Some housing bubble news from Wall Street and Washington. The Guardian, "Thousands of homebuyers have abandoned plans to move house after the British banking crisis surrounding Northern Rock led to fresh uncertainty in the housing market. David Salvi, director of Hurford Salvi Carr, said his office had compared the traffic with that of the other property websites coming through internet search engines and that the same trend was evident elsewhere."

"'The public's appetite for buying and selling property completely dropped off after last Thursday [13 September], although some of this has now returned. We do not believe it is a coincidence that our quietest weekend of the year occurred immediately after the Northern Rock share crisis,' he said."

"'Last week shows what happens when an event in one part of the world can affect us all within just a few weeks,' Chancellor Alistair Darling will today tell the Labour Party conference. 'The time was when a small bank in an American state got in trouble, it was bad news for that town or maybe that state but nowhere else. But today, when a Florida householder defaults on his mortgage, the effects are felt not just in America but across the world.'

From Bloomberg. "The government of Prime Minister Gordon Brown, which insured the deposits of Northern Rock customers to stop a run on the bank, seems willing to sacrifice its investors and executives to lawmakers looking for someone to blame."

"'No government should ever be in the business of protecting executives who make the wrong call or bad decisions,' Darling said Sunday at the governing Labour Party's annual conference. 'My job is to protect ordinary savers.

From Reuters. "Deutsche Bank's profit could be hit by up to 1.7 billion euros ($2.4 billion) due to loans that have dwindled in value as a result of the credit market crisis, sources familiar with the situation said."

"Deutsche would normally farm these loans out to other banks, but it has become harder to sell on such debt in the wake of a credit squeeze that began with a wave of mortgage defaults in the U.S., and the bank now faces having to write down the value of these loans to reflect this."

"Mitsubishi UFJ Financial Group, Japan's biggest bank, says it may need to mark some of its investment securities at 'a significantly lower price' due to credit market deterioration from subprime mortgage defaults in the United States."

"Prices for some securities have declined because the market 'is depressed or not properly quoted,' the Tokyo-based bank said."

The Wall Street Journal. "In its semi-annual review of global financial issues, the IMF concluded that the 'threat to financial stability increased,' in good measure because of the uncertainty over how credit problems are transmitted globally and how deeply the credit crunch will bite in markets around the world."

"Now, the IMF says it's trying to help head off future crises by highlighting potential problems ahead of time. 'The new element [in the global economy] is the complexity of the new financial system,' said the International Monetary Fund's top financial review official, Jaime Caruana."

"Mortgages, for instance, are packaged in so many different kinds of financial instruments that are held by so many different kinds of investors, that individual investors lose incentive to do sufficient due diligence, figuring someone else in the chain has already done so. Ratings agencies also have a hard time properly understanding the risks."

"'Investors need to look behind the ratings,' the IMF report said. 'They should not assume that the simple letter rating provided by ratings agencies show equivalent risks as those for other asset classes.'"

The New York Times. "Denial is a powerful thing, and nowhere is that more evident than among companies holding mortgage securities that are on the skids. Nine months into the meltdown of the home loan market, investors are still waiting for banks, brokerage firms and other companies to come clean on losses incurred on those securities."

"Consider the announcement last week from the E*Trade Financial Corporation about problems in its mortgage operations. Mitchell H. Caplan, E*Trade’s CEO, said the company would likely take a $95 million charge in the second half of 2007 and a $245 million provision for loan losses. The company also expects to record an impairment charge of $100 million to reflect deterioration in the performance of second lien loans and collateralized debt obligations."

"But Sean Egan, managing director at Egan-Jones Ratings, said he expects that this was not the last of the bad news from E*Trade on its mortgage holdings. In the most recent quarter, which ended in June, E*Trade held $47 billion in mortgage securities, home equity loans and loans receivable, or three-quarters of its total assets. So the charges and loan loss provisions recently taken by the company total less than 1 percent of those loans."

"Not enough, Mr. Egan argued. 'They are still marking to model, not to market,' he said."

"Indeed, E*Trade, as is common practice, does not recognize losses in problem loans until it considers them 'permanently impaired.'"

"It showed $690 million in unrealized losses in securities held on its books at the end of June, a vast majority in mortgages. These losses represent temporary impairments only and are attributable to changes in interest rates, not a decline in credit quality, the company said."

"Nationstar Mortgage, the subprime unit of Fortress Investment Group, said it is no longer accepting new loan applications from brokers, a signal the lender is winding down operations. Nationstar has been a leading U.S. subprime lender."

The Pacific Coast Business Times. "The Federal Reserve’s bold move to reduce short-term interest rates by 50 basis points Sept. 17 gave a temporary lift to publicly traded companies in the Tri-Counties."

