Bits Bucket And Craigslist Finds For August 22, 2007
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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“The tax on personal bank savings interest has been lowered from 20 to five percent as of today, according to a report from hexun.com.”
Oh, but not in the US, In China! I think we should take the ‘land of the free’ out of our national anthem.
http://english.cri.cn/3130/2007/08/15/481@261855.htm
why put your $ in the bank? ya must be stupid!!!
We are a credit GLOBE, not nation…
Here is an interesting piece posted at indexcalls.com:
“Nearly all the ‘news’ stories on Bloomberg assure us that the liquidity crisis is easing, and all is well. Call me skeptical. Bottoms are not that simple. CYA, as the old veterans say. wink.gif”
So what has changed? Maybe we should think back a bit and try to remember what brought us to the brink. The main stream financial press (MSFP or missflop) would begin their crisis story with problems in the mortgage bond market - or lack thereof. That works very well for them since that can be solved by turning on a fire hose of money and the fed riding in to the rescue.
However it begs the question as to why the valuations were called into question to begin with and what has changed that might allow the mortgage security market to begin flowing again.
The simple reality is the Joe and Jane 1Pack were not making their mortgage payments. We all know why - so need to go there again. The further we drive down this road the more Joes and Janes we are going to see upside down in the ditch. Lots more.
The mortgage securities with Joe and Jane’s mortgages are already out there - and they are everywhere - Beijing to Amsterdam, Perth to Ottawa - everyone owns a piece of the American Dream. The reason they are widely dispersed instead of sitting in your local banker’s file cabinet is our reliance on external financing. We don’t need to go there again either.
Like millions of ticking time bombs they will be going off in a predictable fashion. That Super Duper AAA+ CDO - CLO - MBS alphabet soup piece of crap is chock full of mortgages that are not what they were represented to be in terms of quality.
The basic problem of Joe and Jane not making their payment is what triggered the sudden realization that maybe “AAA” might have been just a skosh optimistic. That has not changed and will only get worse. The numbers of scheduled resets will be doubling - very soon. They don’t begin to taper off again until about the middle of next year and even then they will still be holding at levels above what triggered the problems we see now for at least another 6 months.
Again all of this assumes that the “real” economic conditions remain stable. What happens if, I don’t know, lets say 100s of thousands of construction workers, mortgage mishandlers and Realtors find themselves out of a job? Do you suppose any of them might have mortgages? How about all of the people that the afore mentioned group supported economically, like car dealers, restaurants and retailers, do you suppose they might have mortgages?
The numbers being bandied about in terms of predicted defaults for the most part are not factoring in a strong recession. Almost the opposite really. They are assuming at least a stable real economy with normal job “growth” and no diminished earnings for the general population.
So what has changed? Not a damn thing - at least not for the better and the prospects looking forward are worse.
In the mean time the almost instantaneous withdrawal of most of the mortgage products that allowed the insanity is beginning to create the black hole all fractional reserve systems fear the most. It has squelched the capacity for institutions to grow out of or at least mask the problem. As long as they were able to originate more loans than were going bad their default ratios looked pretty darn good. That game is over - default ratios are going to scream higher. That means increasing their loss reserves, a direct hit on earnings, which in turn reduces their lending capacity. A spiraling of shrinkage which is another hit to the bottom line - lowered loan volumes.
There are two things that could help resolve all of this. The first is getting Jose and Juanita a giant raise. The second would be a return to indiscriminate lending on any exotic terms conceivable. Which do you think is most likely?
If you answered none of the above you win the stuffed bear.
I’ve said all along the failure of the real economy, off of which all of the total paper blizzard is leveraged would be the final undoing. We are now officially toast. Burnt toast. The financial economy will be revealed for what it really is - pure digital fiat fantasy. Click, click - poof and its gone.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
“The financial economy will be revealed for what it really is - pure digital fiat fantasy. Click, click - poof and its gone.”
Thanks, Dawnal, that says it all.
Palmetto… if I remember correctly, you made that statement yourself, or something very similar a while back. Except you called it a “credit card economy” or something like that.
“There are two things that could help resolve all of this. The first is getting Jose and Juanita a giant raise. The second would be a return to indiscriminate lending on any exotic terms conceivable. Which do you think is most likely?”
I would answer second one… By next summer, fed rate will be at 4% or below, giving the banks the nice cushion to start lending like crazy again.
“There are two things that could help resolve all of this. The first is getting Jose and Juanita a giant raise. The second would be a return to indiscriminate lending on any exotic terms conceivable. Which do you think is most likely?”
I would answer second one… By next summer, fed rate will be at 4% or below, giving the banks the nice cushion to start lending like crazy again.
ubaldus:
Do you think Jose and Juanita are going to want to stay in a home or buy a home at current prices without #1? Especially since homes won’t appreciate at the level they have in the last five years?
The same problems that exist today will exist then, without money down to create an equity cushion, if Jose and Juanita divorce or either loses and job and they have to sell the house with the mortgage at 4%, they still are stuck and have to bring money to the table.
But even if neither or those problems happen, will they qualify for a loan?
Doubtful.
Dream on ubaldus, rate cuts won’t change anything.
C’mon, Dawnal, the stock market is skyrocketing again this morning on the opening bell. It’s evidently all good again…
http://www.marketwatch.com/tools/marketsummary/
The markets must believe they are going to get their rate cut in the next 48 hrs. Is 7 am too early to begin drinking heavily?
Not at all!!!
All is well in Germany, the Dax is up 1%.
Also, the Spiegel ran an article yesterday about the psychological stress of Wall St bankers. That article (’they have such a hard life’) was longer than any analysis of the current CDO situation they published in last ten days.
“the Spiegel ran an article yesterday about the psychological stress of Wall St bankers. That article (’they have such a hard life’) was longer than any analysis of the current CDO situation they published in last ten days.”
Amazing.
That’s funny PB. You’re almost as cool and insightful as that other guy who used to post here, G.S. I think it was. LOL
I like Professor Bear a lot better. I think he’s a lot smarter than GetStucco.
That’s because he’s a PROFESSOR. GetStucco was just some wingnut.
Says BigV self appointed expert.
The strike price on the Bernanke put has apparently been ratcheted up to 13,200 on the DJIA.
Stupid sidenote, but I’ve been in the car business for 8 years, and real-estate agents are without a doubt the worst customers I have to deal with. The running joke in the business here is “There are two great mysteries in the world; What happened to the dinosaurs and where do real estate agents buy their cars?”
Every last one I can think of was a holier then thou art idiot with a completely unrealistic price point. They are abusive verbally and generally complete assholes (even the few who -do- buy come up with a reason to trash you on the satisfaction survey, which takes real dollars out of most salespeople’s pockets). I think I can live without them :).
With apologies to any real estate agents I haven’t met that don’t fit into that generalization.
Ncineration
I think they trash car salespeople, and probably all salespeople, to try and make themselves feel like they AREN’T salespeople, but rather professionals.
I am so learning how America is one unbelievable country. I love it and most of its people, though.
I used to like it more than I do now!
Dawnal — thanks — great reading. Part of my daily Bear Affirmation.
China’s rapid development, often touted as an economic miracle, has become an environmental disaster. Record growth necessarily requires the gargantuan consumption of resources, but in China energy use has been especially unclean and inefficient, with dire consequences for the country’s air, land, and water…
Read on
http://www.foreignaffairs.org/20070901faessay86503/elizabeth-c-economy/the-great-leap-backward.html
Hey Eudemon:
Did you read Aladinsane’s article? You might like it.
-Big V
I read the article - and its content is rather inconsequential to ongoing discussions here. It’s notable I guess if you’re an environmentalist type who has never spent much time examining what happens as countries move toward a free market system. Historically, very few free-market countries have modernized without going through some stage of industrial development. Most of Europe and most westernized English-speaking countries have experienced first hand the environmental challenges China now faces.
It’s to be expected. A modernizing country must build things like roads, plumbing lines, facilities, transportation, etc. Such work is messy, and it creates pollution. (Sorry, you environmentalists reading this. Most poor people around the world don’t want to remain in mud huts to quell your concerns about the environment. Perhaps if you yourself lived in a mud hut in 90 degree year-round heat with flies buzzing up your nostrils - or, conversely in 30 degree cold in Upper Mongolia - you might be a little more sensitive to such people’s plights and desire for a better life).
