Search results matching tag 'Investment Banking'

New heir at the house of Morgan

James Dlugosch — Tue, 29 Sep 2009 20:13:00 GMT

This morning I saw an interesting interview with Alan “Ace” Greenberg, former chief executive of Bear Stearns, on CNBC. Asked to comment on the views of JP Morgan (JPM) Chief Jamie Dimon, Greenberg demurred and backed the banking genius 100%.

“Whatever Jamie says, I agree,” he said.

Bing: More on JP Morgan

You will not often find Wall Street executives reluctant to share opinions. These guys have strong egos, and Ace has one of the biggest. His deference to Dimon is very telling.

There are few, if any, who can match skills with Dimon. He has a long history of success, culminating with his leadership and stewardship of JP Morgan (JPM). Morgan has nimbly navigated the waters of a recession and a financial meltdown, and emerged relatively unscathed.

Because of that success, Morgan trades only slightly lower than the stock traded before the crisis. Not bad, considering the carnage.

The question for investors going forward is what happens when Dimon retires?

Today, JP Morgan put Jes Staley in line to succeed Dimon by naming him the new head of the investment banking division. The 30-year veteran will replace the current co-chief executives leaving that post.

Investors need not worry about an imminent departure of Dimon, but this move does raise the succession question. Dimon is clearly a star, and when a star leaves, a company can suffer.

Take a look at General Electric (GE). That company has not come close to reaching the levels achieved during the reign of vaunted CEO, Jack Welch.

How about Apple Computer (AAPL)? The technology leader saw its shares plunge on concern regarding the health of its star CEO, Steve Jobs.

It is a tricky business for any company to replace a star CEO, and Morgan won't find it easy. But don’t expect shares to suffer much when Dimon eventually leaves. A bank is not at all like a technology company or an industrial company.

Although the recent crisis might have you think otherwise, a bank is pretty hard to screw up. The crisis was a once-in-a-lifetime event. Generally, banking is a pretty simple business. You hold money, you lend money, you borrow money.

JPM certainly benefits from having the services of Dimon, but the bank will be far from lost when he leaves.

It is encouraging that JPM is planning for the future, but don’t expect the news to move the stock one way or the other. This news is much ado about nothing.

At the time of publication, James Dlugosch did not own shares in JP Morgan, General Electric or Apple.

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Secrets behind Lehman's collapse

Jon Markman — Wed, 02 Sep 2009 01:26:00 GMT

When the century-old investment bank Lehman Brothers collapsed a year ago, it spawned not just a global financial firestorm but a cottage industry of insider accounts of where it all went wrong. Three major books have been published and more are on the way -- each proposing to tell us the darkest secrets of the world's worst-run brokerage. (My take on it: New column.)

Any endeavor that pits Type A personalities against each other in a battle for control of the public discourse is bound to be competitive, and one like this in which reputations are at stake will naturally be especially fierce. That makes the effort by Lawrence G. McDonald, a former vice president at Lehman, particularly compelling, as he was first out of the gate.

In a late-night conversation from his vacation in Paris, the former fixed-income trader told me that the book, "A Colossal Failure of Common Sense," took him and co-author Patrick Robinson one hundred and seventy-three 17-hour days to research and write -- including Christmas and New Year's. Not that anyone's counting. Because he was first off the starting line with a publishing contract and a plan, he managed to grab co-workers for interviews "at a golden moment of frustration," he says, a time when they wanted the bad apples at Lehman exposed. The bottom line is about what you'd imagine: An overmatched boss failed to listen to smarter underlings and drove the company into the ground. The details are amazing, which makes the read compelling even if you feel you know the whole story already.

Some critics have complained that a mere vice president was too low on the totem pole to judge the intent and result of decisions made by chief executive and chairman Richard Fuld. But McDonald, now a managing director at hedge fund Pangea Capital, said he managed to get access to eight members of the board's risk committee and 40 managing directors.

