Thursday, August 16, 2007
Gold Stocks get Creamed
CEF Premium/(Discount): 7.62%
Gold/XAU Ratio 5.17
Read this NY Times article by Jim Cramer ttp://nymag.com/news/businessfinance/bottomline/35813/Bloody and Bloodier
Even though these loans have been losing value for years, it wasn’t until June 2007 that any of this mattered. That’s because of what is known in the trade as the “marks,” the value of a stock or bond as it’s “marked” by a firm. You are getting poorer by the second because many of these mortgage bonds were priced way too high because nobody thought that large numbers of borrowers would ever walk away from their homes rather than pay the interest that backed the bonds. Such a disaster had happened only once, in the thirties, and that was before loans were federally secured. The buyers and sellers accounted for the bonds as if they were as reliable as cash, because as long as employment was robust—and it is—they thought they would be fine.
But now all hell’s broken loose on Wall Street because of those mismarks. This spring, as many homeowners stopped paying, the mortgage bonds—for the first time—starting losing value. Hundreds of billions in bonds that were thought to be worth more or less the price they were sold at, it turns out, are worthless. That’s triggered a chain reaction: Brokers like JPMorgan, Goldman Sachs, and Merrill Lynch that lent money to the firms that bought the bogus loans—most famously, Bear Stearns—basically foreclosed on those firms to get their cash back. But the firms, which are always running full tilt, didn’t have the money to pay up.
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