If China’s environmental problems on a per capita scale are worse than the historical average, it’s hardly surprising. The country is, after all, Communist. There’s no competitive need to clean up all the gooey slop and airborne grime. A free market, non-socialist system would solve the environmental issues more quickly.
Any non-believers ought to tour the old Warsaw Pact countries, Ukraine, Georgia, Belarus, Russia, etc. Poor countries often are environmental disasters. Interesting how the terms ’socialism’ and ‘environmental rathole’ go together.
You know - on second thought -visiting Russia may not be such a great idea. KGB-man Putin seems hell-bent on sending the country back to the dark ages. Pretty soon, those who check in won’t be able to check out. I give it five years.
I give Venezuela even less - more like 3 years. Within a decade, the country will be the environmental sewer of South America. Guaranteed.
So, you admit that it doesn’t really pay off in the long run to run roughsod over the environment? You’re saying that economic development should also be healthy? Or no?
It is a horrible environmental outcome already written in stone for China playing out now, and for multi decades to come. Talk about doing almost everything the wrong way, China takes the cake.
U.S. MBA’s Mortgage Applications Index Fell 5.5% Last Week
By Bob Willis
Aug. 22 (Bloomberg) — Mortgage applications fell 5.5 percent last week, the biggest decline in almost three months, reflecting less demand to refinance and purchase homes amid a widening credit squeeze.
The Mortgage Bankers Association’s index of applications to buy a home or refinance debt retreated to 641.1, from 678.7 the prior week. The gauge dropped from its highest since May 18.
Rising defaults among subprime borrowers are prompting mortgage companies to curb lending or halt operations, putting a damper on loan applications as would-be buyers wait for credit markets to stabilize or for prices to drop. Slowing demand signals that further slides in sales, construction and housing prices will continue to restrain economic growth.
“Liquidity in the mortgage market has been severely squeezed,” Michelle Meyer, an economist at Lehman Brothers Holdings Inc. in New York, said before the report. “It increases the downside risk to the housing market.”
http://www.bloomberg.com/apps/news?pid=20601103&sid=aEa6bipl9o8g&refer=news
They’re going to just keep going down as capitulation hits the market. They had a massive spike as people tried to refinance, and kept trying, and kept trying….
They’re kicking at the end of a credit noose, doing the no-liquidity dance.
Is “liquidity” really the problem, or have the banksters figured out that they can fool Bernanke by substituting that word whenever “insolvency” should be used?
“Dear god, let me be a bull so I can try to cash in on this disastrous wave of stupidity.” I keep saying that prayer over and over, as the “the Fed will cut” crowd convinces themselves that everything is okay.
I’ve never understood why people are bulls or bears. They should do whatever it takes to invest in the markets, including weighing the psychological impacts of obvious Fed manipulation and taking positions they would have considered irrational the day before. Doing otherwise implies a level of emotional commitment that does not make for successful investing in volatile markets.
“Successful investing is anticipating the anticipations of others.” - John Maynard Keynes
That’s right. Do you want to be “right” or make money? I have a permabear outlook that doesn’t gibe with a bull market so when we get into a meltup like this summer, I get out altogether and bitch from the sidelines
My first rule is to not invest in anything I don’t believe in. That is why I didn’t plunk down $800,000 on a condo in Williamsburg. I think that will serve me extremely well. Two thirds of our 401k money is on the sidelines. I believe this is a bull($hit) market in the stock market.
I agree with the chick. Trying to force yourself to be a bull when you know everything is wrong won’t work well, in my opinion. Either invest what you believe or don’t invest. And right now I can’t be a bull so I will sit on the bench and watch the rest of the players tear their ACLs.
Quoting Keynes seems to be a little odd to me. He was a humbug of a little man from what I’ve read. But heck one of his quotes just might suit your thoughts once in a while, so why not? Didn’t he believe in governments pumping in the dough?
Still a bear.
He may have been a humbug, but he was one heck of a speculator.
Do you want to be “right” or make money?
Yep. That says it all. But it’s not either/or:
The odds are highly stacked. Some posters even talk about the PPT at great length: There are governmental institutions dedicated to the rise in markets.
So should the markets come completely unhinged? Yep.
Do I want to make money? Yep, I know which way to bet.
whoops, missed a crucial word in the last line:
“Yep, I know which way to bet. Up.”
The only question is: with which strategy? And of course, that’s the devil.
I think the Fed will be almost as successful now as it was last time. You remember down 35% on the S&P over 34 months from when they started cutting rates? Of course they had to create a far bigger bubble to neutralize the effect of the collapsing Tech Bubble. This is the UCB (Universal Credit Bubble) that we see today. Since it already encompasses nearly every asset class in every nation around the world, it’s simply not possible to create one larger than this to mitigate the failure of the UCB.
OK, on second thought, maybe the Fed will won’t be as successful as last time…
JP, that’s funny and reminds me a lot of what went on in mortgage broker offices: “Do you want to have ethics or make money?” But I think what you guys are basically saying is that you should ride the wave and don’t question it, but just know that it is b.s. and cover your positions on the downside? Many in the r.e. industry didn’t take this approach and went “all in” and bought a handful of homes for flips and then got caught holding the bag.
Deron, I agree. I think this little “Fed wil save us” rally is a gift, and it’s time to short the whole universe. (Only with speculative money of course, not retirement money.)
I think we could see another tech bubble in the markets very soon. Tech is the only sector w/ very low debt levels and relatively high cash flow quarter to quarter. Check out the likes of CSCO, EMC, VMW and GOOG. Even if we head into a recession this will be good for some tech companies as it’ll mean more people sitting at home consuming bandwidth on YouTube. If cash is king, then tech may not be bad option.
We threw that suggestion out 10 days ago when the mkt was crashing. Especially in the short term.
I think we could see another tech bubble in the markets very soon…
Some of the “smart money” folks that I follow say the
same thing.
BTW,
I work for a very large software company and business
is going gangbusters. Very hard to tell if the phenomena
is temporary or not. But I can tell you the top dogs
are very happy (at least at the moment).
My question is: Does anyone have favorite tech index
funds that they believe would do well in such a scenario?
I know several really smart tech folks who have been laid off unexpectedly in the last month. I also know that layoffs are expected at both Sun and Intel.
LOL txchick
“Don’t fight the FED”
“The Trend is Your Friend” “Know when to Hold Them, Know When to Fold Them”
Look, I’m just a simple guy living in West Los Angeles with 40 years investing experience. A friend that actually owned a seat on Wall Street gave me these simple statements to try and overcome the news updates and my emotions on playing the market. It has worked out very well for me.
This is so true. Although most people think of themselves as “investors”, they are actually speculators. (This is not in the negative connotation. There is nothing wrong with being a speculator.) Speculators are people who buy or sell equities or real estate or commodities in order to take advantage of a change in price. How many of you would buy a stock because you feel the yield alone makes it a worthwhile investment? You buy a stock mainly because you hope the price will rise, which is speculation. So admit you are speculators and learn to think like speculators, which is exactly what these statements are about. You can be a long term speculator, who plans to hold for a year or more, or a short term speculator, but you had better know the trend or you are just relying on pure luck.
Also, in regard to the Fed’s supposed ability to control the economy; it can’t, and they are going to end up looking like a pack of fools before this is all over. The Don’t fight the Fed ditty began during a gigantic bull market that made the Fed look like they were all powerful, but it was not the Fed who created the bull market. The real mover of the economy is social mood, not the Fed. Giant bull markets, sometimes known as manias, are always followed by giant bear markets, sometimes referred to as crashes, even if they take a few years to happen. There are no exceptions, and this time will be no exception either. The Tech bubble phase of the bear was only phase one, the next phase is the big one.
“Don’t fight the FED”
Advice to Fed: Don’t fight market fundamentals.
Why?
1. Because it’s easy.
2. Because it meshes well with an entrenched political ideology.
3. Because it provides a false sense of being able to control
one’s environment.
