Still holds true

Now that the world economic markets are mired in a global banking crisis, this skit about the mortgage crisis created about a year ago is even more pertinent.

Financial Bingo

Something to do while watching the news....

Note to HingeFire Screener Users

HingeFire Inc. stopped offering screening service on September 26th. The company was not able to obtain the financing necessary to continue forward. I would like to thank the many users who supported our vision for the past year.

Thank you,

- Greg Boop

WaMu becomes biggest bank to fail in US history

This is my "I told you so moment". I have warned people about WaMu for over 2 years. Urging them to get their funds over the FDIC limit out recently. Now the bank has failed....

WaMu becomes biggest bank to fail in US history

Fannie and Freddie

Obviously the biggest news on Wall Street this week was the Federal Government seizing Fannie Mae and Freddie Mac before both of these mortgage giants failed in a catastrophic manner. These companies have been faltering for many months while looking for lines of credit to bail them out, the government went one step further and completely took over the firms while giving top executives the boot.

The entire situation is also another example of intervention not allowing proper capitalism to play out in the market. The term “moral hazard” comes to mind in which businesses do not take responsibility for their risky behavior; this only entices other businesses to take poor risks. Especially in an environment where it appears that “gains for privatized and losses are socialized”.

While the government takeover may have buffered the mortgage market in the short term and cheered up Wall Street on Monday, the long term picture is much less clear. The U.S. tax payer is going to be stuck with the tab. The question remains on just how big the tab will be – estimates range from $250 billion to $5 trillion. The actual cost is very dependent on how the housing market and associated credit recovers. One recent article outlined how the seizure of these mortgage giant is the taxpayer’s risk (If takeover tanks, we're holding bag).

Similar too many previous government interventions, this action with Freddie and Fannie may help alleviate the short term crisis, but the toll down the road will be much greater and more painful.

WaMu CEO given the Boot

Past HingeFire articles have outlined in detail the issues at Washington Mutual and urged banking customers to pull out funds over the FDIC limit. News today shows that Washington Mutual has ousted CEO Kerry Killinger. WM stock is down over 15% in mid-day trading.

It is also interesting that Washington Mutual agreed to further oversight by the Office of Thrift Supervision concerning aspects of its operations. This demonstrates the high level of concern regarding the solvency of the institution from a regulatory perspective.

Are Banks at a bottom?

A recent Motley Fool article asks if it “Is It Time to Buy the Banks?” The KBW banking index is down over 40% from the year before levels. The constant stream of news from the banking sector appears to be negative; more FDIC takeovers, increasing write-downs, and larger banks as take-over targets.

One point of view says the entire banking industry will be in trouble for the next 12 months with increasing failures and negative headline press. The other side of the coin outlined by Motley Fool states that banks offer a compelling value purchase situation and the KBW index may have seen its trough.

Investors can look at yield, P/E, book value, Justified P/BV, or other ratios. Using the math, it appears that banks may be near a historic valuation low and are due for rebound. At minimum, it is time to start investigating stronger individual stocks in this sector for purchase.

Bank Safety Ratings on the Web

Bankrate now offers bank safety ratings for free on the web. See the Safe and Sound page of the Bankrate website - http://www.bankrate.com/brm/safesound/ss_home.asp

You can search using many different criteria to find the banks you are interested in. Bankrate provides the following summary to describe the service.

"Bankrate.com's Safe & Sound® service is a proprietary system designed to provide information on the relative financial strength and stability of U.S. commercial banks, savings institutions and credit unions. The system employs a series of twenty-two tests to measure the capital adequacy, asset quality, profitability, and liquidity (CAEL) of each rated financial institution. Individual performance levels are determined from publicly available regulatory filings and are compared to asset-size peer norms, industry standards and key absolute benchmarks. Combined results form the basis for our Composite CAEL and Star Ratings, which are described below. When possible, the system also produces a report that provides a detailed explanation of our findings, for each rated financial institution."

Earlier we had warned everyone to get their money over the FDIC limit out of Washington Mutual. It is interesting to note that WaMu recieved the lowest possible ratings, for both the Bankrate star rating and CAEL rating. - http://www.bankrate.com/brm/safesound/thrftmm.asp?fedid=1000508551

The Socionomics of the Russia Georgia conflict

Socionomist and EWI Analyst who predicted Russia-Georgia conflict to appear on Bloomberg TV today at 5:30 p.m. ET.

In November 2007, the Socionomics Institute’s Alan Hall issued the 20-page research report, "Sizing Up A Superpower." It assessed the relationship between Russia's turbulent history and its then-current social mood.

More specifically, he spoke of "Georgia's desire to bring its pro-Russian separatist regions under control, but Russia has military plans to stop any move by Georgia to secure these regions."

Mr. Hall will discuss the developing situation in the region today, Tuesday, August 12 at 5:30 p.m. ET on Bloomberg television. Be sure to tune in! You can stream Bloomberg TV live online here.

See http://pages.tvunetworks.com/ to download their player.

Gas at the Pump

A HingeFire survey early this summer asked readers about the projected price of gas at the pump on August 1st. The results showed the following:

Over $4.50 23%
Between $4.00 and $4.50 43%
Between $3.50 and $4.00 17%
Between $3.00 and $3.50 13%
Below $3.00 2%

The actual nationwide average price was $3.84 at the beginning of August. Congrats to the 17% who selected the $3.50 to $4.00 price range (I actually believed it would be above $4.00).

The good news for consumers at the pump is that it appears that the short term speculative bubble associated with oil has burst over the past couple of weeks. This will help both the market and your wallet when filling up the tank. As a note, 68% of readers in the most recent HingeFire survey believed that oil was in a speculative bubble. At this point, many analysts would say this perspective is correct.