The national real estate fiasco and Wall Street’s financial meltdown has bitten the checkbook of Orange County’s transit agency.
The bankrupt owners of Wall Street’s Lehman Bros. brokerage skipped a $228,000 monthly interest payment due the Orange County Transit Authority from a complex loan transaction.
OCTA treasuer Kirk Avila says that in 2003 Lehman helped protect OCTA from interest-rate fluctuations from a bond-sale Lehman engineered. In this slice of the financing, the agency borrowed $100 million to help refinance debts from the agency’s purchase of the 91 Express lanes.
Lehman met its monthly obligation to OCTA until last month after its owner — Lehman Holdings — filed for bankruptcy after it suffered huge real estate and mortgage losses. (Among Lehman Holding’s businesses is funding for O.C. builder SunCal and its seaside Marblehead project in San Clemente.)
The bonds OCTA sold to investors were adjustable-rate deals. Lehman — along with Bear Stearns, another Wall Street firm that collapsed — agreed to what’s known by financiers as a “credit swap” that essentially protected OCTA from rate fluctuations. Lehman and Bear, in theory, paid OCTA monthly income that fluctuated near the same rate that OCTA paid to its 91 Lanes bondholders.
Lehman’s September payment, Avila says, did not come as due on Wednesday. He said Lehman representatives told him that OCTA should not count on future payments. So OCTA’s loss from this slice of the market meltdown will be ongoing.
(Note: Bear Stearns, bought by JPMorgan Chase earlier this year, made its $76,000 September payments to OCTA for September.)
A spokesman for Lehman said the company would not comment on OCTA’s deal or Lehman’s overall credit swap situation.
OCTA is working on an alternative to the Lehman bonds and credit swap. Orange County’s investment pool migtht lend OCTA $100 million for two years so the transit agency could pay off its 91 Lanes bondholders. (CLICK HERE to read about the pool’s own run-in with the Wall Street mayhem.)
If this new deal is approved by the two county agencies, OCTA could pay the county pool just under 4 percent annual interest.
That deal, Avila says, would gain OCTA time to devise a more permaent funding solution in less-stressful market conditions. “This buys us some time,”
One possible catch is that the Lehman credit swap deal requires OCTA to pay $7 million, at current interest-rate levels, if OCTA wants to end the deal. Sort of a “pre-payment” penalty. Avila notes that the Lehman’s failure to pay may not cut out that OCTA obligation.
OCTA is exploring its legal options to cheaply exit the Lehman swap deal, Avila said.
Other meltdown news …
I wonder if Gary “in the bag” Watts is still showing his face around the REIC?
Per DataQuick, Single Family Median Home Price:
2006 ~ Month End
$690,000 = Feb ~ Watts 15% “In The Bag” for SFH
$695,000 = Mar
$705,000 = Apr
$705,000 = May
$700,000 = Jun
$699,000 = Jul ~ Watts revises forecast to “11%” for SFH
$685,000 = Aug
$680,000 = Sep
$665,000 = Oct
$660,000 = Nov
$665,000 = Dec
2007 ~ Month End
$675,000 = Jan ~ Watts forecast “7%” SFH
$675,000 = Feb
$695,000 = Mar
$720,000 = Apr
$695,000 = May
$734,000 = Jun ~ Peak of O.C. Housing Bubble
$718,000 = Jul
$710,000 = Aug
$655,000 = Sep
$650,000 = Oct
$655,000 = Nov
$600,000 = Dec
2008 ~ Weekly ~ Month End
$583,250 = Jan ~ Watts declares “Pent up Demand”
$575.000 = Feb
$570,000 = Mar ~ Thoughtful declares “bottom”
$555,000 = Apr
$537,000 = May
$550,000 = Jun ~ Watts apologizes “I Got it Wrong”
$515,000 = Jul
$500,000 = Aug
$515,000 = Sept 8th
$500,000 = Sept 15th
Per DataQuick, this loss represents a $234,000 decline in single family home prices from the June 2007 high. And the beat goes on … and on … and on!