4. Because it requires less effort. Why challenge oneself unless it’s absolutely necessary?
5. Because it’s always possible to find like-minded “experts” to back you point of view.
6. Because it makes one feel less alone. It’s reassuring for many to be part of a group, even a gravely misinformed one.
7. Because it allows one to conveniently ignore or dismiss facts of all sorts.
8. Because every once in a while, they are correct. And often, being correct 10 percent of the time is enough to confirm eveything you believe to be true. (See #3, above).
I genuinely feel sorry for a lot of these people. For all practical purposes, they’re akin to one end or the other of an individual who is manic depressive.
Permabears and permabulls collectively are responsible for all manias, so it’s important to bear in mind the changing emotional states of each group.
I do not believe there is a permabear anywhere, I have one friend that is a perma bull. That I believe the US stock market is grossly overvalued and is going to drop by 50% does not make me a perma bear. I think there are bull markets in other countries that offer a far greater potential. Why should I invest my moneys in a losing proposition? Should I buy an overpriced house? Or an overpriced MBS bond? Why should I buy an overpriced equity? These are all bubbles.
I have been bearish for years, but I am not a permabear. When the market corrects, I will become bullish. And how to tell when it has corrected? All major market corrections bring the large indexes to a point where the (real) PE and the yield are within about 1 point of each other, and sometimes even to the point where the yield is considerably higher than the PE. By this standard, the major indexes did not complete a correction during the drop starting in 2000 so the rest of this correction is still to come.
agree
Hey Kimes:
Another way to look at it (as has been often mentioned on this blog) is to notice that prices never did revert to the mean. S&P 500 “should” be around 100 right now.
I meant 1100, not 100. Didn’t mean to discredit the blog, yo.
Treasury, Urged to Act, Finds Few Tools
By Neil Irwin
Washington Post Staff Writer
Wednesday, August 22, 2007; Page D01
http://tinyurl.com/3xljfs
As financial markets went haywire this month, Wall Street looked to one of its own, Treasury Secretary Henry M. Paulson Jr., for help.
He hasn’t given them much in return, partly because there is not much he can do.
As the markets roil, economists say, Henry Paulson can keep information moving between bankers and policymakers and cash flowing.
Paulson, who was chairman of the investment bank Goldman Sachs before joining the Bush administration, has acknowledged that the downturn in the markets could damage the U.S. economy. But the Treasury Department under Paulson has taken no dramatic public moves to shore up frozen markets for home mortgages and other debt.
The reality is that, for Paulson and the Treasury Department, there are relatively few tools that would allow this or any administration to manage the ups and downs of financial markets, according to economists and economic policymakers of both parties.
“There are no real instruments that the Treasury Department has that directly deal with a situation like this,” said Laura D’Andrea Tyson, economic adviser to President Bill Clinton and now a professor at the University of California at Berkeley. “This is all about communication and coordination with the central bank.”
The Federal Reserve has the power — and mandate — to ensure that the financial system has plenty of cash flowing through it. But even a Wall Street-savvy Treasury secretary can do little but keep information flowing between bankers and policymakers — and choose his words very, very carefully. That has been Paulson’s strategy.
The FED couldn’t contain the S&L crisis in 1990 and it can’t contain this one.
Cost to taxpayers for the S&L-$500 billion. Or at least that is the MSM number. With the way DC works it probably double.
I figure that with all the sums involved plus the derivative speculation the cost of this blow-up will be 10X the amount.
I don’t think the Treasury has enough ink and paper on hand to pump out 5 trillion pieces of fiat currency.
“I don’t think the Treasury has enough ink and paper on hand to pump out 5 trillion pieces of fiat currency.”
Agreed, hd, not a whole lot that can be done except to let things play out. Too bad Shrub shot his wad in Iraq, we could have used some of that money to put people to work repairing our crumbling infrastructure, sort of like the WPA during the depression.
Just think what kind of national rail system we could have built with $1 trillion! Having lived in Japan, where you can go virtually anywhere by rail for a modest sum, I wonder why no one is even discussing our rail system, as oil and gasoline prices rise higher.
Because… American teenagers for the the last 60 years… where brought up to learn about sex in the back of a “Hot-Rod-Lincoln” …..BaBeeeeeeeeeeeeeee
KOP is a company that is a railroad infrastruction play in the USA.
Why is no one talking rail in the U.S.? Population density!
Rail requires a lot of people living in a very small area to work well. AND, the U.S. is NOT, I repeat, NOT running out of empty land.
Rail connecting Cali? Maybe. Connecting Phoenix to Dallas to Denver to St Louis? It would take a week to travel across the country by rail, and cost twice as much as an airplane trip that takes 4 hours.
Yes, population density is the main reason why rail is not a national transport solution, but a regional one. Freight, on the other hand is another matter.
Intermodal is more efficient for long freight distance transport. The long distance trucking industry came about to create demand for Detroit’s products, and to employ returning veterans from WW II. That was yesterday. Today our national borders are melting and more ill-trained drivers and poorly maintained trucks will be barreling down our highways in greater and greater numbers. A tractor trailer with a sleepy driver or worn out brakes will squish the even the biggest SUV like a grape.
Thankfully the railroads are finally starting to build new infrastructure to bolster intermodal traffic handling - but sadly it is just in time for a wicked recession.
Oh yeah, and Japan’s railways - and not just the Shinkansen trunk lines - are truly a sight to behold.
Good point Darrel, about population density - but what about freight?
Trains are the most efficient mode of transport - for very large loads over long distances. One 100- container load train takes at least 50 trucks off the roads, if not more.
Plus you have 50 less vehicles to maintain and fuel, less wear and tear on roads, and 50 + less drivers to pay, insure etc..
Sure, you’ll need good transport/distribution at the beginning and the end of journey, but driving a container or two interstate or even intercity on the road system?
Total waste of resources.
In areas of the country with population densities equivalent to Europe, rail is already a major tranportation mode for both intra-city and inter-city travel. Amtrak actually makes a profit in the NE Corridor and could probably do the same with some effort along the Great Lakes as well. High density cities also have excellent rail transport for the metro areas. DC, NYC, Boston, Chicago and SF all come to mind. Like pretty much all European and Japanese cities, these grew up in a pre-auto era and can easily adapt to rail when many of them were previously served by horse trolleys.
Note the marginal success of the rail systems in LA or Dallas. These were cities that grew up in the auto age and are built to a scale and design optimized for cars. Higher density downtown living is slowly changing the pattern but so much money has been invested in suburban housing and infrastructure that it’s unlikely to be abandoned even under extreme financial pressures.
Lots of people are talking about rail, in particular the high speed corridor proposed for California. In California there already are a large number of densely populated communities, many nearby each other. Also, I would point out that ever since the car took off in the US the overall settlement pattern has been extremely stable nationwide at approximately 50% suburban, 30% rural, and the rest dense. Just as density is a hard sell for about 80% of folks, lack of density is a hard sell for the other 15-20% or so which include many of the movers and shakers and big house buyers.
Re: L.A and trains - anyone who drives down Santa Monica Blvd may wonder at the rather wide median strip along most of it…when I was a kid, there was a working rail line there.
Earlier on in the 20th century, there were regular trams from downtown to all points of the compass.
It was only with the building of the freeways and the inevitable rise of the car as transportation that these tracks were tarmac’d over, and roads built on top of them.
Bring ‘em back, I say.
Anything to avoid the southbound I-405 at 9am….
Buffett has been buying railroad stocks lately. If a recession were to drive down their prices, it could be a great opportunity for a long term investor.
come on kids. sex in the sleeper car is waaaay better.
Darn it, aflurry, I was going to make exactly the same point
5 miles high, is downright awkward.
The San Francisco-Okland Bay Bridge had train service across the bridge. This started in 1939 and ended in 1963.
That’s because this is “The MORON Generation”, and critical thinking skills were never taught in high school or that $100K kolledge.
—————————————————————-
I wonder why no one is even discussing our rail system, as oil and gasoline prices rise higher.
Easy, the automobile culture is far more conducive to fostering consumerism and creating the degree of social isolation necessary for a politically apathetic population.
Disclaimer: I was raised to believe Detroit conspired to knock off the railways and so will not shed a tear when Detroit stops cranking out its oversized blingy rolling garbage for good - hopefully in the near future.
