To Our Clients, Colleagues and Friends,  

• Some banks are doing just fine.  The $1.1 billion Bank of Marin ( Marin , California ) just repaid its TARP money, showed a nice third quarter profit, and raised its dividend.  It doesn’t get much better than this.  Not these days.

• Don Brown of Secondary Interactive sent us a chart comparing Wells Fargo’s Assignment-of-Trade pricing versus Best Efforts pricing. The pick-up was as low as 19 bps in June and as high as 120 bps in April.  In early October it was about 58. 
• A lot of you are thinking of selling directly to the agencies and retaining the servicing.  One thing you should consider is that when you sell your loans servicing released, you’re paying taxes on that SRP.  If you retain the servicing, assuming your cash flow allows it, you avoid paying those current period taxes.
• We are very pleased to formally announce that Mike McAuley has joined us at Garrett, Watts & Co.  Mike ran the warehousing divisions at JP Morgan Chase and Washington Mutual and has over 20 years of experience in the field.  One of things he’s already been doing is working with our community bank clients who went into warehouse lending, making certain they’re doing it the right way and in a safe and sound manner.

• Did you watch the short video clip from American Idiot last week?  The theme of the musical was about a suburban kid who gets into the punk rock scene, gets his girlfriend pregnant, tries heroin, goes into rehab, finds redemption, and ends up in an office wearing a suit and tie and working at a computer all day – and then realizes he’s become an American Idiot.  It’s sure not Rogers and Hammerstein, but the music, the energy and the dancing are terrific.  Here it is again for those who missed it:   http://www.berkeleyrep.org/multimedia/ai_trailer.asp   After the show, there’s a party with the cast, and two of the cocktails they serve are Jesus of Suburbia (a vodka drink) and St. Jimmy (made with rum). It’s only appearing in Berkeley , but it should make it to Broadway soon.            
• The latest New Yorker magazine had a good article on our use of unmanned drones in Afghanistan that shoot missiles to kill terrorists.  Interestingly, Obama authorized more missile strikes in his first nine months in office than Bush did in his last three years.
• Here’s a shocker about the slowly dying newspaper business.  The San Francisco Chronicle (i.e. The Incredible Shrinking Chronicle) has seen its circulation drop a stunning 25.8% in the past six months.  Will there be any newspapers in 10 years?  The Chronicle says its cost-cutting finally got it to break-even, but just like with banks, cost cutting goes only so far, and at some point, you need to grow your revenue.
• We spoke to a noted economist the other evening about Milton Friedman’s Chicago Boys and their Shock Treatment to introduce market forces into non-market economies.  We’ve got too many other books to read to look into this topic, but do any of you have any opinions on this?  And if you look at Chile , can you ever have truly free markets when the government is controlled by autocrats?  Don’t you need free minds to have free markets?
• We just gave a lecture at the University of California (“Welcome to Hell:  Capital Markets and Bank Regulation”), and the students kept us there for over two hours of additional questions and discussion. If anyone is worried about the future of our country, they should spend time with college kids to see how remarkably bright, engaged and intellectually curious they are.  If they’re our future, our future is bright.
• This Sunday will be the first time in history you have games being played in major league baseball, the National Football League, The National Hockey League, and the NBA, all on the same day.  It’s never happened before, and it must be pure heaven for couch potatoes everywhere.

• We picked up a few Nancy Drew mysteries at a used bookshop two weeks ago, and each had essentially the same plot: Sixteen-year old Nancy Drew visits a friend and learns of a mystery involving a lost treasure. An anonymous note slipped under the door warns her "Keep off the case... or else."  A car chase ensues. While playing detective, Nancy gets knocked out by a crook and wakes up in an old mansion, where she discovers a secret passageway, solves the mystery, and on the last page, social order is restored.  Very formulaic, but still fun to read.
• We read an article that listed the 1989 Oakland A’s as one of the five greatest teams of all time.  Maybe, but you have to include the 1927 Yankees, the 1937 Yankees (DiMaggio, Gehrig, Dickey), the 1967 Cardinals, and probably the 1970 Orioles, the 1973 A’s, the 1976 Reds, the 1984 Tigers, and the 1986 Mets. If we find one more, that will make it the top ten, and maybe limiting it to five is just too difficult.  We’ll try to highlight these teams in the next several weeks.
• When you say “There’s a lot of foreclosure activity on my street”, the word is spelled a lot and not alot.  People, it’stwo words, not one.  If you can’t remember this, you could simply say “There’s foreclosure activity up the wazoo on my street”, thus avoiding having to remember how to spell a lot.  If you want to be absolutely clear in your meaning, though, you should more properly say “There’s foreclosure activity up the wazootie on my street,” as wazootie is the subjunctive participle of the root word wazoo. 
• This is a sign for a town in Newfoundland , Canada .  And don’t you think the city council there would come up with a better name?

There was a subdivision once where the city council wouldn’t give the builder the zoning he wanted, so he named his streets Hitler Boulevard , Auschwitz Avenue , Chernobyl Court and so on.  The city fathers caved in and gave him what he wanted in return for his dropping those names.

• We just saw another article about all the growth in Dubai , with photos of all those high-rises, hotels, malls and condos sprouting up everywhere.  Every time we see those photos, we wonder, how the heck do you short Dubai ?  If you have any ideas, let us know.  It just seems there’s going to be a very unpleasant ending to that bubble over there.
• There was a time when a good Moody’s or S&P rating meant everything, and it turns out, of course, that their ratings meant nothing.  So it’s fascinating to see some sizeable bond issues come to market recently with no rating at all. One was issued by Credit Suisse, and their selling unrated bonds would have been unthinkable a year ago.
• Who was really responsible for the fall of the Berlin Wall and the ensuing fall of the Soviet Union ?  Lech Walesa, Ronald Reagan, Pope John Paul II?  They all played a role, but the real hero was a low-level East German Politburo member named Gunter Schabowski.   We’re dead serious, and we’ll write about it around November 9th, the 20th anniversary of the fall of the Berlin Wall.

Earlier this week a graduate student and Phillies fan posted an online ad that included “Gorgeous, buxom blond in desperate need of two World Series tickets.  Price negotiable.  I’m very creative.”  On Tuesday, she met an undercover cop at a bar and was arrested for offering sex in exchange for the tickets.  Anyone who’s that big a fan should definitely have the charges dropped. Garrett, Watts & Co.   Helping mortgage lenders increase revenues, control costs, and better manage risk Joe Garrett   510-469-8633  -  Corky Watts   408-497-3135  -  Mike McAuley  281-250-2536