I received a call this morning to comment on Wilbur Ross' article in the Financial Times. My first comment was, "why didn't he use the Wall Street Journal, New York Times or one of the other great American media sources? I found that odd, until I read the article.  NOTE: Mr. Ross has created the second largest servicer of subprime mortgages through, in part by acquiring American Home Mortgage and Option One when no one else wanted to look at them.
    So here are my comments . . . Is he kidding? Or what? I had to read it three times. Then I printed it out and read it two more times. Wilbur Ross is basically asking for a bail out. He went on CNBC a few months back and boasted day, after day after day about how smart he was and how he was buying up subprime at bargain basement prices. And we had to listen to Maria and Beckie and all the other talking heads crow about how smart he was for getting in on the "bargains." Well, look back at my commentary then. I said he was too early and didn't appreciate the magnitude of the problems. And now just a few of those problems are coming to light . . . just a few. 
    I've been writing about the tidal wave of defaults moving into foreclosure and then into REO inventory. It has not slowed. If anything, as I said just yesterday, things are heating up. So for Mr. Ross to now come up with his own creative bail out, we must really be headed for something dark. This is coming from a man with extreme integrity and a reputation of being right on the money. In my book, Mr. Ross is up there with Buffet and Graham.
    Mr. Ross proposes that the FHA guarantee dollar for dollar existing troubled mortgages on primary residences for each dollar forgiven by the lender. And the lender should be able to resell the guaranteed portion of its principal amount. This is absolutely ludicrous. He's asking for a back-door bail out because he bought what he thought was a bargain. He is now acting no differently than the flippers that bought homes to flip. Instead of pre-construction condos, he bought pools of mortgages to service and flip. So please tell me why taxpayers should have any part in the bail out of Mr. Ross?    
    I love the part where Mr. Ross downplays the risk to the FHA, when he points out the FHA's payments on losers would be spread over many years. Big deal. A loss is a loss is a loss. But here we go again trying to creatively hide the loss and give it a little coating of syrup. Isn't this what got us into this in the first place when Greenspan gave out money with essentially no restrictions. In this case, the syrup is sticky and a little, tiny, wee bit stinky. And it gets stinkier . .
    Mr. Ross offers an enticing piece of pie, when he proposes a plan where the FHA would share in the gain on the property sale. Pie? Did I say pie? It's more like KaKa de Poop. And it gets stinkier, because Mr. Ross claims the "appreciation on some sales would more than offset losses on foreclosed homes." He must be kidding. But at this point, I don't believe this is Mr. Ross writing what I am reading.    
    Two problems with the "pie" are: (1) does he really think there is a sensible way to determine and manage profits (not a chance), and (2) we still have another ugly leg down, where there will be huge additional losses (not profits). So just because Mr. Ross jumped in too soon, he wants what essentially amounts to a bail out? I didn't hear him talking about sharing all the profits he was intending to make when he bought up all the garbage. I didn't hear him offering a cut of the pie to FHA or anyone else, so why does he expect FHA to provide a back-door bail out?
    Let's face the music. A lot of folks made huge, obscene profits on the housing bubble. CEOs at the big builders raked in $100M each over just a few years. Stockholders of the publicly traded builders saw their shares rise 300-400% and more. They made fortunes. And the guys on Wall Street packaging up the mortgages and selling them . . . and reselling them, and reselling them again, and slicing them up and reselling them again . . . these guys made billions. And none of this could have happened if the mortgage rating agencies and insurers were not accomplices to the obscene profits. 
    Unfortunately, there are losers in every trade. Just wait till we see the flood of lawsuits from pension and retirement funds that bought what they thought was safe. These are the big losers that were suckered into purchasing crap. There is no other way to describe it. Crap is crap. So if Mr. Ross wants to talk about a plan, he better start with how to help the guys that got stuck with all the junk paper when they thought they were buying top shelf. If we need a bail out, it is for the pension and retirement funds that are going to be wiped out.
    There are other losers. There are the flippers that saw dollar signs and bought homes like they were buying puts and calls. These folks deserve to lose. Full Stop. Period. There is no logic in a bail out for them. If there is . . . well, I lost money in Vegas a few years ago. And I lost money on some stock I bought last year. I want a do-over too.
    In closing let me bring Mr. Ross around to one other issue in his proposed bail out of his reputation and wallet. His plan is for primary residences only. I get calls from people every week that are losing their primary residences because they bought a dozen condos in Florida, Arizona and Vegas. I get calls from people every week that bought primary residences they couldn't afford in the first place. I get calls from people every week that used their primary residence like an ATM to buy third cars, vacations, ,jet skis, boats, and you name it. 
    What's wrong with America? LOA - Lack Of Accountability. Mr. Ross, in all due respect, you need to take your medicine just like everyone else.   C'est la vie Mr. Ross.

For additional information about related issues visit my institutional website at www.Morgan-Florida.org