To Our Clients, Colleagues and Friends:

• We were on a panel recently with a person from HUD.  We asked her how many consumer complaints come from actual consumers, and she said that the overwhelming number of complaints is from mortgage bankers ratting on their competitors.  Nice.  But all’s fair in love and war, right? 
• We get lots of calls from smaller shops hoping to become a net branch of a larger affiliate.  We’ve seen some pretty bad net branch operators, and we’ve seen some that do a great job, so feel free to contact us if you’re thinking of making this move.  It could be a disaster if you choose wrongly – or a huge success if you get the right affiliation.  We can help you figure out who’s good and who’s not.
• Who will buy Financial Freedom from the FDIC?  Well, the company was never licensed in any states because it was part of thrift, Indy Mac.  So the natural buyer will be a company that’s already licensed in all 50 states – or a company that is or that owns a bank.  Our bet?  Mutual of Omaha , the big insurance company which also owns thrift.

• A bit of baseball minutia on walks:  In 1913 Christy Mathewson won 25 games and walked only 21 people all season.  The same year, Walter Johnson won a stunning 36 games but walked only 38 batters.  And in 1962, an obscure Bill Fischer of the A’s went 84 consecutive innings without giving up a walk. That set a record.  Runner-up is Greg Maddux who went 72.1 consecutive innings without a walk in 2001.

• A note from a brilliant economist we know, Doug Duncan, who responded to our comments on going paperless.  “I note your comments on going paperless and its benefits for cost reduction.  One of the basic equations for which we had to be able to provide the math proofs in economics is that in a competitive industry, cost minimization equals profit maximization in the long run.  It amazes me how the real estate finance business has never fully appreciated this.”   By the way, Doug was the chief economist at the MBA for years and knows what he’s talking about!

• For those of us with kids thinking about where to go to college, here’s some good advice for them: Always apply to the best school possible.  It sounds so much better to say that you flunked out of Princeton or Stanford than that you graduated with honors from Stanislaus State .

• The Iraqi Reconstruction bonds have narrowed to a price of 484 bps over U.S. Treasuries. This spread is narrower than the debt of both National City Bank and Key Corp (in the +700bp range).  Thank you, Chris Nichols , for pointing this out.
• By the way, we walked past a National City branch last week and saw a sign in the window advertising a 6% CD rate.  Not good.  And this was in downtown St. Louis , not Baghdad .

• Banks traditionally liked to buy FNMA or Freddie Mac preferred stock or their bonds (not MBSs) for their yield and safety.  Their prices are plummeting out of fear that thee two GSEs will fail and make these securities worthless.  J. P. M organ held $1.2 billion of them and just wrote them down to a price of 50, taking a $600 million hit. Watch for more.
• Last week we reminded people that they need to go paperless. What you also need to do is avoid companies that will charge you a fortune to do so, and boy, have we seen some companies get ripped off.  Our recommendation:  Find a vendor who charges you on a variable basis with no upfront cost! 
• Re-read Doug Duncan’s statement that “… in a competitive industry, cost minimization equals profit maximization…”  Doesn’t that just make so much sense?  It doesn’t mean you can’t maximize profits by increasing margins or growing revenues, but it certainly stands on its own as what seems like a self-evident truth.
  
• In Los Angeles County , with 10 million people it’s the most populous county in the United States , fully one third of the sales are foreclosures.  Shocking.

Last week we asked what books you were reading these days. We got about 75 e-mails, but perhaps not surprisingly, no one was reading the same book, so we can’t really post a top ten.  Here, though, are some of the books our clients are reading, with a few comments from us:  (1) The Wolf of Wall Street.  (2)  Judgment of Paris ’ (about the wine competition that put California wines on the map), (3) The 4-hour Work Week.  (4) Lush Life (about New York ’s Lower East Side), (5) Winning the Race (by John McWhorter, and a fascinating book on race in America ), and (6) Martin Eden (Jack London’s finest novel, we think).  The always worth reading (7) How To Win Friends and Influence People (by Dale Carnegie), and interestingly, from someone else, (8) How to Lose Friends and Alienate People, (a spoof on the fashion industry).  (9) The Man (a novel about our first black President, but written forty years ago), and (10) April 1865: The Month Saved America. 

(11) Atlas Shrugged, (12) Damn Right! Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger.  (13) Winesburg , Ohio (a classic).   (14) Losing My Virginity: How I’ve Survived, Had Fun, and Made a Fortune Doing Business My Way by Richard Branson.  (15) Superclass: The Global Power Elite and the World They Are Making.  (16) Moneyball: The Art of Winning an Unfair Game. And (17) Crazy Horse and Custer: The Parallel Lives of Two American Warriors.

(18) Undaunted Courage Meriwether Lewis, Thomas Jefferson, and the Opening of the American West.  (19) The Path between the Seas: The Creation of the Panama Canal , 1870-1914. (20) Into the Wild.   (21) Freakonomics: A Rogue Economist Explores the Hidden Side of Everything.  (22) The Case for Christ. And, with a recommendation that “if you ever want to polish up on your pick up techniques, here is the book for you, (23) The Game.

Finally, from John Boyles on what we San Franciscans call The City:  “I’m proud to have been a Yankee. But I have found more happiness and contentment since I came back home to San Francisco than any man has a right to deserve. This is the friendliest city in the world.”   - Joe Di Maggio.

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