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Five Things You Need to Know: You Can't Stop It, You Can Only Hope to Contain It; We Have a Leaking Container in Aisle Two; Aisle Two Cleanup Crew; Game On!!!;


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. You Can't Stop It, You Can Only Hope to Contain It

Let's get right to the point. According to this morning's New York Times, regulatory filings show that mutual funds that specialize in generating high income are exposed to subprime mortgages.

  • The Regions Morgan Keegan Select High Income Fund, a $1.2 billion portfolio run by Morgan Keegan, held $159 million, or 13% of its portfolio, in unrated mortgage-backed securities, the Times reported, including a $3.4 million holding in home equity loans underwritten by New Century in 2006.
  • Legg Mason Partners Capital and Income Fund, a $3.4 billion fund, also owns home equity loans issued by subprime lenders, the article said.
  • And funds that are part of the American Skandia Trust also apparently own mortgage securities issued by troubled lenders.
  • Oh well. No worries.
  • Everyone knows that the subprime mortgage fallout is, as any one of a handful of Federal Reserve folks have said, or as US Treasury Secretary Hank Paulson would put it, "largely contained to the subprime market."
  • OK, OK, so maybe the subprime problems are contained to the subprime market and also the Alt-A market.
  • And contained to mutual funds too.
  • And also contained to pension funds.
  • And contained to General Motors, which will be forced to add $1 billion dollars of equity to ResCap, its residential lending unit.
  • OK Fine! Fine! So, we'll say the subprime problems are contained to the subprime market, the Alt-A market, mutual funds, pension funds and General Motors. But that's it!
  • Oh yeah, and also the Building and Construction industries. Dang!
  • And tax preparer H&R Block. Come on! That's enough!
  • OK, so to summarize: The subprime problems are strictly contained to the subprime market, the Alt-A market, mutual funds, pension funds, General Motors, the Building and Construction industries, H&R Block and to Teeny Tots, a small daycare center in Steubenville, Ohio, which reportedly used surplus "recess playtime" funds to buy $417 worth of unrated mortgage-backed securities. But that's it!

2. We Have a Leaking Container in Aisle Two!

The Mortgage Bankers Association, in its quarterly snapshot of the mortgage market released yesterday, reported the percentage of payments that were 30 or more days past due for all loans tracked jumped to 4.95 percent in the October-to-December quarter.

  • Delinquencies among subprime mortgage borrowers hit a four- year high in the fourth quarter, the MBA said.
  • The MBA said 13.33% of subprime borrowers were behind on payments in the quarter, the highest rate since the third quarter of 2002.
  • Meanwhile, the percentage of payments that were 30 or more days past due for all loans tracked jumped to 4.95% in the October-to-December quarter.
  • And the percentage of mortgages that began the foreclosure process last quarter rose to 0.54%, a record high.
  • The previous high, 0.50%, occurred in the second quarter of 2002.

3. Aisle Two Cleanup Crew

"It's OK. We're from the government, and we're here to help." Let the aisle two cleanup begin!

  • Senate Banking Committee Chairman Christopher Dodd yesterday said lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes.
  • Foreclosures involving homeowners who took out subprime loans from 1998 until 2006 could cost $164 billion, Dodd said, citing a December study by the Center for Responsible Lending in Durham, North Carolina, Bloomberg reported.
  • Congress "may need to do something much more quickly to provide some protection or you could end up with a lot of poverty and blight,'' Dodd said according to Bloomberg.
  • He added that Federal aid of a few billion dollars "may be a lot less costly'' than $164 billion in lost wealth.
  • Sweet, we're all for saving money!
  • Of course, government intervention in failed industries, and in housing in particular is nothing new.
  • The Farm Credit Act of 1933 offered short-term loans for agricultural production as well as low interest rates on short-term loans for farmers threatened by foreclosure.
  • During the Great Depression, it is estimated that about three million people were forced to move off their farms.
  • During the peak of the foreclosures and property auctions during the Great Depression, homeowners and farmers resorted to intimidating bank and auction officials and potential property bidders with guns.
  • And long before the Great Depression there was Shay's Rebellion, an uprising in Massachusetts of several hundred farmers who marched on the state supreme court to prevent foreclosures and debt collections.
  • Before we all sit back and say the government has no business rescuing at-risk borrowers, consider the reality of 2.2 million people facing foreclosure.
  • Makes Shay's Rebellion and a group of farmers intimidating auction buyers during the Great Depression seem almost quaint, no?
  • Perhaps that's what Dodd means by "blight."

4. Game On!!!

According to an interview in the Financial Times, Barney Frank, Democratic chairman of the House Financial Services Committee, is drafting legislation to overturn to the widespread ban against online gaming passed last year.

  • Rep. Frank called the ban, known as the Unlawful Enforcement Gambling Act, one of the "stupidest laws" ever passed and said he wanted to "repeal" the law, according to the Financial Times.
  • "I am working on legislation to cut back on this internet gambling thing….I think it's preposterous," he said.
  • Former New York Senator Al D'Amato, who is now chairman of the Poker Players Alliance (Seriously!), said in a recent interview with the FT that he believed Congress should create a regulatory structure to police the industry and be funded by licensing fees.
  • Watch for this subject to gain traction and attention in coming months.
  • The US Treasury is currently drafting regulations that will implement last year's ban and the rules will be presented for public comment sometime in April or May.


Today's Financial Times article about online gaming raises a number of questions. For example:

  • Will Barney Frank be able to successfully repeal the ban against online gaming?
  • What are the odds that he'll succeed?
  • And by the way, do you have a MinyanBet Players Reward Card?
  • Did you know you could be earning valuable MinyanBet rewards points for every dollar wagered at
  • How do we get away with offering MinyanBet in the first place?

    Below we look at the potential outcomes of the Frank bill to resurrect online gaming. Online Gaming Legalization Pool

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