Gary “In the Bag” Watts at his absolute best! Pay special attention to the first quote, “Look mom, no hands!”:
10/23/2005 ~ “I only forecast off the numbers … It’s all based on pure economics.” ~ Orange County Register
02/13/2006 ~ “Fifteen percent is pretty much in the bag for Orange County in 2006 … It’s impossible for prices to go down this year.” ~ Fortune Magazine
07/21/2006 ~ “I think we probably are not going to see 15 (percent), but I think 11 or 12 (percent) is still realistic.” ~ Orange County Register
07/22/2006 ~ “”August ought to be the last month of weak appreciation numbers.” ~ Orange County Register
07/22/2006 ~ “I really think that we are pretty close to the bottom of our real estate prices … August ought to be the last month of weak appreciation numbers.” ~ Orange County Register
12/31/2006 ~ “If the un-motivated sellers stay out of the market, we could be in for a very big surprise.” ~ Orange County Register
01/01/2008 ~ “Cyclical housing downturns have always occurred. The good news is these situations do not last forever. The cycles tend to run approximately 27 to 36 months, so this cyclical downturn should run its course by summer.” ~ Impact Real Estate Jan 2008 Housing & Economic Forecast
06/23/2008 ~ “I apologize for not knowing what Wall Street did to our mortgages” … “I had no idea how Wall Street restructured these loans.” ~ Orange County Register
Thanks Lee.
This meltdown is out of control.
This nightmare is playing out just like bears warned it would.
The nation is panicking and California’s cash reserves are all gone.
Hollywood couldn’t have written a script this bleak.
This is the real deal.
Even the dumbest realtors can finally figure out what type of misery we’re in for.
Housing is headed to unheard of prices.
Don’t say I didn’t try to warn you all.
Except for Corona Del Mar. They’ll be just fine.
Would someone please clarify something? Now Congress completed the largest theft in world history, are we supposed to send our tax checks directly to Pimco or should I make it out to Christopher Cox c/o Hank Paulson.
Jon,
Can you please look into the SIV and CDO investments that Moorlach and Street made? How much is the County out because of their reckless behavior?
You see, this is what happens when public agencies try to invest money to make it grow instead of using it the way they’re supposed to which is to provide services to the public.
Take it for what it is this is still a sell out of our rights and our free market- Here are the letters I recieved from some of our reps. I may not have had a vote on the bill but I have a vote next month…………
Dear Mr. ********:
You are one of many people who called, wrote, or e-mailed my office with questions or opinions about the Emergency Economic Stabilization Act of 2008. As you probably know, the bill was passed by both houses of Congress, signed by the president, and is now law. The vote in the Senate was 74-25 and included yes votes from a wide range of the political spectrum including both Senators Obama and McCain, both California Senators, and the most conservative member of the Senate, Tom Coburn (R-OK). It then passed the House by a vote of 263-171 which included yes votes from The Speaker, Majority Leader and Minority Leader.
As you may also know, I voted in favor of the bill and was a strong advocate of it. I hope you will take the time to read on so I can explain why I feel so strongly about this legislation.
First of all, if you are personally opposed to the bill it is probably because you are against a $700 billion bail out of Wall Street. You should be against that. I am too. But that media term for the bill is a complete mischaracterization of what the bill does. It will not cost $700 billion and it is not a bail out of anyone. Let me explain:
$700 Billion: This amount will not be spent. It is being invested in hard assets (mortgages secured by homes) which will have an expected cash flow in excess of the purchase price. So the taxpayers should get all their money back that way. But if that doesn’t work, taxpayers will also get warrants (stock options) in the companies from which these assets are purchased. So, if those companies recover, taxpayers get part of profits. And if both of those don’t get the whole $700 billion back, whoever is president in 5 years is required to submit to Congress a proposal to get any loss back from the companies who sold the government the assets. That’s 3 different ways to be sure the taxpayer is made whole and maybe makes a profit. This bill may wind up costing less than one year’s worth of earmarks.
Bail Out: The assets will be bought from companies at probably 30%-60% of what they paid just a year or two ago. If I offered to buy your house that you bought 2 years ago for half what you paid for it, would I be bailing you out? I don’t think you would look at it that way. These companies will lose lots of money. Fine. They made an investment that went bad and they have to live with it. But they will not be bailed out. Many companies and a number of banks will still fail even with this bill. The purpose of the purchase is to cut out the cancer that is clogging the world’s financial arteries so that credit and loans and cash can flow again. No one is being bailed out.
