To Our Clients, Colleagues and Friends,

• We wrote last week about wearing high heels and walking up the hills here in San Francisco . A few of you noted that it’s going down the hills that’s truly treacherous in high heels, not walking up them. Good catch, everyone. 
• We wrote an old friend in the M.I. business, and we asked her what she was doing these days.  Her e-mail response was simple:   Sitting on my ass….drinking beer…watching Oprah. Isn’t that a Haiku or something?

• Banks like to talk about being relationship oriented, and we agree that this is where their real value lies.  Some number of years back we were trying to establish a banking relationship with a local real estate investor, and he said “I have a relationship with my wife, not with my bank.”  Now that his projects are dying, he probably wishes he did have a relationship with a bank.  And the relationship with his wife?  We saw him recently and he said she had left him.

• We were in Beverly Hills the other day, helping a $70-80 million a month broker convert to being a mortgage banker. We like it there, and we always laugh at what Robert Redford said about the city, that “If you stay in Beverly Hills long enough, you become a Mercedes.”

• Internet search engine Baidu dominates China the way Google dominates everywhere else.  Baidu controls a whopping 61% of all internet search revenue in China !  And isn’t that whopper, having 61% of any market in a nation with so many people?

· Have $10,000 you want to invest but you want it somewhere safe like in T-bills?  If you put it into a one-year T-Bill, you’d earn $34. That would buy you two tickets to a movie, plus a bag of popcorn and a drink.  Well, maybe a small drink.

· How exactly are the East European people doing, 20 years after being freed from captive nation status by the USSR ?  This is the GDP in each nation.

Slovenia is not only the wealthiest, but it’s perhaps the prettiest. And it’s so fun to pronounce their capital, Ljubljana (Loo-be-YA-nuh)

· We were listening the other day to a high school senior tell us about all the bad things that come about because of the profit motive, and hey, wait a minute! The profit motive may appear vulgar and unseemly, but isn’t it exactly what releases the creative forces and talents that lead to improved lives for everyone else?   Surprisingly, especially to those of us who admire Ayn Rand, this most capitalistic nation of ours is also the most generous and charitable nation on earth.

· How bad has it been for Citigroup?  They lost $27 billion last year and have taken $118 billion in write downs. Does someone want to compare their current market cap with what it was two years ago? Anyone?  Anyone?

· Okay, you’re about to have a baby and you start thinking about college.  One year at a good private school like Georgetown or Dartmouth currently costs $53,000. That’s for one year.  Let’s assume a 4% annual rise in college costs, and in 18 years when your child goes off to college, (prepare for a heart attack), the first year will be $116,000!   The four years will cost $492,000.  And you’d better pray they have no interest in graduate school!  Next week we’ll share the secret of preparing for this through the magic of Tuttlenomics.

· We just saw A Summer Place, and for a 50’s soap opera, it wasn’t all that bad.  A young Troy Donahue and Sandra Dee were the star-crossed lovers, and it looks a bit like Splendor in the Grass with the frigid, angry mom, two teenagers in love, and a girl insisting “I’m a good girl, Mama, a good girl.”  This isn’t a movie you have to run out and rent right away, but if it comes on TV, you might want to watch it.  

· By the way, what exactly are star-crossed lovers?

· If you own a small business, odds are good that you have an Advanta credit card. Advanta is the nation’s 15^th biggest credit card issuer, specializing in small businesses. Anyway, a whopping 57% of their loans have been written off this year!  Holy Tomato.   And yes, the company has filed for bankruptcy.

· Remember Phil Graham, one time head of the Senate Banking Committee?  We read an interview with him, and this staunch free market politician said that Congress should have mandated higher down payments for loans that get securitized.  Say what? Why should Congress legislate this?  The real solution is better disclosure and better analysis by rating agencies.  If the rating agencies had done their job, we might have avoided this mess.  We couldn’t believe he thinks tighter government regulation is the answer.

· Here’s an interesting bank name we just noticed when we were back in New Jersey :  Fox Chase Bank.  Doesn’t that sound more fun than JPMorgan Chase?

· A lot of you have commented on the difficulties in using appraisal management companies that provide poor quality appraisals.  We hear good things about AMC Solidifi, with a good record of generating high quality appraisals.  Your contact there is Griff Straw at (703) 447-0382 or gstraw@Solidifi.com.

· FNMA has filed $15 billion in claims against Lehman Brothers.  Keep on dreaming, Fannie Mae.  They may get a partial recovery, but we’d place the emphasis on partial.

· When you’re looking at new products and new ventures, it may make sense to look at them through the lens of six types of risk: (1) Credit risk, (2) liquidity risk (3) interest rate risk, (4) systems risk, (5) operational risk and (6) reputational risk.  Can you think of any others? Maybe (7) compliance risk?

· From Fred Jackson: “You are exactly right on the ‘overly polite’ email and phone trend. When you dialed 483-2323 (the address was, remember, 23 Wall St. ) the operator answered “This is Morgan Guaranty.” The next move was yours. You, after all, called them.” 

Wed enjoyed having you out for our Dinner so much that we’re going to do it back East for our East Coast clients.  Any suggestions where we should hold it?  

Garrett, Watts & Co.  

Helping mortgage lenders increase revenues, control costs, and better manage risk.

• Mike McAuley      281-250-2536
• Corky Watts        408-497-3135
• Joe Garrett         510-469-8633