Too bad Shrub shot his wad in Iraq, we could have used some of that money to put people to work repairing our crumbling infrastructure, sort of like the WPA during the depression.
It’s more than Iraq…
Some 8yr old kid got shot to death in Dorchester by another
kid who got hold of an illegal gun layin’ around the household.
Beantown Globe did a closure on what the support “system” spent dealin’ with the family’s “dysfunction” over the past year.
$314,000.00 for the bundle of welfare, counseling services,
and incarceration of the mother & father.
So multiple this amount X millions.
It ain’t all Iraq.
Too late:
Who got the fed injections last week? Not the banks that needed it for MBS papers.
from Reuters
Fed cash not reaching mortgage players forcing sale
“….The problem for many lenders, including Thornburg, is that they rely on private funding sources and cannot borrow directly from the Fed, and so are being forced to sell assets to raise cash, analysts said.
“This flood of supply will pressure all sectors of the mortgage market, as investors and dealers are forced to sell other assets to absorb those,” JPMorgan said in a note.
Wall Street firms that profit from trading in the securities over the weekend noted value in the top-rated non-agency mortgage bonds that have been pummeled relative to those in the more standardized and larger agency MBS market. There was limited buying at yield spreads as much as 0.25 percentage point wider, Deutsche’s Frank said.
Slack demand even for mortgage bonds backed by homeowners current in their payments bodes poorly for securities linked to loans whose performance continues to deteriorate, said Scott Simon, a managing director at Pacific Investment Management Co. in Newport Beach, California.
Hedge funds and other investors forced to sell subprime assets have mostly unloaded higher-rated assets to minimize realized losses.
“A lot of liquidations have been in very high quality, fairly simple assets,” Simon said. “Going forward, you’ll see much more dubious credit and less liquid and harder to value securities come out.”
http://tinyurl.com/39jp5p
Just a bailout for banks, nothing to worry about.
This writer is confused about the Fed’s mandate. They are not supposed to keep “plenty of cash flowing”. They are supposed to prevent the American banking system from failing, and to maintain inflation near its target rate.
http://www.dallasfed.org/fed/understand.html
New Accounting Voodoo for Wells Fargo
“Then there’s Level 3. Under Statement 157, this means fair value is measured using “unobservable inputs.” While companies can’t actually see the changes in the fair values of their assets and liabilities, they’re allowed to book them through earnings anyway, based on their own subjective assumptions. Call this mark-to-make-believe.
“If you see a big chunk of earnings coming from revaluations involving Level 3 inputs, your antennae should go up,” says Jack Ciesielski, publisher of the Analyst’s Accounting Observer research service in Baltimore. “It’s akin to voodoo.”
For San Francisco-based Wells Fargo, whose stock is up 5 percent this year at $37.37, last quarter was a veritable mark- to-make-believe feast. “(Per Bloomberg).
RE: “It’s akin to voodoo.’’
People should start applying the same principles when figuring their income taxes. It’s only fair.
Pay close attention to this. Financials are 40% of S&P earnings, double the historical average. Those earnings are largely and in some cases entirely fictitious. Aggressive accounting, draining loss reserves and mark to model (or worse) are behind the problem. Anybody that thinks that 17-18x P/E ratios mean stocks are cheap needs their head examined. That is typically a peak multiple. Then throw in the likelihood that 20-30% of those earnings never really existed and we have a P/E in the 22-24x range. That is a number that has been seen exactly 3 times in US stock market history: the late-1920s, mid-1960s and late 1990s. Each one lead to huge declines and I expect nothing less this time.
The New Accounting
Okay guys all of us are pretty familiar with the “mark to model” pricing of securities used by various financial institutions. I got one better than that called “mark to fantasy” which is employed by WFC per the link below. “Mark to fantasy” is known as Level 3 income/gains and accounted for a whopping $2 billion of WFC’s gains in the last quarter. Get your money out the banks as these guys are in fantasyland.
The article from Bloomberg is a bit long but very eye opening.
http://tinyurl.com/ysrws2
OK. How do you exploit this 2 billion dollar discrepancy?
“Mark to fantasy.” Brings a new meaning to the mnemonic “MF.”
AMF
FDIC eyeing big banks as troubled home loans rise
“…We remain vigilant,” FDIC Chairman Sheila Bair said at a news conference on U.S. banks’ second-quarter rise in noncurrent real estate loans. “We are closely monitoring the situation in the markets as well as individual institutions.”
U.S. banks’ non-current real estate loans rose for the fifth consecutive quarter to a total $66.9 billion at the end of the second quarter, the FDIC said. That was up 36 percent from one year ago and up 10.6 percent from the end of the first quarter, the FDIC said.
Rising U.S. home foreclosures and problems in the subprime mortgage market have spilled into broader financial markets in recent weeks.
Bair said the “tremendous golden age of banking” for U.S. financial institutions had ended, at least temporarily.
“Everybody is being challenged in this current environment,” she said….”
Reuters
That should make the FDIC sit up and take notice. They only have roughly 48 billion in reserves (if I remember correctly).
Good Lord!! This is appalling. Actual permission from FASB to manipulate earnings. “Unobservable inputs”??? I can’t even believe this.
Unobservable inputs
A.K.A. Snacks
That explains why I’m a bit over weight despite exercising.
Should be no surprise, if you allow stated income, stated assets for borrowers then it is only fair that banks are allowed to do the same.
The sad part is that the article implies that only Wells Fargo used this accounting and that the rest of the banks used SunTrusts accounting, not!
Tightening Credit for Homebuyers…Besides 417,000 Jumbos
“Other lenders have bumped up minimum scores for fully documented new loans more modestly — from 620 to 640 — while still others are requiring 720 FICOs as the minimum needed for any sort of limited-documentation applications.
The upward squeeze on FICOs is putting a new premium on raising home buyers’ numbers and obtaining correct scores, based on full reporting of credit data, say mortgage and credit market experts. It’s also triggering suits against some lenders and card companies over their credit reporting practices.
Besides FICO scores, other key underwriting factors under pressure include:
Loan-to-value ratios (LTVs) and combined loan-to-value ratios (CLTVs): Some lenders are abandoning zero-down programs altogether, and others are requiring 10% minimum equity stakes. Some are restricting maximum CLTVs to 80% or 85%, where a second mortgage or credit line is proposed on a home that has a first mortgage.
Financial reserves: Rather than a minimum of two months’ worth of loan payments verified as on deposit in a bank, some lenders now want six months for certain loan categories.
Restrictions on credit reports and appraisals: One lender says it will look only at credit reports it has ordered from its own vendors — presumably an anti-fraud measure. Another wants only the freshest “comparables” backing loan requests — properties sold within the last three to six months.
Restrictions on geographic locations and minimum loan sizes: Carl Delmont, chief executive of Freedmont Mortgage in Hunt Valley, Md., said that on lending “we’re beginning to see tightening in areas where delinquency rates are high,” as well as growing unwillingness to fund mortgages under $100,000. (LA Times).
(Apologies to the board, links don’t work on this old computer.)
Sounds like a return to the lending standards of, gosh, five years ago.
Let’s remember: 20% down; 10% with PMI or FHA/VA; no more than 3X income (4X) in some coastal markets; no more than 30% for the mortgage, taxes and insurance (35% in some markets). And as for the $417K loan, that’s a $521K house with 20% down. Which is a middle to upper middle income house in an a high income metro area and a mansion in flyover country absent the bubble.
Percent “down?” “3x” income? I’m sorry, what are those?
And your standards don’t mention the FICO score! Don’t you know, everything depends on FICO score?! I stock toothpaste at Target, but I send the minimum payment on my $4000 of cc debt (out of $20K limit), so I have Prime and I can get “into” a $527K home for $1629/month! You’re being like the newspaper all negative lik that! That hurts my feel…oh look, Angelina ’speaks out’ about Brad dumping her…
[sarcasm off]
exactly…
And lets not forget that these numbers (20% down, etc.) are not just numbers pulled out of a hat or chosen at random. They are numbers that were arrived at after decades of housing booms and busts. That’s how much skin you need to have in the game to keep from walking.