"Richard Weiss, chief investment officer at City National Bank said the underlying message is that Fed Chairman Ben Bernanke and his Open Market Committee must see serious problems ahead for the economy. 'At the end of the day, the economy is not in great shape, and the doctor is providing serious medicine for us,' Weiss said."

The Baltimore Sun. "Fasten your seatbelts; it's going to be a bumpy ride. Last week's announcement that the Federal Reserve was cutting a couple of key interest rates by a whole half of a point, not just the quarter-point that many economy-watchers expected, set off one heck of a party."

"But for some of us scaredy-cats, the news set off memories of the Carter years and double-digit inflation. It also brought back the dot-com bubble - before that roller-coaster ride dipped precipitately at the end. How long, some of us wonder, before references to the Greenspan Put are replaced by talk of the Bernanke Bubble?"

The Union Tribune. "The fire that Bernanke hopes to put out is the Great American Mortgage Crisis, which has burned brighter and hotter than many economists had previously thought possible."

"But in the world beyond Wall Street's movers and shakers and CNBC's talking heads, the reaction was a bit different."

"From the Persian Gulf to Beijing to Zurich, there is increasing skittishness about the health of the U.S. economy and the wisdom of our economic policies. Bernanke's kowtowing to the powers-that-be on Wall Street did nothing to allay those fears."

"In July, foreigners sold a net $9.4 billion in U.S. Treasury bonds, one of the largest sell-offs on record. Foreign sales of dollars have pushed the value of the U.S. currency to its lowest point ever against the euro. The Canadian dollar, which used to trade for less than 70 U.S. cents, is now equal to the U.S. dollar and will probably soon surpass it."

"The fact is that just as it required a lot of foreign money to get us into the economic mess we're now dealing with, it may require a lot of foreign money to pull us out. And if we treat them too cavalierly – or if we make our market too unprofitable – they might take their money and run."

"Following the Asian economic crisis of 1998, Greenspan and other central bankers created a virtual sea of liquidity in the world marketplace, printing money and lowering interest rates to prevent a worldwide recession."

"Wall Street firms, awash with cash, helped develop increasingly risky securities for foreign investors who were also awash with cash. Those investors may have had no idea what 'no down, no doc ARMs' were. Instead, they probably had the idea that nobody goes broke buying U.S. real estate."

"Ironically, last week's interest-rate slashing by the Federal Reserve, designed to keep the economy from falling into recession, may chase away so much foreign money that our economic problems will only grow worse. If you were a foreigner, why would you invest in a country where the combination of an anemic dollar and interest rates robs your investment of its value?"

"In May of 2004, Dean Baker, an economist in Washington who had been warning about excesses in the housing market, sold his two-bedroom condo after concluding that the market had lost its moorings from reality. In a way, he was two years too early."

"In a replay of the years before the tech-stock bubble burst in 2000, housing market skeptics have spent much of this decade being tarred as the boys who cried wolf. Academics and economists like Mr. Baker came across as gloomy sourpusses who did not want Americans to have fun and grow rich by flipping second homes on the New Jersey or Florida coasts."

"Some in the real estate industry say the early cries of bubble should be called to account on the grounds of intellectual fairness. If the boosters have to acknowledge they were wrong when they provided justifications for prices that were, well, unjustifiable, then the doubters should also own up to the fact that they were too negative, too early."

"'Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002,' said David Lereah, the former chief economist with the National Association of Realtors. 'And they were wrong for four years and they only became right at the end of 2004.'"

"He and his former employer had been criticized for the optimistic forecasts they made during the boom."

"Newspapers during the boom in the 1990s and in the early years of this decade expressed warnings about the housing market, along with more upbeat sentiments. But the critical voices often did not register above the din of the frenzied market."

"'You got some of us sitting there in a distance saying that this is a bubble, we don’t know when its going to end,' said Christopher F. Thornberg, an independent economist. 'And then you have mortgage brokers and real estate agents who are much closer to the buyer who are whispering in their ear that, well, yeah, there are some markets that are out of line but not this neighborhood.'"

"Almost everyone would agree that of far greater import to the timing and performance of bubbles are interest rates and the availability of credit. Both are set by the market, but regulators at the Federal Reserve exert significant influence over them."

"The main discussion now, with the benefit of hindsight, is whether the central bank should have taken a more muscular approach in regulating mortgage lending and raised interest rates sooner."

"Last week, the Fed cut rates sharply to ease conditions in the credit market, kindling some fears of inflation."

"'We have had two bubbles in the last 10 years,' noted economist Allen L. Sinai, the president and chief at a consulting firm based in New York. 'The only way I would say it won’t happen — and this is arguable — is for the central bank to do something about it before it gets too far, and right now the central bank’s religion is not to interfere.'"