to $7,250 Overnight

A Two Beer Conversation About a Friend's Interest Only Loan Kicking Into a ARM: Mortgage Payment Almost Doubles

Yesterday, I completed a run out on the new South Roosevelt seawall. It was quite humid, but looking into the clear waters lapping the wall, I saw many fish and sea urchins which helped me take my mind off the heat and pain.

Once my run was complete, I decided to grab some take out to eat.

I made my way over to this new restaurant, Dante's at Conch Harbor. When I walked up the stairs, there was literally no one there except for a few bored employees and maybe 6 customers.

I thought to myself, "These guys spend thousands a week on half-page ads in the Citizen. They are never going to make it."

Before I had run in to the place, I had seen a friend of mine from a bar located half a block from mine walk into P.T.s. When I exited Dante's, I beelined into P.T.'s.

He sat at the uncrowded bar. I sat next to him. We exchanged cordial greetings. He and I have never spent anytime together outside our respective work places. Like me, he works late night hours (he was going to work yesterday and stoking up on P.T.'s food) and I decided to keep him company as he ate.

This guy is in his mid-30s.

We got to talking about a couple of DJs who had moved on from his bar, guys I either trained or opened the door to by giving them shots in the DJ booth.

During the midst of our conversation I learned that one of the guys used to be my friend's co-owner of his house.

I said, "You own a house in the Keys?"

My friend said, "Yeah, but it's more like it owns me."

He went on to explain: When he and this former DJ/Friend of his decided to buy a house 50/50 ownership, they were hooked by a local mortgage company to use an "Interest Only" loan in the first 3 years of the loan.

He told me $4,000 was the initial monthly mortgage payment.

The home is a three bedroom house with a guest cottage out back.

When the DJ lost his job, this guy I was talking to bought out the interest of the now impecunious DJ.

How to Make Your House Payment Without Losing Your House

During the first 3 years of the loan, this bartender I was talking too had made 36 payments of $4,000 without a single penny going to the payment of principal. For those who can't do the math, that's $144,000 in payments over three years made to a lender so you can call yourself "Homeowner".

Recently, the IO part of his loan kicked into an ARM.

As hinted in the title, his new payment . . . some of which goes to paying off the principal of his loan . . . has skyrocketed to $7,250 overnight.

Understand, this is a bartender in a bar which has its busy moments on the weekends (he has seniority and works the lucrative weekends) but this is also a bar which is not busy on many other nights of the week. At best, my guess is this guy probably tops $1,250 to $1,500 a week in tips on good weeks. And his bar is no longer the busiest bar on Duval Street as many newer bars (a bar in my bar's entertainment complex is beginning to eat into his business).

Furthermore, numbers shown on the Chamber of Commerce website show two years of declining cruise ship and airport arrivees coming into Key West.

And to top this off, the fewer tourists coming to town . . . (I call them Harley Defecit riders) . . . have fewer bucks to spend and our trickle down economy just isn't hitting on all cyclinders like it was for the past 15 years of "letting the good times roll."

So, my friend is working in one of those famous Key West Bars which is suffering from declining numbers and tourists with less pocket change.

He gets no paycheck from his bar.

Yes, he gets $3.00 an hour, but due to IRS regs, he is taxed on the amount of sales he registers every night at a 10 or 15% gratuity rate (I can't remember what he said), so he's never received a paycheck yet for more than 0.00 cents.

Do the math.

This guy makes about $5,000 to $6,000 a month in tip money.

That will not be enough to make his mortgage payment. And this fellow has to eat, buy insurance, buy gas for his scooter, buy consumables such as toothpaste, contact lenses, etc.

So, with his back against the wall, he did what most homeowners will not want to do to save their homes: he rented out rooms.

His small guest cottage rents for $1,150 a month.

His rooms rent out for a little less than that.

He's got four roomates, little privacy, and is working to pay off the man.

If his house does not appreciate (it has lost value since he bought it 3 years ago) at a faster clip than inflation (which the government says is clocking in at about 3% or a few basis points below), this friend of mine is basically renting money so he can add the title "Homeowner" next to his name.

By the way, he tried recently to lower his payments with a refi loan. No one would help him out, despite one bank (First State Bank) advertising everywhere they have $250,000,000 to lend.

I would not wish this $7,250 payment on others I know, but I feel this is the way it is going to end for many . . . or worse.


p.s. Today I am calling an aquaintance of mine out in Washington state who specializes in Mortgages.

As I stated in an earlier post of mine, two of my co-workers have IO loans - both of which are $4,000 a month at this time. Neither have seen their ARMs kick in, but I know for a fact if their payments rise to $7,250 it will crush them both.

As it is now, one of my co-workers is suffering under the yoke of a $4,000 IO monthly mortgage payment. She is the one who told me a few weeks ago that she is working so much to pay off her "peeeeemp" (i.e. pimp in her best Argentinian English) and as I explained in my blog post, the "peeeeeemp" is her condo she co-owns and is, like almost every property in the Keys, losing appraisal value every month.

This lovely lady has just split up with her boyfriend with whom she co-owns this overpriced condo.

The boyfriend still lives in the condo. It's in his name as she could not have established credit to buy it on her own. She is an honorable person who refuses to walk away from her debt that she told another human being (her ex-boyfriend and her lender) she would pay. But weighing on her mind is the fact she's lived in this condo for what seems "forever" and she's never paid one penny to pay down the principal of her loan. And now her loan is for a mortgage on a condo which is depreciating every month . . . like most condos all over South Florida. And the ARM has yet to kick in.

Her problem is she wants to get out from this loan. The boyfriend is paniced. He wants to sell the condo before the ARM kicks in, or at least get a refi that he can afford.

The condo is now appraised $100,000 less than when they bought it . . . and similar condos are actually selling for $160,000 less at this time. What they are looking to do is a Short Sale back to the their lender.

There is another big problem too: their lender was not a bank in the Keys. Their lender was one of these "chop shops" which sell loans as a 3rd party. Their lender has probably already sold "the paper" of her loan to a big New York bank. Furthermore, that bank has probably sold different tranches of this paper to hedge funds and private investors. So how does one trace the entity who actually holds your mortgage if different portions of it were sold here, there and everywhere? I don't know. I have no idea how any of this Short Sale or refi stuff works under these new ways of spreading risk from mortgage lenders.

What are the chances of this lady getting a Short Sale or a refi? I'd say as much chance as a snowstorm in Key West.

So what can this gal and her ex-boyfriend do? I have no idea. I'm not in the mortagage lending business. So I will call a pro.

Stay tuned, I'll let you know if I find any solutions from my friend in Washington.