To Our Clients, Colleagues and Friends:   

· We wrote about this a few months ago, and we tell it to clients constantly:  Do due diligence on your investors!  How many of you honestly, truly do this?  When you apply for approval with an investor, do you have a file on them that shows you checked references, analyzed their financial statements, possibly read analyst reports on them?  Now, maybe Thornburg looked clean as a whistle a month or two ago, but you knew (or should have known) that they finance themselves with short-term repo lines - so you should have known they had  potential liquidity risk.  Look, all we’re saying is treat investor approval with some degree of seriousness. Just because you can get approved, it doesn’t mean you should do business with someone.  Although not exactly applicable, Groucho Marx said, when he was asked to join the Hillcrest Country Club, “I wouldn’t want to belong to a club that would admit someone like me.”

· A lot of our clients tell us that their warehouse lenders are really tightening.  Several are having their lines terminated because they are in violation of a covenant.  When we hear the details, they turn out to be very important covenants, but they also are kind that warehouse lenders seemed to live with before.  

· If only because of this new tightening, you absolutely, positively have to get profitable.  We thought everyone had figured this out already, but if you’re not making at least $1 a month, you just have to make more cuts.  There’s a limit to what you can do on the revenue side, and waiting for volume to pick up isn’t a business plan.  Eliminate some positions, cut back salaries by 20%, and then cut some more if you’re still not profitable.  Just do it!

· Didn’t all of us have to read Democracy in America by De Tocqueville at least once during our school years?  And didn’t we all find it terribly boring?  Well, we just re-read all 869 pages and found it knock-down amazing. Instead of boring you with observations, here are three factoids:  His full name was Alexis Charles-Henri Clerel de Tocqueville (2) he was only 26 when he toured America and wrote the book, and (3) his real purpose in seeing America was to do a study for the French government on the American prison system. He completely understood the American character and what makes us so unique, and so much of it still applies today.  This time, skip the Cliff Notes and read the real thing.

· Ever wonder where advertising dollars get spent?  No?  Well, here’s where they went in 2007.

· Ever wonder what happened to rogue trader Nick Leeson, the young banker who caused 400-year old Barings Bank to fail?  He served four years in prison, and is now alive and quite well in Ireland .  He’s the CEO of a professional soccer team, and he gives 30 minute speeches at $12,000 each.  His standard topic is  Risk and stress management. Oh, and he writes lots of articles of $2,000 each and sells DVDs and books on his website.  He even charges for interviews.  Is this a twist on Dorothy Parker? Does no bad deed ever go un-rewarded?

· If you get a CAMELS rating 4 or 5, you’re automatically labeled a Troubled Bank by the FDIC.  We just saw that the latest figure shows 76 banks on the list of troubled banks..  At the height of the S&L crisis, the 1990 list showed 1,496 such banks.

· The Philadelphia Phillies have a rookie pitcher at Spring Training named Joshua Outman. What a great name for a pitcher.

· Having a hard time switching from Alt-A and sub-prime to a FNMA product? A year ago, wasn’t Indymac Bank almost 100% Alt-A?  We just saw that for February, 88% of all their loans were Fannie Mae or Freddie Mac eligible.  It can be done.

· Here’s a shocker:  Tuesday morning we checked on the market caps of two totally different companies.  Citigroup has a market cap of $102 billion, and get this, Apple Computer has a market cap of $108 billion.  Who’d have ever thought this possible? Citigroup has been around forever, and Apple didn’t even exist 30 years ago.

· The baseball world was not prepared for what happened at the N.Y. Yankees camp in 1973, 35 years ago this week. Yankee teammates Fritz Peterson and Mike Kekich announced that they not only had swapped wives, but that they swapped their entire families, including the kids and the dogs.  People, we’re not making this up.  It was big news. What a bunch of whack jobs!

It’s no longer enough to have lots of capital to satisfy a warehouse lender. You need to be making money on a consistent basis.  We know several who used to allow some losses as long as you had a plan to become profitable.  Now, they no longer care if you have a plan.  They just want to see the profits.

One of the things we’ve been brought in to do, and we really don’t enjoy it that much, is to actually get a given company back into the black. It’s almost always been cost driven, with an urgency that requires that profitability be in place within weeks.  We’ve never once failed to accomplish this.  A big piece of it is doing something managers should be able to do on their own, which is to eliminate positions, consolidate jobs, and cut salaries. Friends, it’s not that hard.  When we do it, the entire process takes us just a few days.  We’ve been impressed at how much people understand the need for the changes. People want to see their company survive, and they intuitively know that the changes are necessary.

Corky Watts and Joe Garrett  -    Garrett, Watts & Co.