McDonald says his research showed that Lehman was rotten at the head, not at the core. He contends that Fuld got off track by trying to diverse the company's longtime focus on fixed-income trading into a lot of complex areas that he didn’t understand, such as credit derivatives. By the end he had created a company that was essentially a $760 billion hedge fund, after accounting for 40-1 leverage. Rather than surrounding himself with strong managers who could inform him about the risks, he favored yes men and bureaucratic hacks that brutally put down dissent among the ranks.

The author is quick with the metaphors; he's got a million of them. "Picture a rocket ship 2,000 feet high, and at top are astronauts in a capsule with 1960s computing gear and brainpower," he said. "Below the capsule is 21st century technology, power, fuel, and all the people in the firm. They had no idea how to control the incredibly powerful machine they had built -- only how to hit the gas pedal."

McDonald said the bullies around Fuld used the corporate equivalent of brass knuckles on the staff, moving people into jobs and regions that they weren't suited for in order to weaken and intimidate them. From 2004 to 2008, he says, the fixed income group -- the source of most income for the firm -- had four chiefs. "That is catastrophic," says the author. "You can get away with that in peacetime but if you do that in rough waters, it's suicidal." No one spent enough time with the teams to know where the risks lay, and how to deal with them in a responsible way as each new guy only wanted to avoid getting fired like the last guy.

In the old days, McDonald says, Lehman was in the "moving business": Let's say Campbell's Soup wants to sell $20 million in bonds to build a new soup-making facility. Lehman underwrites the debt, sells the bonds and takes a fee, such as 1% to 2%. Not much risk involved. Starting in 2004, the company got into what McDonald calls the "storage business": Buying debt itself and making directional bets. By the end, it had 35% of its net tangible assets in three gigantic real estate projects.

Why? McDonald says that Fuld was desperately jealous of two former Lehman executives, Pete Peterson and Stephen Schwarzman, who had gone on to form the private equity firm Blackstone. When Blackstone went public, the two execs became instant billionaires. The deal that captivated Fuld's greed, he says, was their purchase of Equity Office Properties; although it was done at the top of the market, the pair managed to make a bundle by reselling it in pieces. Fuld said to his commercial real estate chief: "You missed EOP, you missed MetLife Stuyvesant (another big project), don't miss the next one.' That was the beginning of the end. Fuld was jealous with a capital J."

You can read the book to read the rest of McDonald's tale of how the company toppled from the peak, but the key takeaway is this: Government regulators must take steps to ensure that board of directors are truly independent of company management, starting with a ban on chief executives becoming board chairmen.

"The board was in his back pocket, they were handpicked by Fuld and they were just blind: A navy admiral, an actress, a Broadway producer, it was just a 'yes' committee," says McDonald. "Not once did they ask risk managers for advice on whether they should allow Fuld to take the steps that led the company to ruin. They let him take all of our profits from 2003-2006 and machine-gun them around the world to buy into a global asset bubble. People inside the company begged him to stop, but he didn't allow their concerns to reach the board. He silenced them."

You might imagine that this could never happen again, but trust me: It will if the industry manages to block steps to rein in its power, as it has so far. It's a good book. Check it out.

Jon Markman is a weekly columnist at MSN Money. He also provides investment guidance to individuals and institutions through his daily Strategic Advantage and weekly Traders Advantage services, as well as through managed accounts at Markman Portfolios.

IEA forecasts slowdown in oil demand

Minyanville — Mon, 29 Jun 2009 13:00:00 GMT

IEA Cuts 5-Year Oil Outlook

Crude oil futures are slightly higher this morning even after the International Energy Agency said oil consumption likely won’t reach last year’s levels until 2012, the organization said in its Medium Term Oil Market Report. According to Bloomberg, the Paris-based agency cut its oil demand estimates for every year through 2013 by approximately 3 million barrels a day because of the deep economic recession in developed economies as well as slowed growth in China and India.

