More Mortgage Meltdown: 6 Ways to
Profit in These Bad Times by Glenn
Tongue
Melted Mortgages
A clear look at how to capture investment profits during difficult financial
times
The U.S. economy has become crippled by the credit and real estate
catastrophe. Even though weve all been affected by the calamity and have
heard no shortage of news about it, it still seems unfathomable and utterly
incomprehensible to most people that the actions of certain mortgage
brokers, bankers, ratings agencies, and investment banks could break the
economic engine of the world. Now, for the first time, and in terms
everyone can grasp, noted analysts and value investing experts Whitney
Tilson and Glenn Tongue explain not only how it happened, but shows that
the tsunami of credit problems isnt over. The second wave has yet to
come. But if you know catastrophe is looming, you can sidestep the train

wreck-and even profit. You just need to understand how bad times present
opportunity and where to look. More Mortgage Meltdown can help you
achieve this goal. The book
Breaks down the complex mortgage products and rocket-science
securities Wall Street created Addresses how to find investment
opportunities within the rubble and position your portfolio to take
advantage of the crisis Explains exactly how the combination of
aggressive lending, government missteps, and Wall Street trading
practices created the perfect economic storm Shows you why the crisis
is not yet over and what we can expect going forward More
Mortgage Meltdown can help you understand the events that have
unfolded, and put you in a better position to profit from the opportunities
that arise during these tough financial times.
Personal Review: More Mortgage Meltdown: 6 Ways to Profit in
These Bad Times by Glenn Tongue
hitney Tilson & Glenn Tongue "More Mortgage Mess-6 Ways to Profit in
these bad times" (John Wiley & Sons, 2009)
"Why sometimes I've believed as many as 6 impossible things before
breakfast." -Alice in Wonderland
This past decade has seen a massive, national collective hallucination take
place in real estate and related industries that has infected the world
financial systems and which will have lasting, if not permanent effects that
are now unwinding slowly and with great pain.
Tilson & Tongue dissect this situation with insight, depth, mathematical
skill and many original ideas in their new book. They are not timid and
dole out giant scoops of blame to myriad guilty parties: the government
(who repealed or loosened many laws and regulations), banks, the Fed
(who kept interest rates artificially low, allowing real estate prices to bubble
ever upward), the GSEs (Fannie Mae & Freddie Mac, who were allowed to
speculate wildly), the ratings agencies (Moody's, S & P,), real estate
agents & appraisers, and finally greedy homeowners.
Charles Mackay, in his classic 1840's Extraordinary Popular Delusions &
The Madness of Crowds, a study of various scams, bubbles and manias
including the South Sea bubble, the Dutch tulip mania, and the crusades,
makes the point that the most dangerous phrase is always "it's different
this time." Yet hope springs eternal and many folks spend their whole
lives searching for the greater fool, very easily found in the USA of late.

Of the two T's, Tilson has been the more public figure, starting his first
hedge fund in 1999, writing for various web sites, Kiplinger's, Forbes, and
Marketwatch. Tongue has been co-manager of T-2 since 2004, having
previously run DLJDirect, an online brokerage.
Split into two sections, "What Happened and Why" on mortgages and the
wide variety of still worsening effects and "Profiting from the
Meltdown,"which talks about stocks, bonds, and provides in-depth
analysis of some major holdings at T-2 Partners, including Warren
Buffett's Berkshire Hathaway, Wells Fargo, American Express, and a few
smaller, lesser known stocks.
Inspiration and a lot of the information in their book comes from Amherst
Securities' Sean Dobson, who taught the T-2 principles from his massive
proprietary mortgage and related securities data bases.
"The US housing market had experienced a bubble of enormous
proportions, and countless mortgages were defaulting at unprecedented,
catastrophic rates," T-2 explains.
Pretty much any boom time in the USA (or the world, for that matter) is at
least partly driven by some sort of scam, especially when uninformed
people arrive late to a party already drunk.
Alan Greenspan's Fed, instead of "removing the punch bowl," as former
Fed Chairman William Mc Chesney Martin described the chairman's job as
being, dumped bottle after bottle of Ever clear into the bowl, resulting in a
drunk, clueless populace who kept muttering their ever hopeful mantra,
"real estate always goes up, if even a little..."
Then, if that wasn't bad enough, Wall Street, got involved: packaging
mortgages, many written to sub-prime and no documentation clients that
would never have qualified for loans in eras with more conservative
lending standards, often driven by congressional and Presidential quotas
to "get more people into houses," usually with no regard for the viability of
the loans.
These were sold to individuals, mutual funds, institutions, and sovereign
wealth funds around the world, rubber-stamped by ratings agencies as
AAA, super-safe ratings that bore no relationship to actual risk assessment
and cost them their previously sterling reputations.
Regarding options ARM loans, T-2 writes, "If one were to design a loan
that would blow up the maximum number of homeowners the moment
home prices stopped rising, an option ARM would be it." In their perverse,
self-defeating styles, the states of California and Florid had by far the most
ARM loans written.

"Florida has always been susceptible to the Wild West mentality. If it's too
good to be true, we're going to be involved in it." -Florida state treasurer
Alex Sink in George Packer's "The Ponzi State," The New Yorker 2/9/2009
This book is so dense with information, synopsizing is daunting but are
two major points:
* After a decade of using their wildly overvalued houses as ATMs,
extracting about $3 trillion (about 25% of the aggregate value of residential
US housing), Americans, by 2007, had more debt (10.6 trillion) than equity
(8.5 trillion) in their houses for the first time ever
* The collapse of lending standards, loaning more and more money to
people with ever lower down payments wildly increased the risk of home
owners who are underwater on their homes, losing their jobs and or unable
to sell their homes, just walking away from their debts.
* As you may recall from the tech/internet/NASDAQ debacle, when
bubbles burst, prices often crash well below the trend line and far well
below fair value, which indicates real estate prices still have a long ways to
fall, even without factoring in the eventual rise of interest rates, further
foreclosures, rising unemployment and other negative factors that will
contribute to their fall.
Which banks fail may well be a factor of clumping, luck, and randomness
more than skill, in that the banks that survive are in a race to outrun their
foreclosure and loan losses.
Tilson & Tongue dissect their holdings in Wells Fargo in depth and point
out that we are "in the fifth inning" with there are many shoes left to drop
(to mix metaphors) including commercial real estate defaults, as
commercial is 40% of WFC's loan book. Wells' acquired sub-prime
exposure via the acquisition of Wachovia, more lay offs in areas like
Michigan, California, and Florida are also big factors. Wells Fargo sounds
like both a great bargain, trading at 3 or 4 times normalized earnings and
the next Citibank or Bank of America, a prime bankrputcy candidate.
T-2's math is very pro and can be a bit overwhelming in this book for the
non-CPA but it is clearly stated and does become clearer on a second or
third more careful reading. The reader is walked, hand in hand through the
often intentionally muddy fields of accounting and corporate balance
sheets. As Tilson & Tongue write, non in the least hyperbolically, "Wells
Fargo is currently in a race for its life, trying to earn its way out. If big

(loan) losses materialize quickly but profits are weaker than we expect,
WFC will be in big trouble."
REITS (real estate investment trusts) are in even worse shape than banks,
yet this
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