Sunday, January 31, 2010

Obama's Subprime Loan

As if we need another more example of the catastrophic nature of the Fed's depression, let's take a peek at the President's own real estate losses.

Obviously, the President is a special case. He'll be fine because he can cash-in influence that comes with the office, and has already done so. But let's assume for a moment that his very typical real estate losses were not accompanied by his very atypical employment situation.

When the President showed up in DC as a freshman Senator, he and Michelle took out a subprime loan in order to buy their Chicago home. Unlike the real world, they got sweetheart loan terms as a "Friend of Anthony," but that didn't alter their plan to financially hurt themselves; it probably made it worse.

Then-Senator Obama made about $160K. The Obamas took a $1.2M subprime loan to buy a $1.65M home. That was $350K lower than the $2M ask price. The $2M figure was after the doctor selling the home allowed the Senator to split the land into two parcels so he could shave $700K from the original $2.7M asking price. The second parcel was purchased at the same time by Obama's top campaign contributor, Tony Rezko (now in prison for real estate fraud). The Obama's bought the second parcel back from Tony's wife Rita for $105,000, less than a year later. The difference in valuation remains unexplained.

The second part of the deal is really too shady to value, so let's stick with the base home to evaluate the Presidents real estate situation.

I say this was a "subprime" loan, because there is no earthly way a $160K/yr temporary job qualifies to purchase a $3M 30 year prime note, especially when they have to split the property into partially undeveloped land to afford it. Nevertheless, the couple decided the risk was worth the gamble, and so did their banker.

The Obama's compulsive gambling habit (yes, making regular $10K/month installments on leveraged loan losses IS life-altering, compulsive gambling) is probably fairly typical among highly-degree'd, but poorly educated mid-to-upper class Americans. It's not their fault. They're victims. They've been taught that it's "OK" to speculate their future away using 20x leverage.

How did they do? Better or worse than Vegas?

Well, DC prices have "officially" declined by only 33% (with way more to follow, but that's a different post). However, sales volume is anemic, so the masses can't fetch that price without driving it much lower. Just for fun, let's say the Obama's home could rot on the market for about $1.1M, today.

So, about a $500K loss. That's not small for a $160K breadwinner. Additionally, that puts the President's subprime loan $100K underwater even with an optimistic valuation, and after losing the 25% they put down.

If our own President's financial situation would be this dire, but for extraordinarily atypical book deals and influence peddling, imagine how the rest of the subprime community is doing--to include all of the non-Presidents still in congress. And let's not forget, 22% of those people are on the unemployment dole or have fallen off and given up looking for sufficient work (the congressional UE rate could be higher in November).

Maybe that's why the President and Congress seem perfectly comfortable doubling down with a new $4T gambling loan on behalf of their constituents?


  1. Michelle Obama was working for the University of Chicago Hospital as an executive and was making $273K. In addition to Obama's Senate Salary of $160k and additional royalities from two books published by BHO. So they were both making substantially more than his, Obama's $160K annual salary.

  2. Still, not close to prime. These were temporary political perks, not sustainable annual income. Clearly, they couldn't afford the home or they wouldn't have needed the loan, or the Rezko's $600K+ cash infusion.

    My point isn't to scrutinize Chicago real estate practives, just to justify the term "sub-prime" when describing the Obama's high stakes gambling and subsequent leveraged losses.

    It was certainly sub-prime, or worse.

  3. Yah, there are a lot of reasons to get into a particular loan at any given time. When pulling down 500k a year, and this was not temporary, as they probably make more now, their loan was not "sub-prime" by any means. I get your point, but a poor example short on facts.

  4. Michelle wasn't hired by the health care corporation for her expert medical qualifications, it was a temporary position created to launder money-for-influence, let's be honest. The bank certainly knew that she wasn't qualified as a top-notch, career medical administrator capable of earning a salary.

    But again, I'm not showing that the Obama's (and their bankers) are wild gambler-speculators to show that they are any different from the rest of the worlds subprimers. Rather, to show that their leveraged losses are rather typical.

  5. Do you recommend as much gamma as possible at this point? One would think that P3 would be steeper than P1 and that a stair case down would not be the case. I would thus think that theta be traded for gamma for maximum profit potential. What do you think has the biggest decline yet to come? Looking for all things optionable for maximum leverage.


The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

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