Some housing bubble news from Wall Street and Washington. CNN Money, "The biggest plunge in new home prices in 37 years was not enough to revive October sales, according to the government's latest reading. The Census Bureau's latest report also sharply cut back on its earlier estimates for sales in August and September. Also depressing sales and prices was a record 191,000 completed new homes on the market that have not yet been sold."

"The report showed that the median price of a new home sold in October plunged 13 percent from year-earlier levels to $217,800. It was most severe year-over-year drop since September 1970."

"And the price figure may actually be underestimating how the bottom has fallen out of prices in recent months. Most builders are trying to support prices by offering to cover closing costs or adding free extra features on new homes."

From MarketWatch. " Sales rose 1.7% to a seasonally adjusted annual rate of 728,000 last month from a revised 716,000 in September, which was a 11-year low. September's sales pace had originally been reported as 770,000. August's sales were also revised sharply lower to 717,000, down from 735,000 estimated a month ago and from 795,000 estimated in the first release."

"Sales are down 23.5% in the past year, a vivid reflection of the carnage in the home-building industry."

The New York Times. "E*Trade Financial, the Internet bank and brokerage, said Thursday it would receive a $2.5 billion cash infusion from a group led by Mr. Griffin’s firm, Citadel Investment Group. With Thursday’s deal, Citadel will pick up E*Trade’s collection of asset-backed securities."

"This portfolio includes collateralized debt obligations, which are complex bundles of debt whose value has slumped because of the recent rise in mortgage defaults."

"Citadel is getting E*Trade’s portfolio for a cut-rate price: It is paying $800 million for assets that had a book value of $3 billion. E*Trade said Thursday it is taking a $2.2 billion haircut on the transaction."

From ABC Money UK. "LBBW, Germany's biggest public sector bank, is faces possible writedowns of more than 800 mln eur related to credit turmoil, Financial Times Deutschland reported."

From Bloomberg. "KfW Group, which organized the bailout of IKB Deutsche Industriebank AG over subprime losses, said an agreement was reached with German banking associations to cover the lender's remaining risks of about $520 million."

"The additional risks stem from guarantees given by IKB to other banks providing cash lines to its affiliate Rhineland Funding Capital Corp., which invested in subprime assets, KfW said today."

"The agreement brings total possible losses to be covered by KfW and German banking associations at IKB and Rhineland Funding to about 6.15 billion euros ($9.1 billion)."

"Four IKB management board members, including CEO Stefan Ortseifen, were relieved of their duties this year as an audit by PricewaterhouseCoopers found the crisis was a result of 'flawed' risk management."

The Gazette. "The Caisse de dépôt et placement du Québec has $13.2 billion in asset-backed commercial paper, its president revealed yesterday. Of that total, $1 billion is invested in subprime mortgages, Henri-Paul Rousseau told the Quebec National Assembly's finance committee, and, at the worst, the Caisse could write off $500 million in losses on the investment."

"'It is a lot of money,' Rousseau admitted."

"François Legault, the Parti Québécois finance critic, suggested Rousseau was low-balling the potential loss, saying the $12.2 billion Rousseau considers safe is not immune to loss. Legault said the commercial paper holdings of the Caisse resemble those of the National Bank of Canada, which has announced a potential loss of 25 per cent, calculating that the Caisse could lose $3.3 billion, not $500 million, as Rousseau projected."

From Thisismoney. "Insurer Catlin came through the hurricane season unscathed, except for Hurricane Subprime. It is writing 86% off the value of its subprime related securities, slashing them from £41m to £6m."

"This will heighten fears of hits to other insurers, coming soon after a shock £500m credit crisis loss at reinsurance giant Swiss Re. Catlin has a £2.8bn investment portfolio, of which £51m was hit by the US mortgage meltdown. It sold the best of these for £10m, but thinks the rest are worth only 14p in the pound."

"Numis analyst Richard Gradidge says: 'It depends how far this crisis spreads'."

Caribbean Net News. "Catlin said...most of its subprime-related assets are collateralised debt obligations. The insurer said it did not expect to be hit hard by claims resulting from the subprime crisis, saying it had largely pulled out of providing liability cover for financial institutions and the executives of major firms."

From Reuters. "French bank Credit Agricole doesn't expect the full extent of the subprime mortgage crisis to be clear before April, its managing director Georges Pauget told La Tribune newspaper on Thursday."

"'We will not have a clear view on the deterioration before April, or the middle of next year, because large packages of risky loans issued in 2006 are expected to mature,' Pauget said."

"'The problems of the crisis are essentially problems of transmission. There is a responsibility of the American public authorities regarding the treatment of the subprime problem,' he said. 'In my view, the maturity of the loans needs to be extended, the interest rates need to be stabilized, and there needs to be a mechanism to share the losses between the banks and the authorities,' he added."

From The Age. "Reserve Bank assistant governor Guy Debelle has compared the subprime credit crisis with the junk-bond collapse in the 1980s and blamed lazy investors who ignored basic risk management."

"Dr Debelle told the Australian Securitisation Forum that investors had not asked enough questions about why different products rated with similar risk of default paid substantially different returns."

"'In theory, securitisation has allowed risk to be packaged and sold to meet the preferences of investors,' De Debelle said. 'However, the true nature and correlation of some of those risks has only become apparent to investors in recent months.'"

"Ira Kalish, director of global economics at Deloitte Research, said the worst was yet to come. He predicted that next March would have the most resets on variable-rate mortgages and, subsequently, the most defaults with securities that were backed by the mortgages."

"'Unfortunately, we are going to see more resets in adjustable-rate mortgages, likely more defaults on these mortgages and more problems for the securities that are backed up by these mortgages,' Dr Kalish said."