Average oil consumption will stay below 85.76 million barrels a day and won’t break that mark until 2012. This reduced demand is postponing the threat of a supply shortfall, the IEA said. Relative to medium-term profiles in previous years, “this scenario paints a delayed picture of a threatened ‘supply crunch’ later in the period.”

From the Bull Pen: For oil bulls shrugging off this news, consider small cap oil and gas company Rosetta Resources (ROSE). One option is to start an initial position here and buy on a pullback towards $8.50. A sell stop can be set below $8.

From the Bear Cave: Is the IEA forecast implying an L-Shaped recovery? Those playing the downside on the broader markets can use the S&P 500 depository receipts (SPY) with short term buy stops above the 20 DMA (currently $92.90).

Quick Check Around the World

Asian trading closed with the Hang Seng -0.39%, India 0.14%, Shanghai 1.61%, Nikkei -0.95%, and Taiwan -1.12%.

Glancing towards Europe, we see the FTSE 0.43%, CAC 1.19%, DAX 1.15%

As of 8:10 AM EST, S&P Futures are trading +3.40 to 917.30 and Nasdaq futures are +8 to 1480.20.

A Look at Commodities

Over in commodities, crude oil is trading +0.73 to 70.42 while gold is +0.80 at 941.80 this morning. Silver is -0.480 to 14.08 and copper +1.35 to 230.70.

The dollar index is +0.0550 to 80.1600.

No economic events on the radar today. But click here for events for the rest of the week.

Happy Monday! Good luck and have a great day!

Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Contributor Terry Woo.

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RIMM moves to earnings beat

Minyanville — Thu, 18 Jun 2009 15:43:00 GMT

Research in Motion (RIMM) is set to report earnings after the bell, and option traders appear ready for a rockin' good time. It appears people are betting on a repeat performance of the huge gap higher, following last quarter’s positive earnings (which sent shares up some $13 the next day).

Yesterday saw nearly 5 times the average daily option volume with a preponderance of call buying. Open interest in the June calls, which expire tomorrow, increased by 35,000 contracts. The options are currently pricing in about a $6 or 7.5% move. In fact, one player -- possibly with memories of last quarter’s 20% price surge following the earnings release --seems to think the options are cheap and is underestimating the magnitude of any ensuing move.

Rather than pick a direction, the strategist purchased 25,000 of the June $80 calls and 25,000 of the June puts for a total net debit of around $6 for the strangle. This means he needs shares to trade below $69 or above $86 to begin seeing a profit. With Research in Motion currently trading around $77, that translates into an $8, or 10.5%, price move.

For my part and that of OptionSmith, I don’t think lighting will strike twice. I've sold an iron condor that will profit if shares stay between $71.50 and $83.50, with the maximum profit coming if the stock is between $75 and $80 on tomorrow’s expiration.

While that $3 move from current levels might be tight, I like getting short premium ahead of the report, as it will benefit from the steep drop in implied volatility and final day of accelerated time decay following the release.read

The loss is limited and the risk/reward profile is better than 1:2, giving it an attractive probability of turning at least, hopefully, a small profit.

Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Contributor Steve Smith.

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What's wrong with the UK?

Andrew Rosenbaum — Thu, 21 May 2009 14:05:00 GMT

Standard & Poor's says in a note on Thursday that the United Kingdom is in danger of losing its top-level, triple-A debt rating.

The problem: Way too much debt. In fact, the U.K.'s debt may soon be as big as the gross domestic product of the entire country.

That would mean, theoretically, that everything residents of the country produce should have to go to pay its sovereign debt --that would be true if the U.K. were a person like you and me, but of course sovereign debt doesn't work like a credit card bill.

The U.K. is not exactly a debt-repudiating banana republic. In fact, the government of Great Britain hasn't changed since about the year 1066, when William the Conqueror invaded. And it's a Group of 7 nation, making it one of the most important economies in the world.