And where would one get this “saved” money?
http://www.milkandcookies.com/link/41738/detail/
“Sounds like a return to the lending standards of, gosh, five years ago.”
I was talking to my wife about that, yesterday. Politicians count on the public forgetting what they say within six months, so five years is relatively forever.
What I find interesting is that — and this may turn out to be untrue — lenders will lend anything more than 80% in a market where, finally, house values are just about universally predicted to decline in value by a substantial percentage. If this week I lend $300K on a $375K house, as 80% LTV, and the house drops in real market value to $300K over the next year or two, my customer has essentially dropped to zero equity. Personally, I wouldn’t invest a nickel in any lender who is giving more than 80% to any borrower under at least 750. Of course, I’m unusually risk-averse.
Again, that FICO thing can be a lot of BS. I know people with lots of money who don’t use credit and have FICOs in the low 6s or even the 5s. And I also know plenty of people in debt up to their asses who always make the minimum payments and have them in the high 7s.
Bottom line: a PERSON needs to look at these loan applications.
“Commie!”
LOL!!!
“Bottom line: a PERSON needs to look at these loan applications.”
So maybe the banks will be hiring penniless mortgage brokers, to be their paper shufflers. Meaning the Hummer with the For Sale sign in the bank’s parking lot might be an employee’s, rather than a repo.
A mortgage broker told me over the phone on Monday that to obtain a prime rate jumbo, the borrower would need to put 20% down and have an 800 fico. Yes, 800 fico. I asked her to repeat her statement twice because my jaw literally hit the floor. The fico floor for prime jumbo is now 740 and the borrower would need 30% down. Below 740, jumbo rates jump to the 8.5% - 9% range. Cali is toast. As a hypothetical, we ran the numbers with my mid score (750), 100k down with verified income of 8k a month. The most I could qualify for was a conforming loan to the limit (417k) with an 83k second. 500K total and again, that is with 100K down payment. What did 600k buy you a year ago in SoCal? Ha. Cali is toast.
What else can lenders do when they know alot of areas will crash in value . At least if they make a good loan the borrower has the ability to ride out the down cycle .
Dear frcp_23_b_3.
Thank you for this post. I love you.
so many deals, so much debt:
Harry Macklowe, the New York developer, was flying high in February when he decided to buy a portfolio of prime Midtown Manhattan office towers for nearly $7 billion, using only $50 million of his own money.
http://tinyurl.com/ypvmsb
More proof that stupidity transcends all economic classes. Did anyone catch “I-Caught” on ABC last nite? Apparently Phrogging is nothing more than a hoax but millions believed it. The producer of the video of 2 girls phrogging was asked why he made the video, he said, and I’m paraphrasing, that people are gullible and will believe anything.
I don’t watch TV…..what’s Phrogging?? And what’s I-Caught??
1. phrogging
To sneak into a house and live among its occupants without their knowledge. People who attempt this are referred to as phrogs. Phrogs try to respect the house’s inhabitants as if they were roommates, by not breaking or taking-although mooching food is sometimes necessary for survival. Phrogs rarely stay in a single house for more than a few days as the fear of getting caught settles in. Then it’s usually time to move on and the phrog will hop to a new pad. Phrogging can be attempted solo or in groups.
Anna hated working for a living, but needed money to survive. For years she worked her ass off so that she could watch her hard-earned money disappear as she payed her ridiculously high rent and bills. Then she heard about phrogging and decided to sneak into some of the oversized houses or McMansions in the suburbs. Now she enjoys her afternoons sipping tea and reading while the homeowners are out at work all day.
And people actually believed this?? There’s your housing bubble mentality right there.
Bullseye Blano!
Mine’s bigger than yours, until the bill comes due.
… at which point shrinkage happens.
Shhhh - some girls don’t know about shrinkage.
Unfortunately most chicks have probably seen the Seinfeld episode of George coming out of the pool.
It’s moving into consumer credit:
Credit Crunch Moves Beyond Mortgages
“It’s not just mortgages. As it gets tougher to land a home loan, some people are also finding it harder and more expensive to get other types of consumer credit.
“Some lenders, such as USAA, are nudging up credit-score requirements across their auto loans, credit cards and personal loans. Bank of America Corp. and Capital One Financial Corp. recently raised fees and interest rates for some of their credit-card customers. And this month, Citigroup Inc.’s CitiFinancial Auto started charging higher auto-loan rates for borrowers with less-than-perfect credit.”
THIS is when it gets interesting.
(As in Chinese proverb “may you live in interesting times” interesting.)
Well, July auto sales were already at a 9-year low. Adjust for population growth and it’s more like a 15-year low. This should make things even more interesting.
Fitting that it’s a Chinese proverb… this is getting even more interesting for them.
Here’s one that characterizes the typical FBer’s thought process:
“The drowning man cares not how deep the water runs”
Forget Peak Oil, Peak Net Worth is Here…
“The reason the ‘net worth’ data is an important consideration today is self evident: unable to explain why the outlook for consumer spending is positive given that debt service costs are hitting record highs, savings are near record lows, and wages are failing to keep pace with inflation, optimistic economists point to the consumer’s balance sheet and calmly conclude that everything will be all right. And although these analysts have indeed been right for a long time (16-years and counting), there is ample evidence brewing to suggest that the US consumer is about to fall down. For example, declining housing prices have closed the housing ATMs for many, last month’s larger than expected increase in consumer credit was the result of credit card borrowing, and retailers are already starting to warn of tougher times.” (From Safehaven).
Foreclosures hit NYC.
http://www.nypost.com/seven/08222007/news/regionalnews/n_y__foreclose_frenzy.htm
Had to have a plumber over yesterday (I want my landlord back). He noticed some bigger work that needed to be done, of course, and I have plans for additional work in any event.
I said I’d save and have the work done in the recession when tradesmen had more time.
He said I could always refi and do it now.
No thanks.
I think that a lot of the refis are due to people who spend every dime on routinely recurring expenses like groceries and have to borrow for any unusual expense like a new car, a new roof, a new boiler — anything that doesn’t happen constantly.
Omigosh!! Frank looks just like Richard Nixon!!!
I had some drywallers over yesterday, all day long. Spoke to them Monday night, they were there by 8am.
Clue-meter rising.
Report of falling rents in NYC.
http://www.amny.com/news/local/am-rentals0822,0,5186494.story
Bad data? Maybe. But CPS data is showing a decline in the number of employed NYC residents from a year earlier for the first time in years. I think people are at the breaking point in terms of struggling to pay exhorbitant rents on day-to-day self employment and are giving up and going home to Ohio or Mexico.
More fun in NYC. Curbed is shocked, shocked to find new condos that were “sold” coming back on the market for lower prices after buyers backed out.
http://curbed.com/archives/2007/08/22/your_morning_credit_crunch_110_livington_we_presume.php
59 John Street
DistrictNY
Be@william
William Beaver House
45 Broad Street
145 Hudson Street
200 Hudson Street
Do I need to name any more bad idea developments in Manhattan? Not surprisingly, me and the Mrs. have started receiving a lot of postcards from these new he//holes. The last one trumpeted, “more than 70% sold in one week”. That was from Be@william. “Congratulations”, I said as I threw it in the recycling bag.
I don’t usually watch Cramer, but there’s bee a lot of talk about him lately. Most people here probably already knew this, but I thought it was funny to see an article saying steer clear of Cramer:
Jim Cramer’s bad bets
http://www.cnbc.com/id/15840232?video=477902343&play=1
This one has me wondering. The System offers up one of it’s own liars as a sacrifice.
Also, seeing as those who frequent this blog since 05 were years early in calling the mortgage catastrophe I offer up this question;
Where is the next mess? We know there is another one in the making or is the mortgage meltdown the trigger for the big unwind?
“is the mortgage meltdown the trigger for the big unwind?”
That’s what I’m thinking. Just scrap the system entirely and institute what is provided for in the Constitution. DaBoyz have had a nice long run. It’s all over but the whining and the tantrums. And for god’s sake, remove the shrub. Nothing, and I mean NOTHING will go right in the country as long as he’s the decider in chief. This is not a political statement on my part, it’s actually a desire to see someone at the helm who knows what he’s doing. shrub is a loser and has the same effect on the US that an incompetent CEO has on his company. Please, just take politics out of this and see it for what it is. Look over the guy’s resume prior to becoming decider. Abysmal. Trashed two companies, maybe three and had to be bailed out by poppy’s arab friends. That should have been a huge clue.