"'The credit crunch is not over, there's still trouble ahead. We don't even know where that trouble lies. We don't know who is holding that stuff (the adjustable-rate mortgages),' Kalish said. 'We keep hearing surprises from banks that on a weekly basis increase by billions of dollars the amount that they have to write off.'"

"Dr Debelle said fallout from the failing loans had created a 'lemon' effect, with all securitised products — regardless of quality — being sold at cut rates."

The San Francisco Chronicle. "Here's more evidence that you can't call the mortgage crisis a subprime problem. On Tuesday, Wells Fargo said it will set aside $1.4 billion for home-equity loans it expects to go bad in 2008 and 2009. What it didn't say in its news release was that these are not loans to borrowers with subprime credit scores."

"'This was a prime portfolio,' Wells Fargo spokesman Chris Hammond says."

"The average FICO credit score for all Wells Fargo home-equity loans is 750, well into prime territory. What probably made these loans risky was not the credit score, but other features, such as no income documentation and high loan-to-value ratios."

"One mortgage broker forwarded a flyer he received from Wells Fargo, 'A Guaranteed Home Run With Your Borrowers.' The flyer, dated February 2006, promoted 'newly enhanced' guidelines for stated-income/stated-asset borrowers, who are people unable or unwilling to document their income or assets."

"Wells says these loans 'reflect a combination of the most recently originated vintages, with the highest combined loan-to-value ratios, that do not have the added protection of being behind a Wells Fargo first mortgage.'"

"Wells said Tuesday that it will no longer originate home-equity loans through brokers with combined loan-to-value ratios of 90 percent or higher or that are not behind a Wells Fargo first mortgage."

"'This is, of course, akin to saying that the barn door will be closed now that the horse is in the pasture and over the hill,' writes Dick Bove, an analyst with Punk Ziegel & Co. 'What is particularly disappointing about this incident is that observers of this company never expected Wells to be making these types of loans in the first place. The most damaging part of the company's revelation is that this company's underwriting standards may be weaker than thought.'"

"Trading in a benchmark credit derivatives index suggests eight of the 125 companies in the index may default, a situation that 'is certainly conceivable' if the economy deteriorates significantly, Wachovia Corp. analysts said."

"The Markit CDX North America Investment Grade Index, used to speculate on the creditworthiness of companies including mortgage lender Countrywide Financial Corp. and homebuilder Lennar Corp., is trading at levels that imply at least eight defaults in the next five years, Wachovia Securities analysts led by Richard Gordon, wrote in a report yesterday."

"'Out of those 125 credits, there are four homebuilders and a number of lenders and insurers with significant mortgage exposure,' the analysts wrote."

"Securities firms and banks sold 'too many lottery tickets' tied to U.S. mortgages and failed to look closely enough at their growing risks, the head of the Securities and Exchange Commission's market regulation division said Wednesday."

"Financial companies had 'a significant risk-management failure' on so-called super-senior classes of collateralized debt obligations made up of asset-backed bonds, according to the text of remarks Erik R. Sirri made at a conference."

"The CDO classes were 'a perfect structure to lull even sophisticated traders and risk managers into a state approaching complacency,' Sirri said."

"The cost of borrowing in euros for a month rose by a record and loans in dollars climbed the most in more than a decade as banks sought funds to cover their commitments through to the start of 2008 amid a credit squeeze."

"The London interbank offered rate that banks charge each other for euro loans due after the end of the year jumped 64 basis points to 4.81 percent, the highest since May 2001, the British Bankers' Association said."

"The rate for dollars jumped 40 basis points to 5.23 percent, the highest since Sept. 18, when the Federal Reserve cut the target rate for overnight loans for the first time in 4 1/2 years."

"'The increases we've seen in borrowing costs cannot be simply explained away by year-end pressures; this is a full-on credit crisis,' said Stuart Thomson, who helps oversee $46 billion in bonds in Glasgow, Scotland. 'There's no end in sight either. It's a really unpleasant picture.'"

"The money market liquidity crunch, which began in August after the U.S. subprime mortgage fallout, is deepening further as banks pay a higher premium for cash to meet funding requirements around the Christmas and New Year period, typically the time banks close their books."

"That rise of around 65 basis points marked the biggest jump at the daily fixing since early 1995, according to Reuters charts, and higher than any increase seen in the run-up to the 'Y2K' scramble for liquidity at the 1999-2000 millennium crossover."

"UBS said liquidity tensions, which have been apparent in unsecured interbank lending, are reaching the secured, collateralised market as the spread widened between rates in euro repo and the European Central Bank's long term financing operation."

"Goldman Sachs said money market tensions stemmed from banks aiming to shore up their balance sheets before year-end in the face of pressure on capital ratios."

"'While a year-end effect in the money market is typical, it is exacerbated this year due to deterioration in capital ratios arising from U.S. subprime and other credit market losses,' the bank said in a note to clients."

"The liquidity squeeze persists even as central banks pledge to inject more liquidity to prevent a financial system seizure."

"'Money market pressures are likely to escalate towards year-end...Central bank actions are less likely to alter these trends before year-end. Liquidity operations can help smooth out spikes in spreads, but it is doubtful this will stop long-dated money spreads from trending wider,' Goldman said."

The Union Network International. "The global economy is just at the beginning of a financial crisis, UNI General Secretary Philip Jennings told a meeting of the UNI-Europa Finance Committee, meeting in Nyon, Switzerland."

"'We have a crisis of confidence, supervision and regulation,' he told representatives of Europe’s finance trade unions. 'We have to raise question marks against the financial markets and the global economy.'"

"The Committee agreed to set up a study to look at how regulations and supervision can be improved to help restore confidence in a global financial system that has been shaken by a subprime crisis, a credit crisis, fears of a recession in the USA, and a growing number of job losses in the finance sector."