Has something gone very wrong in the U.K.?

As S&P puts it: "We have revised our outlook on the U.K. based on the view that, even allowing for fiscal tightening, the net general government debt burden could approach total GDP and remain there in the near term."

S&P doesn't believe the government will save enough money in the near future to reduce the debt. It is true that the U.K. has been spending like crazy to save its banks and to stimulate the economy.

Mind you, S&P is only saying it MIGHT want to cut the rating in the near future. It isn't actually doing it.

That's a good thing, because an actual rating cut would raise havoc on U.K. investment markets. U.K. financial services are among the largest and most important in the world. It boasts the largest stock exchange in Europe, and it is the third-largest market in the world for fund management after the U.S. and Japan. Uproar there would quickly spread to the U.S. and the rest of the world.

Nor is S&P likely to cut the U.K. debt rating. Because lots of major economies run with a huge burden of debt. Japan's sovereign debt has been 180% of GDP for years, and the country has always had a triple-A rating. Italy has been in second place for many years at 140%.

Germany has had a 60% debt-to-GDP ratio, and France has lived with a 75% one for many years. Both have triple-A debt ratings.

How is that possible? It's because triple-A debt ratings for nations don't really depend on how much they borrow. They're about stability, age of institutions, checks and balances between the forces of government -- all the special characteristics that distinguish a country that has a history of law and peaceful change. The U.K., boasts all of these qualities. They don't call it the "Mother of parliaments" for nothing. And the last time its government was changed outside due process of law, knights were riding around sticking each other with lances.

Moreover, the U.K. is an integral part of the world's financial system. Almost half of its economy is produced by banks, brokers, and insurers. They have holdings all across the world. What would happen to them if the U.K. decided not to pay its debt?

If proof were needed for all this, an auction of U.K. government bonds on Thursday, which took place right after the news broke about the proposed rate cut, sold out in no time. The Bank of England sold $1.6 billion in two-year gilts about one hour after S&P pondered the country's credit rating.

Sometimes the markets do provide the simplest answer to difficult questions . . .

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Stocks investors love -- despite everything!

Andrew Rosenbaum — Fri, 24 Apr 2009 04:19:00 GMT

You would think that investors would reward stocks when companies show strong earnings -- and punish those that don't.

Nothing could be further from the truth. If you want proof that stock trading isn't a science, you can find it by looking at some of the loopy moves investors make after stocks announce their earnings.

Here are three such examples from this earnings season so far.

Consider Comerica (CMA), a Texas bank that announced first-quarter earnings on April 21. Profit was down 90%; earnings missed analyst estimates by a mile; the bank posted a loss instead of the small profit that had been expected.

You'd think its share price would have plunged after the announcement? Nope, investors pushed the stock up 15.7%, and it's still trading 50% above its 52-week low.

Personally, I'd have been a pretty angry shareholder after hearing Comerica's poor performance. But apparently investors were so grateful to learn that the bank wasn't going bust, they piled into the stock. Proof that we live in interesting times.

OK, investors are all especially worried about banks these days. That doens't explain the case of toy maker Mattel (MAT), which announced earnings on April 20. Analysts were expecting a loss of 13 cents per share; Mattel delivered a loss of 14 cents per share, disappointing revenue, and a poor outlook.

Did angry investors sell off the shares in droves? Again, nope: the price rose 15.2% on the same day. The explanation: rising sales for Barbie dolls impressed investors. Try finding that in the stock trading manuals...

Granted, the reactions to earnings aren't always so screwy. The stock that jumped the highest after announcing strong results was Bed Bath & Beyond (BBBY). After beating the Street's estimates with strong earnings, BBBY rose 24.26%, close to its 52-week high. So is the stock way up above its 52-week high. Not a chance. It's been dropping down, bit by bit, day after day, since it announced such good news. If I were a manager at home furnishings retail chain, I'd be a bit puzzled.

