To Our Clients, Colleagues and Friends,

• Last week we wrote a small piece about Angelo Mozilo and how he should be judged on the totality of his accomplishments, and boy, did we get lot of mail from people who agreed.  We even got one from Mark Mozilo with two words:  “I agree.”   When a son admires his father, that says a lot right there.
• We read an article the other day that talked about how difficult it was to get a mortgage these days, describing it as a financial colonoscopy.  That hurts!
• How bad is the Los Angeles Unified School District ?  Out of every 100 students who start as freshmen, only 47 graduate.  Can you imagine the other 53% trying to navigate their way through life (and the economy) without even a high school degree?
• Remember last week how we took legitimate movie lines and identified them with wildly wrong actors? Well, we got dozens of e-mails pointing out that we were wrong, and that it was Marlon Brando and not Danny DeVito who played the Godfather. People, please, we were just trying to be funny. 
• If you have friends in the industry, we’d suggest you try benchmarking and comparing metrics.  We just see so many companies that are almost alike – one example might be all wholesale, 75-25% FHA, no branches etc. – but where their margins are vastly different. Why do they make so much more money than you? What are you doing wrong?  What are they doing right?  Start your own peer group that allows you to set higher standards based on someone more profitable than you.
• Has it ever occurred to you that as barbaric as war is, we’ve made some progress over the years, no longer bombing population centers?  On March 9, 1945 Gen. Curtis LeMay sent 346 huge B-29 bombers loaded with napalm to Tokyo .  More than 16 square miles of Tokyo were burned to the ground. LeMay then fire-bombed 64 more cities.  He literally took the Almanac and worked his way down a list of the most populous cities in Japan .  Hitler bombed London , and the Allies bombed German cities.  In the Vietnam War, we only bombed military targets, and in the Balkan War of the mid-90’s, we only bombed Serbian military convoys.  In a strange way, we’ve become much more civilized when doing uncivilized things.
• When $15 billion BankUnited was seized last week, did you notice that it was taken over on a Thursday?  That’s pretty rare.  We think Wamu was seized on a Thursday as well, so maybe it’s just the larger ones where the FDIC needs more time to prepare for the Monday re-opening as a new bank.
• Bonds v. Ruth:  Barry Bonds had an On Base Percentage (OBP) over .500 in four seasons.  Not bad. But Babe Ruth did it five times, and let’s not forget that the Babe spent his first six years as a pitcher.   Ruth’s slugging percentage was .690 versus Bonds at .607, and The Babe’s lifetime batting average was .342 versus .298 for Bonds.  And don’t forget that Ruth was 94-46 as a pitcher with a 2.28 ERA.  Ruth also batted over .380 six times and once hit .393.
• Now that we know the big banks will survive, how about preferred stock issued by these banks?   Wells Fargo Capital XI yields 8.1%, J.P. Morgan Capital XIV yields 8% and Bank of America Capital Trust II yields 10%.  Especially good in an IRA or Keogh.
• A good internal control:  The person who does your MBS trades should not be the one who opens the confirmations. The dealers should be instructed to send them to someone else, perhaps the CFO, who will then check them. Many blow-ups occur because someone starts doubling down on bad trades and hides the confirms.
• We need a bigger universe of companies to study, but our general observation is that companies that just do wholesale or just do retail generate greater returns than those who do both.  What’s your sense?
• And according to the Wall Street Journal, the Pope now has a page on Facebook.  He’ll probably get LinkedIn pretty soon.
• Communism has done wonders for Cuba . In  1958, a year before Castro took over, Cuba was ranked #22 globally in per capita GDP. Today it ranks #137^th, below Swaziland .  Good job, Fidel. Who’s your economic advisor, Robert Mugabe? 
• Nobody better explained the reason to be kind to others than Shakespeare in The Merchant of Venice:   “The quality of mercy is not strained.  It drops as the gentle rain from heaven upon the place beneath.  It is twice blessed.  It blesses him that gives and him that takes.”  Isn’t that perfect?

• We were just comparing our normal FOCIS Reports on independent mortgage banks to the comparable one we do on bank or thrift-owned mortgage operations. If it’s on a bank or thrift owned mortgage operation, it’s twice as long as our basic FOCIS Report.  The template alone is 39 pages!
• Research at the St. Louis Fed show that about 70% of all sub-prime loans (2003-07) were refinances.  A major reason for a refi is to get lower payments, and it’s hard to imagine that very many people getting sub-prime loans were lowering their payments.  The main reason has to be getting cash out of a property, and most people truly don’t need cash out.  They may want it, or think they need it, but most people don’t really need it.

Living in Berkeley this time of year, we see all the proud college grads with their proud parents, the students often still wearing their caps & gowns as they go off to restaurants & other celebrations.  This group will see its share of alcoholism & drug addiction, divorce & disease, and some will end up destitute & perhaps even homeless.  But the vast majority of them will live out some variation of their dreams, and some of them will be the ones to cure cancer & other diseases, write great books, and help fight hunger & poverty.  And what’s even more wonderful, most of them will be parents to yet another generation, the next one also filled with hope and ambition and a burning desire to make the world a better place.  Graduation is a happy time of year when, for a week or two, the world slows down and honors hope, dreams and all the wonderment and inspiration of a new generation. Joe Garrett and Corky Watts  -   Garrett, Watts & Co.   -   510-469-8633    “Helping mortgage lenders increase revenues, control costs, and better manage risk.”