Category Archives: Uncategorized

Keep State Insurance Regulation

Professor Mark Kleiman of the UCLA School of Public Policy and Social Research suggests that it’s “[t]ime for state-level regulation of insurance companies to go the way of the buggy whip.”

I strongly disagree.

I spent the better part of late 2005 and early 2006 prosecuting class actions against multiple large insurance companies. This involved, in part, reviewing multiple boxes full of correspondence and filings between insurance companies and their state regulators.

I was very impressed by the professionalism and concern for the public I saw on the part of state insurance regulators.

Property and auto insurance in particular are heavily regulated by individual states, and this system has long functioned smoothly. These regulations have ensured for a long time these companies are “boring” and stable, with rates regulated to ensure a small but consistent profit margin. Any price changes and new fees must be justified by insurance companies in extensive filings with detailed claims information. Because this system works well, consumers can be assured that of their rates go up it is because the actual cost of insuring them has as well.

AIG’s scam was to collect money for writing credit default swap contracts, spend a large portion of the money it received from the contracts on lavish executive compensation, but never have the ability to pay its obligations to its counterparties under the contracts. The big regulatory failure was on the part of the Bush-era SEC when it allowed companies to pretend AIG’s CDS were as good as money in the bank. Without this regulatory forbearance by the SEC, nobody would have bought what AIG was selling, which only bore the remotest resemblance to insurance as the term is commonly understood.

While I don’t think it is Mark’s intention, in the real world plans to “replace a patchwork of 50 state laws and regulatory agencies with a single federal authority” usually ends up being a back-door deregulations to the detriment of the general public. For example, when the Supreme Court decided that the National Banking Act preempted state usury laws credit card company profits grew substantially and many consumers fell into a spiral of high-interest debt. Replacing state financial regulation with federal regulation also gave rise to highly predatory payday loan industry.

In theory the Fed and federal banking regulators could have capped credit card interest rates at any time, as 50 states once did, and which 47 states still do for non-bank loans. But it’s a lot easier to corrupt one central regulator than 50 state-level ones. And at minimum progressive states like California can protect their citizens from predatory corporations during periods, for instance much of the past decade, when most federal regulatory agencies suffered severely from “regulatory capture.”

Greg Weston Quoted in Detailed LA Business Journal Article about FirstFed Financial

Back in June 2008 I wrote my first article about FirstFed Financial for Seeking Alpha, describing its reckless management and dishonest accounting practices.

Then I followed up in August 2008 by writing about it and two other zombie banks, which I described as the Option Arm Triplets.

Following up on FirstFed is L.A. Business Journal Reporter Richard Clough, who describes a company operating under a FDIC cease-and-desist order and trying to cut expenses to the bone. It won’t be enough. The bank is deeply insolvent, and the only reason the FDIC hasn’t taken it over already is that it is understaffed.

Look, I’m in the article too!

Still, Giraldin pointed out, just a year of unwise lending has pushed the company to the brink of failure.

Its stock, which traded at more than $69 a share in 2007, closed June 25 at 35 cents.

The stock has long been a target of short sellers, particularly after the failure of IndyMac, when many began speculating that FirstFed would be closed soon thereafter.

Greg Weston, a real estate litigator who shorted the stock for months as the price dropped, wrote an online article detailing the reasons investors should do so. Weston, founder of the Weston Firm in San Diego, recently stopped selling the stock short and closed out the position. He doesn’t think the company has a bright future, but since the stock is less than $1, most of the play is gone.

“It’s pretty much dead as an investment,” he said.

Calculated Risk also covers the article and has an active comment thread on the topic.

Two New Articles on Seeking Alpha

Both are basically attempts to calculate a value for GM debt.

My first article on the subject I am proud to say hit the #2 spot on the Seeking Alpha “most popular list” and stayed at various lower positions on the list for 3 days.

Trading the GM Bankruptcy

the second article is more or less a follow-up suggesting GM bonds were still undervalued, despite their gains following my first article, and offering more reasons why I thought the first bondholder offer would be sweetened, which is exactly what happened.

