With a Little Time

When is someone going to make money trying to bottom-fish in mortgage securities?

As I read the stories about how PIMCO hasn't been able to and I think about the disaster that Annaly (NLY - commentary - Cramer's Take) spinoff Chimera (CIM - commentary - Cramer's Take) has been, I am reminded that the issue with all of these different programs to buy these securities is that they would have produced gigantic losses on almost all of the mortgage paper. Unless it's AAA-first mortgage paper well spread out and issued by good lenders, the stuff is worth pennies on the dollar, or at best 20 cents to 30 cents.

I am thinking about this because of the excellent article by Tony Creszenci tonight about TALF and what it says about where we are going. That, coupled with the notion that we are keeping zombie banks alive with the new mark-to-market rules, has me worried that there will be no buys of this stuff ever.

But you know what? We might not need any buys of it. We just need time. We are looking for time. In many cases, we will simply be able to hold out for a long as we need to as banks make money and then can take charges over time against those profits.

If someone wants to speculate that a particular bond will come back, he or she can be out there bidding. And if someone desperately wants to sell a security or if the government seizes a bank after a stress-test failure, there will be 15-cent and 20-cent on the dollar bids out there that will be able to limit losses and hit home runs. Perhaps all that will ever come of it is buying merchandise from the government after seizures, but that might be enough.

People still don't understand what Geithner and Bernanke are doing. They are not throwing trillions of dollars at the "problem." They are making as much money as needed to chip away at all facets of the non-Treasury market and trying to bring things back to life or at least keep them alive until cures can be found, including higher real estate prices or a better economy.

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