“The Greatest Bait and Switch of ALL TIME”

[Bluesplayer]

"A letter from a man who gets it that we should all understand

Kyle Bass is a hedge fund manager but not just a manager of any ol’ fund; he manages the Hayman Capital Subprime Credit Strategies Fund. What’s so special about this fund? Well in a market that is seeing hedge funds collapse and cave left and right Mr. Bass’s fund is up a tidy 300% this year alone. How has Mr. Bass’s fund defied the gravity currently slamming nearly every fund this side of Bear Stearns to the ground? Simple. The fund bet that the subprime market would collapse; and the bet was right on the money.

With the proof clearly in the pudding, Mr. Bass issued an open letter to investors which has become known as “The Greatest Bait and Switch of ALL TIME” manifesto. You can read the full thing here; and I heartily suggest that you do if you value knowledge from people who have clearly found the upside to a market currently slaughtering the rest of the pack.

In a rare move - I have decided to provide the entire text of the letter here, as each an every sentence is of vital import. I never do this and am providing full credit to the FT Alphaville blog where it was posted and to Mr. Bass and his firm for the production of this valuable insight."

The letter follows.

I'm no econ wizard, but I know some stuff. This is some complicated stuff, and looks like it's loaded with fraud. I'm posting it primarily to get some feedback from anyone who understands it. I'm going back to read it again....


http://ftalphaville.ft.com/blog/2007/08/21/6727/the-full-subprime-letter-from-haymans-kyle-bass/

and

http://blownmortgage.com/2007/08/21/a-letter-from-a-man-who-gets-it-that-we-should-all-understand/

[liberal N proud]

1. I suspect that borrowing money in the future will be very difficult

New Home Loans, New Car Loans, College etc.

[lapfog_1]

3. It's not just that.

Since only a few can pay cash for cars and appliances and stuff, only a few will be made, since we only make a few (we being the planet), only a few will be employed to make them. The fewer that are employed means the rest are on the dole of some sort. A great reduction in the standard of living, food will be expensive, riots may be commonplace (remember the food riots of earlier this year?)

The coming years will not be pretty.

[lapfog_1]

2. Thanks, good to know that all of my assumptions and observations

about the situation are correct. How horrible that this person knew all of this information well over a year ago.

Well, nothing to do about it now. Any deal with the repukes is dead. they won't agree to a Kucinich or Galbraith or Sanders plan... and I sure hope that Pelosi and Reid don't agree to theirs. And so we now fall into the deep ditch.

[Rancid Crabtree]

4. too good to be true...

...isn't that what they say about those schemes someone calls about on the telephone, dupe someone, often seniors, out of their savings? I know at the local level, say the loan department in most banks, the people handling the paperwork are wondering how these people have been getting loans, how they'll repay them, and their questions are often answered with the listings of foreclosures...they haven't been repaying them and they're being foreclosed on.

From one of the links from 2007, "They told me that they believe that 90% of all Subprime loans that were made contained some kind of fraud. Either borrowers lied about their incomes or mortgage brokers fudged numbers on the applications to make them pass muster with the needed ratios in order to get loans approved."

Curiously, from the same link, "55% of all Subprime loans were made in California and Florida."

So while it was "too good to be true" that unqualified borrowers were able to purchase homes, I don't think you have to be a rocket scientist to question why the practice was allowed to continue...the people handling the paperwork at the local level were certainly questioning it and all they did was push paper.

Heard on the news something about Warren Buffet (sp?), his money, the mess, and his record with his money...something like a 20% return since the turn of the century, back before Ricky even dreamed about getting in the same bed with Lucy on prime time. So what then? Should we be worried? People with money will make more money...people without money will have less of it? I dunno. If the dike was designed to fail, my calloused fingers aren't going to be able to plug the leak. But it does sound like a dirty wash.

[John Caelan]

5. Not losing money, just revealing they did not have it to begin with.

That's a great letter. Here is my concise explanation to the many who are trying to catch up on the learning curve of our economic system, from an essay "The Hostile Takeover of America: Stop the Bailout!

"There is not enough money in the world to circumvent a massive correction in the market. Literally. That's the problem. There is not a lot of money, actual wealth, at all. There are just a lot of people saying they have money. They hold up a bond that's worth six cents and declare, "This is worth a dollar." You think it is a damnable offense that some family lies on a mortgage application, exaggerating assets, to get a loan? Corporations like Lehman, Fannie and Freddie, AIG, and the whole line up yet to come all did this to the tune of hundreds of billions. But with every default, more of these toxic bonds get found out. You see, the corporations aren't really losing money; they are just being forced to reveal that they didn't have the money in the first place. This is why "the credit" has come to a standstill. That is the usual consequence of lying to your creditors..."

http://blog.myspace.com/index.cfm?fuseaction=blog.view&friendID=17986969&blogID=436040711