Good GM: The Largest IPO in U.S. History?

As the vagaries of fame would have it, I think by contrast about six people total read the second GM article, though six is a decent-sized audience for what was essentially Part II of a lawyer talking about junk bond valuation.

And yes, there will be a Part III.

California Unemployment Rate Round-Up

First, the headline number, we are now approaching a 55-year high in unemployment here in California. The Union Tribune’s article has a nice graph:

California Unemployment Chart

Looking at the data directly, the situation is pretty grim. First, between Feb 2008 and Feb 2009 the number of jobs in the state went down 495,000, even though the state’s population went up. The number of unemployed adults in California increased 824,000 during this one-year period.

Here’s what’s really bad though: more than 20% of those losses occured just in the last month.

In three counties in California unemployment is above 20%, and in 4 more it is in the 18-20% range.

San Diego and Orange counties and the inner Bay Area are doing better and holding below 10%though still worse than the national averages. LA County is worse than average at 11%, and inland Southern California counties worse still: 14.7% employment in Kern, 11.9% in San Bernadino, 12.6% in Riverside, and 24.5% in Imperial.

You can see the most recent data here at the California Development Department website.

New Seeking Alpha Article on Crystal River (CRZ)

Crystal River is a REIT that holds a large amount of low quality mortgage-backed securities. You will be shocked to learn that I am bearish. Read my article about CRZ here.

Can California’s FirstFed Financial Bank Survive?

No, I think FirstFed (FED) will be another bank failure, and good short candidate. See my article on the subject here at seekingalpha.

Houses and Condos in San Diego’s College Area fall 40-60% in price

San Diego’s College Area is an older middle-class neighborhood eight miles northeast of Downtown, and is primarily residential, but also home to San Diego State University and a variety of small shops and strip malls. It was a popular area for speculators and first-time home buyers, and now prices are plummeting. Here are 18 examples. 

64xx Bradford St
sold 7/06 $545K
REO, For sale at $330K
-$215,100 (-39%) loss
41xx Donna Ave
sold 9/05 $598K
REO, For sale at $350K
-$248,000 (-41%) loss
43xx Cartagena Dr
sold 12/04 $545K
resold 1/08 $330K
-$216,100 (-39%) loss
4314 48th St #x
sold 6/05 $326K
REO, For sale at $135K
-$191,000 (-59%) loss
Parkridge Unit #5xx
sold 8/05 $241K
short sale approved for @ $100K
-$140,500 (-58%) loss
5980 Dandridge Ln #2xx
sold 6/06 $340K
For sale at $165K
-$175,100 (-52%) loss
6504 College Grove Dr #X
sold 6/04 $289K
REO, gutted and treated for mold, for sale at $130K
-$159,300 (-55%) loss
4261 49th St #X
sold 4/05 $272K
For sale at $128K
-$144,000 (-53%) loss
6522 College Grove Dr #2x
sold 9/05 $327K
resold 2/08 $161K
-$165,500 (-51%) loss
4357 51st St #X
sold 7/05 $215K
REO, condo conversion has “granite counters, ss appliances” for sale at $104K
-$111,000 (-52%) loss
6560 College Grove Dr #7x
sold 8/05 $305K
resold 1/08 $175K
-$130,000 (-43%) loss
6516 College Grove Dr #5x
sold 3/05 $277K
resold 2/08 $150K
-$122,100 (-46%) loss
4425 50th St #3
sold 2/04 $187K
resold 12/07 $105K
-$82,000 (-44%) loss
4310 54th St #2xx
sold 8/05 $163K
REO, for sale at $85K
-$78,100 (-48%) loss
6101 Adelaide Ave #1xx
sold 6/06 $175K
For sale at $89K
-$86,000 (-49%) loss
4357 51st St #X
sold 12/05 $195K
For sale at $100K
-$95,400 (-49%) loss
4860 Rolando Ct #XX
sold 3/05 $225K
for sale at $116K
-$109,100 (-48%) loss
4338 Altadena Ave #1xx
sold 9/05 $300K
REO, For sale at $161K
-$139,000 (-46%) loss