Yea I totally agree with you but did you see the other guys?
The other guys would have done a good job. Gore and Kerry are both smart with successful careers and commendable histories.
The next mess? - Maybe the Bond Vigilantes will start to reprice risk in Fannie and Freddie paper. That would be a true sight to behold and would start closing in on checkmate. BTW, i wouldn’t buy their paper period. Total Fiat Ponzi and still at the top of these markets.
Truth-in-Lending Disclosure Failure Leads to Mortgage becoming “UnSecured”
“Every now and again, a potentially significant story manages to slip through the cracks, barely noticed by anyone. A recent Dow Jones article by Jilian Mincer — “Mtge Lawsuits Could Bail Out Some Borrowers” — is just such an article. The only reason I even knew about it was because I spoke with the reporter and was quoted in it.
“It is a fascinating tale that I suspect won’t be ignored for long. For those few people familiar with the Federal Truth-in-Lending Act (TILA), this won’t be much of a surprise. To everyone else, read on.
“What happens if a buyer fails to comply with the TILA rules? The borrowers are allowed to RESCIND THE LOANS AND VOID THE MORTGAGES ON THEIR HOMES. The mortgage lender is then just another unsecured creditor, who must get in line behind everyone else who may have filed a lien on the property. Who ever files first (Credit card, auto finance, doctors, etc.) has first priority.
“That makes the mortgage loan itself unsecuritized — and worth a lot less — due to the increased risk of loss of collateral…”
Funny that there haven’t been more articles on this in the MSM.
Also from the blog post:
“This seems to be where many of the subprime 2/28 ARMs ran afoul: They failed to meet the disclosure laws regarding actual interest amounts and payments.
“Who has gotten tagged with these cases so far? Subprime lender NovaStar Financial Inc. (NFI) in Kansas City settled a class action suit for $5.1 million. And, consumers in Wisconsin recently won a class-action TILA suit (its under appeal).
“Between 1998 and 2006, approximately 2.2 million (nominal) home owners with subprime loans are expected to lose their homes, according to the Center for Responsible Lending. The consumers in this group who a) could not afford those loans and b) did not receive the proper disclosures are “talking with lawyers in an effort to prevent foreclosures.”
Great catch, jmunnie. Maybe some FBs are not as F’ed as we thought. And in fact, if the TIL disclosures were bogus or non-existent, then maybe some FBs have a legitimate beef that they didn’t know. Of course, I won’t sign documents unless they are clear to me in the first place, whether I have an attorney look them over or not.
Well , that would explain how some borrowers didn’t know what kind of loan they were getting or what the costs would adjust up to . I don’t find it hard to believe that some of these commissioned salespeople held back disclosures .Usually they have someone audit the file for all forms needed ,so I don’t know how a loan would get through that process without proper disclosures .
I feel like legal action is the remedy for a FB that was screwed over by a loan rep . It should not be the govt. place to bail out borrowers that made bad decisions ,who got full disclosures .
Does this mean the mortgage lenders are buring the midnight oil filing liens as back-ups to their mortgages?
“I got here first, it’s my house.”
No, Gimme, it’s mine.”
If the lender loses the mortgage as security for the debt then the following would happen: Borrower defaults, lender sues, lender gets judgment. Judgment becomes a lien on the property. The lender’s judgment lien would be subordinate to all liens perfected prior to entry of the judgment. The lender could execute on the judgment and get the property via a sheriff’s sale, but title would be subject to all pre-existing liens. These liens would have to be cleared (paid off) by the lender before it could sell the property.
Yeah, but I think there were fewer fraudulent banks than there were fraudulent borrowers. Either way, the house has to be foreclosed on, so what do I care? Ha ha!
Please sign the petition and pass it on to those you know. The more people that know about this and are aware of what is going on, the better.
http://www.petitiononline.com/bailout/petition.html
I have over 300 signatures and I started this just last night.
Signed.
Thanks! I know it does not have the strength of a door to door campaign, but it will get more signatures this way and is more convenient. Still, if you can call your representatives and / or mail them a letter expressing your oposition, that would be even better.
Also, please pass this on to those who don’t get a chance to visit this blog via email or other blogs.
http://www.petitiononline.com/bailout/petition.html
Thanks!
I signed it. I used to work for a political group back in 99. We had people sign postcards and write letters. We used to say that the postcards were used to level desks, but the letters, especially handwritten ones, were the most effective.
Signed yesterday. Keep up the good work. Did you post it at http://www.patrick.net?
I’ve not signed ANY on-line petitions after someone sent me the following -
IN CASE YOU DIDN’T KNOW…
The truth about Email Petitions………
To whom it concerns. Email petitions are NOT acceptable to Congress or any other municipality. To be acceptable, petitions must have a signed signature and full address. Almost all email that asks you to add your name and forward on to others are similar to that mass letter years ago that asked people to send business cards to the little kid in Florida who wants to break the Guinness Book of Records for the most cards. All it was and all this email is, is to get names and “cookie” tracking info for tele-marketers and spammers to validate active email accounts for their own purposes. Any time you see an email that says forward this on to “10″ of your friends, sign this petition, or you’ll get good luck, or whatever, that email has either an email tracker program attached to it that tracks the cookies and emails of those folks to whom you forward, or the host sender is getting a copy each time it gets forwarded and then is able to get lists of “active” emails to use in spam emails or to sell to others who do.
FYI - If you want to forward stuff because it’s interesting, then do take off all the “front” info and all the forwards and DON’T add your name to them. Be careful.
Copy this info & place it in an email to others and you will be providing a good service to your friends and will be rewarded by not getting 30,000 spam emails in the future. I delete all petitions no matter what they promote. If anyone can show me where a petition has ever had any results I will reconsider. Give everybody a break by not forwarding all those petitions.
Thanks
Signed.
My husband and I signed it and passed it on! Thanks for starting it!
¨Go where the money is… and go there often.¨
Willie Sutton
“You can get more with a kind word and a gun than you can get with just a kind word.”
When Mr. Mike Royko wrote for the Chicago Daily News and Sun Times, he used to interview Mr. Sutton regularly. Some of Mr. Sutton’s great lines were recorded for posterity, alas, he wasn’t a very good bank robber.
The Sutton quote is great, but Royko himself was one of the greats. Imagine the fun he could be having now. He and Molly Ivins are much missed.
Yes, and Will Rogers…
And Jack Anderson.
Also from Chicago would be H L Mencken. A surly, cyincal and very acute observer. He would relish the many ironies of today.
A Baltimorian, I believe.
D’oh!
Deron, Would you be thinking of Ben Hecht and Charles MacArthur?
John Justin Smith perhaps? Another favorite news reporter of mine from Chicago.
boom shifts to foreclosures:
The shriveling subprime mortgage market may be getting the lion’s share of the blame, but industry experts say chaos in subprime lending is not the only factor in the financial squeeze that has pushed national foreclosure activity up 93 percent from a year ago.
RealtyTrac, a foreclosure data firm in Irvine, Calif., reported Tuesday that the nation saw about 179,600 homes in some stage of foreclosure last month, one for every 693 U.S. households.
http://tinyurl.com/2e3hms
Hey, we’re having a foreclosure bubble! Yeee-haaawww!
California Foreclosures: We added 40,000 new homes to some stage of foreclosure last month. That is 480,000/year. In the new foreclosure paradigm, 40% of the filings lead to REOs. This means 192,000 homes will become vacant, abandoned eyesores coming to your neighborhood.
CA has about 38,000,000 people. Using 2.5 people/home, that is about 15,000,000 dwellings. Home ownership runs about 69%, or about 10.5 million homes. This could mean about 2% (2 of every 100) homes will be bank owned in the next year or two.
Homebuilders in 2005 built 190,000 new homes. The foreclosure rate will exceed that rate of “production” in 2008. Can you say “AVALANCHE”? How about “LANDSLIDE”? How about “RUN FOR YOU LIVES”?