The good folks at Bespoke Investment Group, who've collected all this data on how stocks performed after earnings announcements, don't explain why some of the results seem so...inexplicable. Perhaps they are wise to leave that to the psychologists. But the recession clearly has investors looking beyond the obvious numbers, trying to get closer to the companies they put their money in, and to escape from the more obvious macro-trends.

That's probably a good thing for stock investing in general.

Of course, some stocks just can't seem to please. When Bank of America (BAC) announced its earnings, it beat Street estimates on profit and revenue. That didin't prevent investors from pushingt the stock down 24.3% on the same day, the worst beating any stock has taken when announcing earnigns. But then, maybe they remember that the bank had just cut its dividend to just a penny...

FactSet shows information is power

Jon Markman — Wed, 22 Apr 2009 17:34:00 GMT

At a time when accurate information on public companies is more important than ever, there are few independent data providers to invest in. Dow Jones was swallowed up by News Corp., and Bloomberg is private. That leaves Morningstar, Thomson Reuters and FactSet, all of which are good choices -- but only one of which is fully focused on the professional community.

That would be FactSet, and it is my favorite of the group. Think of the Connecticut-based financial information provider as a smaller, nimbler version of Bloomberg but without the dedicated terminals. (Company website). It has performed the best of the bunch this year too, rising 11% vs. -7% for Thomson and around 1% for Morningstar.

One could assume that the financial crisis boded horribly for earnings of all companies that even breathe that air, but FactSet is one of the exceptions. A few weeks ago it reported a double digit increase in revenue -- 11.6%, $156.6 million -- that surprised almost everyone. It lost only 4% of subscribers over the quarter, reflecting a strong loyalty between FDS and its clients. Analysts suspect that if FDS can not only survive in the downturn, but turn out over 10% more in revenue, it's set to make even bigger waves when the economy improves.

Why? Three big factors: its superior products, high switching costs for clients, and a very tough environment for potential competitors to entrench themselves. Let's take them one at a time.

First, FactSet provides a very good product: accurate and comprehensive financial information accessible on any computer and most wireless devices. It collects updated information from 50 third-party vendors and allows access to a couple hundred databases, all in one platform. It provides 24-hour support and even train clients through seminars held around the world. And it strives for accuracy, checking incoming data running literally thousands of times each day. It's no wonder clients didn't abandon the company as their income dwindled, as accurate information is crucial, no matter the financial environment. Nearly 95% of its subscribers renewed their accounts.

Second, even if FactSet's products weren't the absolute best, the company would still retain many of its subscribers due to the high cost of switching services. Analysts notes that FactSet's products and services become deeply enmeshed in professional investors' operations. Especially in a downturn, the last thing an investor needs to worry about is the headache of switching data companies, especially when theirs provides a stellar product.

Add to that the fact that FactSet's comprehensive platform, with quick and accurate information coming from hundreds of reputable sources, makes it very difficult for incoming competitors to compete. Its clients have come to expect lots of personal support, but it's the result of many years of consistent improvement that would be close to impossible to replicate in a short timespan.

FDS is not the cheapest stock around, with a P/E multiple of 17, but that's not a bad thing: It shows investors are willing to pay up for quality. It has been a part of my Strategic Advantage portfolio and personal portfolio this year, should still be a good pickup now for any investors looking for some low volatility exposure to the financial sector.

To see more of my investment ideas, check out my weekly MSN column on the economy and markets, Supermodels; my daily investment advisory, Strategic Advantage; or my trading advisory, Trader's Advantage.

Jim Cramer plays pussycat on 'The Daily Show'

Charley Blaine — Fri, 13 Mar 2009 15:38:00 GMT

Before CNBC's "Mad Money" Jim Cramer went on Comedy Central's "The Daily Show" Thursday night, he pounded on pie dough with a roller during a visit with domestic diva Martha Stewart.

