This blog post originally appeared on RealMoney Silver on Feb. 13 at 7:51 a.m. EST.
George Bailey: Where's that money, you silly stupid old fool? Where's that money? Do you realize what this means? It means bankruptcy and scandal and prison. That's what it means. One of us is going to jail. Well, it's not gonna be me.
Uncle Billy Bailey: Can't you see that Potter Buffett is buying? He just guaranteed the municipal insurers -- the Bailey Building and Loan Association -- and Bedford Falls will all be OK; we won't default!
George Bailey: But, Potter is not just cherry-picking the cherries; he is stealing the cherries and leaving the pits! -- My parody of Frank Capra'sIt's a Wonderful Life
On Tuesday morning,
Warren Buffett (a.k.a., Potter)
providing a backstop for reinsuring the municipal bond portfolio at the leading monoline companies -- reminiscent of his bid for the
of Long Term Capital in 1998. If affected (and that is a big IF), this could serve to isolate the structured credit problems and prevent them from leaking into the municipal market.
The Buffett proposal highlights my contention that the curative process of reversing the carnage in the mortgage and credit markets is proceeding apace. Having said that, the magnitude of the problem will not yield a short-term solution. The resurrection of a stable credit market is, to quote a banking term, very much a workout. It will not take weeks; it will take months; it might take years.
George Bailey: A toast! A toast! A toast to Mama Dollar and to Papa Dollar, and if you want to keep this old Building and Loan in business, you better have a family real quick. -- It's a Wonderful Life
Regardless, opportunistic investors have clearly begun to circle around the broken bridges of private equity loans, the deeply discounted subprime credits and, importantly, the multitude of institutions that insure structured investment vehicles and companies that originate and service mortgage loans, with the purpose of remediating the problems of a system clogged up with distressed assets.
One area that I am sifting through is the mortgage-servicing industry, a historically profitable segment of the mortgage business.
Consider that the following "smart guys" are already moving in on the mortgage-servicing industry:
- In late 2007 Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. (GS) ReportacquiredLitton Loan Servicing, the subprime mortgage servicing unit of Credit-Based Asset Servicing and Securitization.
- Wilbur Ross, an investor who has made a fortune by purchasing distressed properties, acquiredAmerican Home Mortgage last year
- England's Northern Rock is being circled by some opportunistic vultures.
- Last, but not least, is Ocwen Financial (OCN) - Get Ocwen Financial Corporation Report, generally considered to be one of the best servicers of subprime loans extant. Ocwen's senior management, Angelo Gordon & Company and Oaktree Capital Management, have recently announced their intention to take the company private at $7 per share.
I would characterize all these deals (done by some of the
smartest guys in the room
) as steals, particularly from an intermediate-term view.
Clarence: You see George, you've really had a wonderful life. Don't you see what a mistake it would be to just throw it away? -- It's a Wonderful Life
It's a Wonderful Life
, the current credit crisis will be over
, and it will be most profitable for those that are willing to be opportunistic and take some chances.
Merry Christmas Mr. Potter, Wilbur Ross and Goldman Sachs -- and also to the movie house, the emporium and you wonderful old Building and Loan.
And a toast to Warren Buffett. (The whole town knows you've been giving money to Violet Bick.) You are indeed, "the richest man in town."
Doug Kass is the author of The Edge, a blog on RealMoney Silver that features real-time shorting opportunities on the market.
At the time of publication, Kass and/or his funds had no positions in the stocks mentioned, although holdings can change at any time.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.