How about “PRICES WILL COLLAPSE”.
My personal favorite.
Actually, the banks already own these properties, and many more which are now at zero buyer equity, and the current inhabitants are just throwing good money after bad down the hole…
delaware foreclosure:
Public officials in Delaware spoke out about the foreclosure filings and urged homeowners with adjustable rate mortgages to seek help early.
http://tinyurl.com/ys2oo7
michigan foreclosures:
The number of foreclosure filings reported in the U.S. last month jumped 93 percent from July 2006 and rose 9 percent from June — and Michigan was one of the hardest-hit states, reporting 13,979 filings in July, a 39 percent spike from June.
The numbers are the latest sign that homeowners are having trouble making payments and finding buyers during the national housing downturn, said RealtyTrac Chief Executive James J. Saccacio.
http://tinyurl.com/27hwaz
How FHA Could Help Borrowers
Bush Backs Giving Agency Flexibility to
Offer Options For Mortgage Refinancing
By DEBORAH SOLOMON
August 22, 2007; Page A4
WASHINGTON — As the subprime-mortgage crisis ripples through the broader housing market, the Bush administration is eyeing an often overlooked federal mortgage insurer to help low- and middle-income homeowners avoid foreclosure.
http://online.wsj.com/article/SB118774225399404746.html?mod=googlenews_wsj
Idiot. He should be thinking of using the FHA to allow people to buy houses at lower prices AFTER foreclosure! That’s the distinction between helping the borrower and bailing out rich investors.
This could be another great Bush business idea. Let’s sell PMI to buyer’s in danger of foreclosure. Kind of like selling health insurance to people with a pre-existing medical condition. Maybe we could fund it with social security money, it’s a potential goldmine!
Let’s sell PMI to buyer’s in danger of foreclosure.
You know lenders were stupid there. They scrambled to do 20/80 loans so people could avoid PMI. However they only screwed themselves, because PMI is to insure the loan if the buyers bail.
Gee — wonder what is going to happen to PMI premium rates.
Kind of like selling health insurance to people with a pre-existing medical condition.
This is exactly what Kentucky did some years back when they “reformed” health insurance in KY. What happened next was a vacuum of health insurers in KY. If you now want to purchase your own health insurance in Ky you have only two options: Blue Shield or Fortis. A few years ago there was no choice, as Fortis recently re-entered the KY market. I wish I had more choices, but what can you do?
Got 10% down?
The housing bubble and associated credit cruch are good for the economy! No troubling economic data today? All is well, all is well….
http://finance.yahoo.com/marketupdate/overview
Still shaping up to be a solid start for stocks as both the S&P 500 and Nasdaq 100 futures hold their own above fair value. The absence of any potentially troubling economic data scheduled this morning is placing added emphasis on M&A activity and hopes of a rate cut.
With regard to today’s limited list of earnings reports, Toll Brothers (TOL) posted a sharp decline in Q3 profits, said cancellations reached their highest rate in more than 20 years, and declined to give guidance; but with shares down about 35% this year, signs of stabilization in the market have ignited bargain hunting efforts across the board, even in homebuilders. TOL shares are up almost 5% in pre-market action.
Oh! the MSM says all is well, but take a look at Beazer (the geezer).
Beazer Sues to Stop Default Notice
Wednesday August 22, 8:08 am ET
Beazer Sues US Bank to Prevent Lender Declaring Company in Default
NEW YORK (AP) — Beazer Homes USA Inc. sued U.S. Bank National Association to prevent the bank from declaring Beazer in default on $1.38 billion in loans, the company said in a regulatory filing late Tuesday.
U.S. Bank is the trustee for the loans, meaning it is responsible for ensuring that the borrower is in compliance with the lending terms. The bank would also enforce any default declaration by the lenders. Beazer said Tuesday it has not received any notices of default.
Beazer has previously said preliminary results show it swung to a loss in the third quarter, after slashing prices to sell homes and taking major charges to reduce the value of unsold inventory.
Two weeks ago, the company’s shares plunged sharply in a matter of minutes, prompting the company to issue a statement refuting market rumors it was preparing to file for bankruptcy.
http://biz.yahoo.com/ap/070822/beazer_default.html?.v=1
Down goes Beazier!
Wow, Beazer goes the same way of all their FB’s. Poetic justice!
Geeez, those guys at Citadel are really, really smart. Since they took their 5% stake, the stock is down 40%. I bet their losses are 50-60% on the full position. Hope their purchases of stuff from Sowood and Sentinel work out just as well.
That’s mean - almost as mean as me!
LOL
So Beazer has a HUGE incentive to slash prices on their unsold inventory. Not just to sell it, but to justify marking the unsold remains DOWN to market, so as to reduce reported “liabilities”. To use their sleazy accounting techniques against their shareholders a second time, like double-sided tape! WhEEEEEEeeeeeee…
Aug 22 2007 2:50AM EDT
Bush’s FHA Band-Aid
Yves Smith of Naked Capitalism submits:
The Bush Administration, which resisted proposals to have Fannie Mae and Freddie Mac buy more mortgages to alleviate stress in the housing markets, is instead looking to the Federal Home Administration, which traditionally has provided insurance to low and middle income mortgages, to help troubled borrowers.
But if you believe the data in the Wall Street Journal story, this move is likely to prove inadequate.
http://www.portfolio.com/views/blogs/market-movers/2007/08/22/bushs-fha-band-aid
Well it’s obvious Bush has never had an FHA loan. Unless it’s changed, you have to have 3-5% down plus closing costs. Most of these people are neg-equity already. The inspections are rigid. Everything has to be fixed before the loan can go forward. Many of these people probably haven’t been maintaining their houses, since they have no cash. Can’t have more than a 2 car garage. Bathrooms can be located only in certain areas of the home. Plus there’s many more goofy restrictions. The downpayment alone would knock out most of these sub-prime buyers.
“Unless it’s changed, you have to have 3-5% down plus closing costs.”
Read the article. The proposal is to scrap downpayment requirements and to increase the size of loans the FHA can guarantee above the current $417,000 conforming limit. In other words, the goal is to turn the FHA into a taxpayer-guaranteed substitute for the collapsed private subprime lending sector.
In that case, I doubt it will go through. Voters don’t want it. As soon as politicians realize this, they will stop shouting so loud (I hope).
Dodd Meets With Paulson, Bernanke
By John Godfrey and Emily Barrett
Word Count: 725
WASHINGTON — Senate Banking Committee Chairman Christopher Dodd, (D., Conn.) said Federal Reserve Chairman Ben Bernanke promised to use “all the tools available” to respond to volatility in the nation’s financial markets.
Mr. Dodd met with Mr. Bernanke and Treasury Secretary Henry Paulson for about 30 minutes Tuesday morning to discuss the recent volatility in the financial markets and the broader implications for the U.S. economy. Mr. Dodd said he also spoke with Messrs. Paulson and Bernanke about possible additional steps that can be taken to help stabilize mortgage and financial markets and help homeowners nationwide.
http://online.wsj.com/article/SB118770760771804099.html?mod=hpp_us_whats_news
Paulson and Bernanke either can’t keep Dodd interested for more than 30 minutes, or his eyes glazed over after he got the quotes he needed and they snuck out.
I suspect BB and HP satisfied Dodd by assuring him that the subprime crisis is contained.
Dodd amuses me in a way…he’s the Chair of the Senate banking committee and was for the signing of the bankruptcy “reforms” of 2005. His major backers are Wall Street ibanks. Has no reporter thought to ask what was he doing as chair of the banking committee while loan standards fell into the mud. What oversight did you provide on your watch, Senator, as you drew a taxpayer-funded paycheck??
Dodd is blaming the regulators claiming they knew about the problem 3 years ago but didn’t do anything . I guess that get’s him off the hook in his own mind .
Senator Dodd is correct in that regulators knew about the problem 3+ years ago. In fact the regulators knew about the potential problem in 1994. By 2002, there was literature in MSM about the housing bubble and the role of easy credit in forming the housing bubble.
Dodd is the Democratic candidate who wants to help low-income home buyers qualify to buy homes priced over $417,000, which will inevitably worsen the foreclosure crisis when more FBs realize they have bit off more debt than they will ever be able to repay. He pretends to be a friend of po’ folks (in the D-ratic tradition) but is really a protector of big money interests in NYC and Greenwich. I personally find this repugnant.