"Daily Show" host Jon Stewart got into fighting trim with pop quizzes on the definitions of various financial terms, like price-earnings ratios and Tier 1 Capital.

But when Cramer actually appeared on the show, he was as gentle as, well, a kitten.

That was a bit of a surprise, given the startlingly frank 8-minute critique of CNBC's coverage that Stewart had broadcast on March 4. And the second slam Stewart delivered against Cramer specifically on Tuesday.

And my guess is that some of Cramer's colleagues weren't overly thrilled with his appearance.

Cramer didn't defend colleague Rick Santelli's rant against homeowners who might need help from the government: "I disliked what he said." Indeed, Cramer defended struggling homeowners: "They're not losers; they're fighters."

He conceded that CNBC and he could have done a far better job of explaining the risks building in investment banks Bear Stearns and Lehman Bros. in 2006 and 2007 before the stock market began to crash.

"The market was going up for a long time," he said, "and our real sin was to believe it could continue to go up a lot in the face of lot borrowing and a lot shenanigans."

Worse, he said, a number of CEOs simply lied to him and to others. To which Stewart shot back, "I'm under the assumption that you don't take their word at face value and that you go around and try to figure this out."

And Cramer would not bite back when Stewart played -- and replayed -- non-CNBC clips of Cramer explaining how he might have manipulated the markets when he was a hedge fund manager.

Which led to Stewart's finally saying, "I want the Jim Cramer I see on TV to protect me from that Jim Cramer."

Stewart treated the show as an opportunity to lecture, calling on CNBC -- and presumably others -- to skip the histrionics and do the grunt work necessary to ensure that companies can still grow and expand profits "but not in a way that burns down the entire field."

Below is the interview as broadcast. To see the unedited interview, including 8 minutes that Comedy Central cut for time reasons, click here.

And below is more Cramer coverage.

Pfizer, Wyeth signal a rebirth of M&A

Douglas McIntyre — Mon, 26 Jan 2009 12:53:00 GMT

The Pfizer (PFE) deal to buy Wyeth (WYE) for $68 billion looks like a single M&A deal which will break the drought in investment banking activity, but only for a day.

The conventional wisdom is that acquisitions in a recession are too risky. They require capital and integrating companies is hard even when the economy is strong. Pfizer will borrow $22 billion to consummate the transaction.

The reasons behind the Pfizer transaction apply to a broad cross section of industries and underscores why there is about to be a significant up-tick in M&A activity, one which could not have been expected just a month ago.

According to The New York Times, "The deal would not only create a pharmaceutical behemoth but would be a rarity in the current financial tumult: a big acquisition that is not a desperate merger of two banks orchestrated by the government."

Pfizer and Wyeth are facing a problem which is systemic and not isolated to their industry. Each expects revenue to fall in the near future as some of their largest-selling drugs lose patent protection. Putting the two companies together will allow them to fire tens of thousand of people and cut other overlapping costs. The firms are nearly identical, which makes expense savings certain.

A large number of other industries are facing similar problems. Retail is the most obvious. Beyond that, airlines are back in trouble. All of the merger plans that carriers were looking at last summer can be dusted off. Traffic is falling sharply as consumers and businesses cut back on travel. In a related sector, the hospitality industry is in it worst period in decades. Some hotels are nearly empty.

A merger of two of The Big Three is still on the table. The government may even force it as part of an aid package. Auto parts suppliers are in such bad sharp that some will go into Chapter 11 or outright liquidations before the middle of the year.

Two years ago, M&A activity was driven by easy capital and the notion that putting two related companies together could enhance revenue by selling a broad array of products and services to common customers. Many of those deals are in trouble now because of the leverage they took on to fund their transactions.

The next wave of M&A, which will almost certainly begin within the month, is one designed at helping troubled companies survive by pressing cost cuts through consolidation of common functions. It is an ugly set of motivations but compelling enough to insure that investment banks can call some of their best deal people and ask them to come back to work.

Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.

