While I think this is a good idea and people who want to buy small homes may use it the math is pretty hilarious.
Individuals want to be levered as much as they can to the house they buy (I don't have to mark this to market daily), the main preventive cost of the 20% down, Point doesn't reduce the capital required for that, it just makes the mortgage smaller.
Why would I want a lower tax interest write off, still have to put up the same amount of initial capital, pay for all maintenance etc, but only down 66% of an asset?
Good article, and I agree with the main points. However, you have to be very careful comparing PE ratios between companies with different capital structures, it is wrong. For example, lets take two companies that are exactly the same, A and B and lets say they should have an enterprise value of $100 and have the same earnings before interest.
Company A is all equity and has a PE of 10 ($100/$10). Lets say company B is half equity value and half debt ($50 and $50). Lets also say the company is paying 4% on its debt. Its earnings are lowered to $8, however the PE ratio is actually 6.25 ($50/$8).
This company isn't "cheaper" it just has a different capital structure. No measure is perfect, but at least use EBITDA or Unlevered FCF for comparisons. This is especially important now with the large number os stock buybacks.
If they really though there was fraud, why wouldnt they have taken a huge short position and reported to the SEC, accelerating the winddown process. This is what saba did with the JPM whale trades, they took a huge CDS position and reported the "whale", making 100mm+.
They didnt do this because a) they didnt know about the fraud, or b) didnt want to hurt their clients.
Everyone likes to point the finger at someone else, but if you were buying madoff structured notes /investing in madoff and knew nothing about the fund and did no research, it is your fault if you lost money.
This is a very misleading article in my opinion. Investment banks provide investors access to risks which they want, in this case investors WANTED access to Madoff structured notes because Madoff had been outperforming, therefore JPM had a find a way to hedge themselves to reduce their risk. After investing a tremendous amount in madoff, JPM probably realized that they could hedge easier by going long the general market on roughly a 1.1 to 1 ratio I would imagine or the structured desk wanted to use their short to hedge another long position they couldn't get out of while retaining some idiosyncratic risk that Madoff was in fact a fraud (this type of tail hedge is very valuable on the st btw). When assessing risks of this size, I am glad that JPM seemed to be asking all the right questions about Madoff (which no one else, not even the SEC, was asking), it is funny JPM is being penalized for this.
Creating a similar idiosyncratic risk could be to sell a gold ETF and own physical gold, paying maybe 30 bps a year for a real outperformance during a) hyperinflation if real gold is needed or b) some gold bars at the ETF turn out to be fake/not there (some have been found to be tungsten) c) another unforseen event. These options are hard to create and very valuable to a huge investment bank such as JPM which is generally very long the mkt in general and actually allows them to make more loans.
Also, most benefiting from rising prices in madoff claims are distressed hedgefunds and investment banks btw. They own probably 90% of the claims now, 'vicitms" selling at roughly 20 cents on the dollar. Anyone really pointing the finger at JPM is very naive about the whole system.
Obviously "matt" has not worked in the finance industry and clearly does not understand how banking works. Sounds decent in theory but in reality the bank would have no investors and would lose any talent when they didnt pay them. They would probably be the cause of the financial crisis by only employing stupid people who gave poor, risky loans.
This article is very naive and poorly researched. Obviously there are less people with a net worth of over 30 million now!?!?!? Hmm I wonder why?
Obviously mcdonalds workers are not invested in large corporations, so when equities fall rich people get hit, but this doesnt mean the end of rich people.
I guess this is why the NYT might be going bankrupt soon itself.
Not to be negative but I saw their pitch at Duke and they actually embellished the amount of users on thier facebook app and stole information from other teams in a pitch competition