Daily Archives: July 10, 2010

Mortgage Investors Turn to State Courts for Relief

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The New York Times article, Mortgage Investors Turn to State Courts for Relief, explains how big investors are using state courts to try to hold the banks accountable for the fraudulent Collateralized Debt Obligations (CDOs) that they sold.

This item coincides with my starting to read the book The Big Short: Inside the Doomsday Machine. Part of the book is a retelling of the shoddy practices by the loan originators.  That information is not new to me.

On the other hand, The New York Times article explains the assurances that big investors got from the packagers of CDOs that such shoddy practices were not going on.  The banks told the investors that the banks had done due diligence to assure that mortgage standards had been maintained when, in fact, the banks had done no such due diligence (to put it charitably).

A small investor like me had depended on such assurance from firms such as RAIT Financial Trust. I thought I was being so smart because RAIT assured me that they were mostly in commercial and not residential loans.  What residential loans they had all had high credit ratings.  The CDOs they sold were all non-recourse which I thought was even more protection.  I did get some hefty dividends while the bubble was inflated, but I lost about 90% of the principle.  Fortunately my strict policy of diversification had limited the amount of money I invested in RAIT, and the dividends probably cut the loss to only 70-80%.

The 21st Century [Electric] Grid–A primer

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The 21st Century Grid (by Joel Achenbach, National Geographic, July 2010).

Discussion of the Grid, a bit of its history, need for significant improvement, and power storage.

Regarding storage, the following is interesting:

Actually the U.S. can already store around 2 percent of its summer power output—and Europe even more—behind hydroelectric dams. At night, when electricity is cheaper, some utilities use it to pump water back uphill into their reservoirs, essentially storing electricity for the next day. A small power plant in Alabama does something similar; it pumps air into an underground cavern at night, compressing it to more than a thousand pounds per square inch. During the day the compressed air comes rushing out and spins a turbine. In the past year the Department of Energy has awarded stimulus money to several utilities for compressed-air projects. One project in Iowa would use wind energy to compress the air.

Another way to store electricity, of course, is in batteries. For the moment, it makes sense on a large scale only in extreme situations. For example, the remote city of Fairbanks, Alaska, relies on a huge nickel-cadmium, emergency-backup battery. It’s the size of a football field.

Lithium-ion batteries have more long-term potential—especially the ones in electric or plug-in-hybrid cars. PJM is already paying researchers at the University of Delaware $200 a month to store juice in three electric Toyotas as a test of the idea. The cars draw energy from the grid when they’re charging, but when PJM needs electricity to keep its frequency stable, the cars are plugged in to give some back. Many thousands of cars, the researchers say, could someday function as a kind of collective battery for the entire grid. They would draw electricity when wind and solar plants are generating, and then feed some back when the wind dies down or night falls or the sun goes behind clouds. The Boulder smart grid is designed to allow such two-way flow.

-RichardH