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Fannie, Freddie knew about risks, ingnored them

Minyanville — Tue, 09 Dec 2008 20:14:00 GMT

Unprecedented. Unpredictable. Unparalleled. Extraordinary.

These are the adjectives offered by mortgage industry executives defending their relative innocence in the collapse of the housing industry. Conditions, they argue, deteriorated so rapidly and in such unpredictable ways they couldn't possibly batten down the hatches fast enough.

As it turns out, that's not exactly true.

The Washington Post reports that chief executive offers at both Fannie Mae and Freddie Mac ignored warnings about their firms' exposure to risky loans. The findings of the House Committee on Oversight and Government Reform are being discussed today on Capitol Hill.

At Freddie, an internal report explicitly warned that certain types of loans might default at a higher rate than expected if borrowers' true financial positions were to be made known. Furthermore -- and troubling insofar as these firms and their Washington backers actively pushed these risky loans on low income immigrant communities -- senior executives were told many such mortgages could be particularly harmful for non-English-speaking homeowners, since many didn't fully understand the confusing loan terms.

At Fannie, no smoking gun was produced, but the oversight committee discovered what it called an "underground" effort to actively buy subprime loans.

For their part, former Fannie CEO Daniel Mudd and deposed Freddie chief Richard Syron are directing the blame elsewhere - not surprising, given their well-documented penchant for obfuscation and finger-pointing. To Mudd and Syron, responsibility for the crash lies squarely at the feet of regulators and Congress: One was asleep at the wheel while bad loans ran rampant through industry as a whole; the other all but forced lenders to give out loans to under-qualified borrowers under the auspice of the Community Reinvestment Act, or CRA.

The CRA, introduced in the late 1970s but used by the Clinton administration to support the now-maligned American dream of home ownership, aims to give low-income borrowers equal access to cheap mortgages and other banking services. Think of it as reverse "red-lining," which is the outlawed practice of refusing to lend in certain neighborhoods that may be perceived as riskier than others.

Homeownership rates -- not to mention political backslapping -- surged as the housing market boomed, even as borrowers became increasingly exposed to predatory lending and risky loans. Wall Street and banks like Bank of America, Citigroup and JPMorgan saw loan portfolios balloon as low interest rates, securitization and an influx of foreign money fueled the red-hot market.

A lucky few managed to sell at the top; the rest are now left holding the bag, with everything tenuously held together by an ad-hoc glue of taxpayer money and a ballooning national debt.

And while we now know how the story ends, the future, as they say, has yet to be written.

Mortgage regulations, as much as they've been tweaked since the crisis began, will undergo an even further-reaching overhaul by the time we emerge on the other side of this mess. Along with the rest the financial industry, laws regarding borrowing and lending are slated for massive changes in the coming years.

Regulators could choose to punish the industry and homeowners alike with oppressive rules and regulations, which will will push up interest rates and prolong the housing market's eventual recovery. It will, however, do little to punish those actually responsible, since most have either lost their jobs or are living high off their spoils. Sadly, we appear well along this path.

The other option, however politically inexpedient it may be, is to once and for all remove the government crutch from the mortgage industry and let the free market determine interest rates, borrowing terms, and home prices.

To be clear, this is not to advocate lawless cowboy lending, but simple, prudent rules that protect borrower and lender alike without home loan subsidies in the form of artificially low interest rates.

At the center of any responsible regulatory regime is a realignment of incentives. The current system still rewards housing-market actors like real-estate agents and mortgage brokers for encouraging borrowers to make bad decisions. The higher a buyer's price, the more an agent is paid; the more the terms of the loan favor the bank, the more a mortgage broker stands to profit. This needs to change.

And until it does, as George Santayana said, "Those who cannot remember the past are condemned to repeat it."

Top Stocks blogging partner Todd Harrison is founder & CEO of Minyanville.com. This post was written by Minyanville Contributor Andrew Jeffery.

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