Category: Finance & Banking

Confidential from the Treasury to NAR: Start a grassroots campaign

According to this article in today’s Washington Post, the the Treasury Department met with representatives of the NAR a few weeks ago and told them that they are considering a plan to intervene directly in the mortgage industry to force down rates and stimulate the housing market.

A source said Treasury officials suggested at the meeting that the Realtors start a grass-roots campaign to press the mortgage rate plan with lawmakers.

This story comes on the tail of the NAR campaign for its Four Point Plan, an economic stimulus plan for the housing market.

Since Federal manipulation of the mortgage market is what poisoned the capital markets to begin with, I doubt any of these plans are sustainable and the additional interference only pushes back the day we finally reach bottom and start recovering.

I’ve often been suspicious of “grass roots” campaigns, and this is a case in point. By definition, grass roots movements can’t be dictated from the top down, and the Federal Treasury is about as high as one can get. The term implies that the creation of the movement and the group supporting it is natural and spontaneous, highlighting the differences between this and a movement that is orchestrated by traditional power structures like, in this case, the Federal Treasury. Jeez.

What to do with those worthless WAMU stocks

Yeah, I was a (tiny) stockholder, via my 20+ old investment club WIMPS (Women Investing for Money, Power & Success). I just received this email today from the President of the Puget Sound Chapter of Better Investing:

For those of you holding WaMu stock, the news is grim. On September 25th, the FDIC essentially declared WaMu insolvent and took control of it. WaMu could no longer roll-over its short-term debt to meet demands for cash from depositors and creditors. The bank will continue to operate under new ownership and your deposits, CDs, loans and credit cards will continue per their original agreement. But in order to prevent further damage to the financial system, the FDIC agreed to sell the deposits and certain liabilities of the bank to JPMorgan Chase & Co. This includes the branches which will eventually get labeled as JPMorgan Chase. The unsecured and senior debts and preferred shares of WaMu, totaling about $20 billion in value before-hand, are not being assumed by JP Morgan and thus are also worth very little, if anything. It is very rare for the government to take control of a corporation, and I think this is a testament to how tough the current times are, especially in the financial sector.

For stockholders in WaMu, it continues (probably very temporarily) under the symbol WAMUQ. Today it was trading at about 3.8 cents per share. I would take advantage of whatever liquidity is there to sell immediately. If it was held in a taxable (non-IRA) account, the tax-loss has greater economic value than the actual investment. You might use it to offset gains or regular income up to $3,000 this year, after discussions with your tax advisor, of course! You may also want to contact your broker to see if they will waive their commission fee; many will waive the fee when selling fractional shares or for holdings that are nearly worthless.

Lessons learned? First, the BetterInvesting tenant of diversification is critical. With luck, your lost WaMu investment wasn’t a large piece of your nest-egg. Next, please don’t underestimate the power of the PERT-A. The trends in profits and margins had been negative for WaMu for a long-time. Just deciding to “ride it out” under such conditions is like ignoring an EKG that shows a heart-murmur.

In my experience, the sooner you identify problematic trends in a holding, the better. At that point, if you can’t convince yourself that the problems are short-term and within the control of management, you’d better find safer pastures for your funds.

Dan Rutter, CFA
Associate Director, Puget Sound Chapter, BetterInvesting