Here we are on Friday again.  That means that it’s time to try to summarize what’s going on in the mortgage and finance world.   I’m going to talk about a couple of main things:  the economic fundamentals, some earnings reports and the “margin calls” that are going on in the equity markets.

The economic fundamentals that have come out in the last week or two have all been, shall we say, poor.   Not just in the United States, but England, Asia and other places, the economic reports all show pretty solid evidence that we are either in or heading into (depending on where you are) a recession and that it’s most likely not going to be a short recession but more likely the opposite – a long and painful one.   I’m not going to go into the details of the different reports because it would be too depressing.

Earnings Reports (or shall we say, loss reports?)   I’m going to do something a little different this time.   I’m going to give you the numbers and then later in the e-mail, I’ll tell you who they matched with.   Here’s the numbers:

-$81,000,000
-$700,000,000
-$23,900,000,000
+$4,370,000,000

(oh and these are all just for the most recent 90 days).

Here’s the choices for the companies who made them:

National City Bank
Microsoft
Fifth Third Bank
Wachovia
I’ll tell you a bit further down which one did which……

Now for a few thoughts about what’s going on in the equity markets and how that has an impact on the mortgage and real estate markets.   Here’s an overview of it:

1. The mortgage backed securities market is a highly leveraged market.

2. As approximately 5 to 7% (that’s right, it’s only 5 to 7% of all mortgages that are causing this problem) go bad, the value of the mortgage backed securities (also known as Collateralized Debt Obligations or CDO’s) fall dramatically.   Since they are highly leveraged, the investors have to come up with additional cash, typically lots of it.

3. That is, in an oversimplified nutshell, what is causing the significant sell offs in the stock market and the bond market at the Read more