Wall Street: If we do nothing, expect to see many days on the stock market like Monday, September 29th when the stock market suffered its biggest one day point drop ever. That will devastate the retirement plans of millions of everyday people. All forms of credit have already dried up. If they dry up more, companies small and large will not be able to get standard short term loans to buy inventory and make payroll. That means lots of job losses and layoffs. And people with money market funds and bank accounts may not be able to get their money, even with FDIC Insurance because these entities have to sell a loan to get you cash. And no one is buying the loans.
Many different proposals were looked at and discussed. I was actually part of a working group appointed by the Republican Leader to develop an alternative plan, which, in fact, developed several provisions that were included in the final bill. Our goal was to develop a virtually cost-free plan to stabilize the global financial markets and save every American’s savings and investments, not a bail out. I believe that the final bill meets these criteria. There is no guarantee that this bill will work. But I have not seen an alternate plan that I thought had a better chance to both work and pass both houses of Congress.
If the bill works, some banks will still fail and some companies will still not make it. But it will be far, far fewer than would have otherwise occurred. Some of you have asked me why a believer in free markets would support this bill. I have done so because I believe this is a solution to preserve free markets, not replace them. In some ways, this bill is more of a free market solution than other actions that have been taken. The government will not take over any companies here. Even the warrants will be non-voting. No one will be compelled to sell the government their assets if they don’t want to. Even the “reverse auction” process of establishing pricing for the assets, where sellers submit bids to one buyer rather than the other way around, is a market based pricing method.
No one wanted this bill. No one wished for this crisis to occur. But it is here. This is a worldwide problem and not just an American one. And we had to act. My vote was carefully considered, but made without reservation. I applaud my colleagues, both Republican and Democrat, who joined me in doing so.
I appreciate the great honor you have given me by allowing me to represent you in the United States Congress.
I remain respectfully,
JOHN CAMPBELL
Member of Congress
Toxic mortgages are hard assets? guess I must have missed something. Dear John,
I’m not voting for you.
good by.
At first Stash, many called and complained about the bill. Then the other side of the people, business owners and the like, called and said they needed it. It was a double edged sword.
Is this legal? It seems to me, the tax payer pay tax or in this case bond holders buy bonds and then that money ends up invested? What is this?
What Campbell does not tell you in his letter is that your tax dollars will bail out foreign banks. Why should you, an american taxpayer, bail out a foreign bank? A chinese bank will be allowed to dump it’s toxic investments in the trash can for purchase by our american tax dollars. And no one knows the value of those toxic investments. Many will probably be absolutely worthless. But the american governement will buy them anyway. Is that a smart investment? Face it, the american government is gambling with your tax dollars. It is analogous to a casino manager digging into your personal account and using your reserves to play roulette. And why didn’t Campbell explain why the stock market dropped 486 points after the bailout bill was passed? It lost $600 billion in capital last Friday. I thought the bailout was supposed to rescue our 401-K’s, not destroy them. The bailout will do nothing to stop the decline in home prices. People will continue to walk away from homes that have mortgages which exceed their value. 40% of american homes will find themselve in that very situation by the end of 2009. We are only in the 3rd inning of a 9 inning game, folks. Hold on tight. Whatever you do don’t listen to Campbell. He’s full of it. Vote him out in November!
John Campbell is what is wrong with this Country. He has supported EVERY bailout bill so far so his friends at Pimco will steal more from our nation. When John Campbell was elected to office, he ran on a pro-Capitalism, small government platform. John Campbell, I voted for you last time but you will never again get me vote. You violated your oath of office and you’re a disgrace.
John Campbell,
Please explain this quote to me:
“Wall Street: If we do nothing, expect to see many days on the stock market like Monday, September 29th when the stock market suffered its biggest one day point drop ever.”
Since the bailout bill has passed the DOW has dropped about 600 points.
Here is the problem. You can eliminate Mark to Market accounting. Just because a bank wishes it’s asset to be worth more than they are does not change the underlying problem. Banks will not lend because of this bill. How can you trust someone who will not admit what the asset is really worth? You can’t, hence you will not lend. PERIOD. GAME OVER. America’s credit risk to the rest of the world is increasing daily. Our government has very little control over credit markets. Our government can only manipulate them on a very short term time frame. The ramifications of these short term manipulations will be absolutely devastating.
“Can you please look into the SIV and CDO investments that Moorlach and Street made? ”
many of us have been calling for this for a while. now that all that money’s likely good as gone gone gone will Street follow the dollars out onto the pavement?