Apparently Dodd concurs with AG that bubbles can only be spotted through the rear view mirror and should only be dealt with after onset of a bust.
Through the looking glass, glimpsing backwards…
What aladinsane found there.
http://pic.templetons.com/brad/photo/bm03/art/img_4690.jpg
When I first started renting, I thought it would be for just a year or two. The more I read of this stuff, the longer that horizon extends. No way am I going to think about buying if the gummint prolongs the buy-what-you-can’t-afford nonsense.
Ok…. Which one of us went on a drunken rant and posted on U-Tube?
http://www.youtube.com/watch?v=4tZlocBtKqk
Good for him. Let’s all buy him a drink. He’s ranting about what everyone of us have been thinking about for the last several years.
Accredited Stops Accepting New U.S. Loan Applications
By Kevin Kingsbury
Word Count: 456 | Companies Featured in This Article: Accredited Home Lenders Holding
Subprime mortgage lender Accredited Home Lenders Holding is no longer accepting new U.S. loan applications and will cut more than half its work force as the company deals with the ongoing credit-market turmoil.
The San Diego firm said “substantially all” of its retail lending business, which is made up of 60 retail branches and five retail support locations, “will be effectively closed” as of Sept. 5, affecting 480 positions. Another 490 jobs will be lost at the wholesale operations, which will close 5 of its 10 divisions and cut staff at the …
http://online.wsj.com/article/SB118778585156105263.html?mod=hpp_us_whats_news
“Accredited Home Lenders Holding Co., reeling from the collapse of its planned sale to Lone Star Funds, will shut more than half of its mortgage operations and fire about 1,600 people.
The subprime lender expects to close its 60 retail branches and five support centers within two weeks and halted for now U.S. wholesale mortgage applications from brokers, San Diego-based Accredited said in a statement today. The cuts will shrink Accredited’s workforce to 1,000 from 2,600.
Accredited, whose June agreement to be acquired for $400 million fell apart earlier this month, said the reductions are necessary to stay in business until it can begin lending again. Two days ago, Capital One Financial Corp. closed its GreenPoint Mortgage unit, eliminating 1,900 jobs. ” (Bloomberg)
Credit Crunch Moves Beyond Mortgages
Individuals See Higher Rates,
Harsher Terms on Credit Cards
And Other Consumer Loans
By JANE J. KIM
August 22, 2007; Page D1
It’s not just mortgages. As it gets tougher to land a home loan, some people are also finding it harder and more expensive to get other types of consumer credit.
http://online.wsj.com/article/SB118773982869404682.html?mod=hpp_us_whats_news
Another link on Professor Bears’ page the NYCers will find interesting”:
Volatile Markets Spook Money Centers’ Landlords
By JENNIFER S. FORSYTH and MOLLY DOVER
August 22, 2007
http://tinyurl.com/2rqlkm
“Financial firms hold nearly one-third of all office space in Manhattan and London. The breakdown is even more pronounced for submarkets. In the City of London business district, finance firms have a virtual stranglehold at 52%, compared with only 7% for the West End district, according to CB Richard Ellis, a Los Angeles-based real-estate services firm. In lower Manhattan, where Wall Street is located, the financial sector holds 42% of all space, according to Colliers ABR Inc., a real-estate brokerage. (Those tallies don’t include law and accounting firms that often support the financial sector.)”..
“ut now the two cities’ heavy dependence on financial-sector jobs has real-estate brokers and analysts debating whether the gusher will shut off.”
NYC rents always go up, same as the stock market and IB CEO bonuses.
Look at the table. I was previously skeptical re: comments about WaMu. But this looks really bad …
link:
http://www.thestreet.com/s/is-wamu-the-next-countrywide/newsanalysis/ratings/10375529.html
Cool.
Toll Brothers Posts 85% Drop in Net On Writedowns, Slower Construction
By Jonathan Vuocolo and Elana Beiser
Word Count: 532 | Companies Featured in This Article: Toll Brothers
Toll Brothers Inc.’s fiscal third-quarter net fell 85% as the luxury-home builder recorded more land writedowns amid continued slowing in new home construction.
Chairman and Chief Executive Robert Toll said in a statement that the builder had experienced “a much higher rate of cancellations than at any time in our 21-year history as a public company” due to the downturn in the housing market.
For the quarter ended July 31, the Huntingdon Valley, Pa., firm posted net income of $26.5 million, or 16 cents a share, compared with $174.6 million, or $1.07 a share, a year earlier.
http://online.wsj.com/article/SB118777427399905202.html?mod=hpp_us_whats_news
FED to Accept any and All Collateral.
“The central bank on Aug. 17 cut the so-called discount rate half a percentage point to 5.75 percent to direct more cash to companies starved for short-term financing while avoiding an emergency reduction in its broader lending-rate target.
Banks can borrow at the discount rate with a wide variety of collateral, including everything from mortgages — the market that sparked the credit crunch after defaults rose to the highest in five years — to municipal bonds.
Lacker told risk managers yesterday that the Fed’s district banks would even accept boat loans as collateral. It’s up to the banks to establish a value for the assets as they make the loan, he said.”
Bloomberg
http://tinyurl.com/2uomcs
Is used toilet paper acceptable as collateral, then?
Said toilet paper is worth $100,000 per wipe.
Maybe that’s why Sheryl Crow only wants us to use one square at a time.
This is a “pesky situation”, so three squares are in order.
“Lacker told risk managers yesterday that the Fed’s district banks would even accept boat loans as collateral. It’s up to the banks to establish a value for the assets as they make the loan, he said.”
Did you get a bank to give you a loan against used toilet paper? If the answer is yes, then step right up!
“Banks can borrow at the discount rate with a wide variety of collateral,”
Can they use Beanie Babies?
I have some old comic books and scratched records for collateral.
How ’bout a few tanker trucks of used housing bubble bong water?
can they use shares of pets.com stock?
“It’s up to the banks to establish a value for the assets ”
And they’ve been so responsible so far. And now with Level 3 accounting, “mark to fantasy” deemed acceptable, any bets on how wild this could get. Calamity Poole has outlived his usefulness, now they’ve got Lacker up front and center as a talking head.
Heli Ben
Calamity Poole
Voodoo Lacker
Sounds like a street gang.
Credit bubble? No trouble!
Uncle Ben’s Pawn and Loan to the rescue!
Ask about our new lower rate on discount window payday advances!
I think they’re looking for banks to use those newly-cheap treasury-backed loans as collateral. That gives the Fed an easier way to make loans without accepting MBS.
Before they start patting themselves on the back over the success of their stabilization efforts, perhaps the Fed should consider how many signs of success were due to direct, market-distorting intervention, and how many were due to independent decisions by market participants. When a heart patient’s body jerks violently after applying electrodes, one cannot immediately assume the patient has fully recovered.
Fed Is Hopeful on Steps So Far
By Greg Ip
Word Count: 812 | Companies Featured in This Article: Barclays
WASHINGTON — Federal Reserve officials are cautiously optimistic that the series of steps they have taken to stabilize markets have started to work.
Officials acknowledge conditions are far from calm, and markets could easily take a turn for the worse. But they cite stable stock prices, a pickup in issuance of jumbo mortgages and other factors as evidence that in recent days conditions have improved, though gradually, instead of worsened.
http://online.wsj.com/article/SB118775079167904991.html?mod=hpp_us_whats_news
Why does the Fed care about stock prices? Do they really think it’s their job to prop up asset markets? $hit.
Wall Street’s Pavlovian cargo cultists are increasing the pressure on BB to respike the punch bowl with a FFR cut.
Reading and Misreading Intentions at the Fed
By Joseph Schuman The Wall Street Journal Online
Word Count: 1,646
The Morning Brief, a look at the day’s biggest news, is emailed to subscribers by 7 a.m. every business day. Sign up for the e-mail here.
As global financial markets show increased signs of stabilizing, the Wall Street chorus of calls for an interest-rate cut at the Federal Reserve has lost none of its urgency. But then, such calls had been steadily growing in volume since the Fed stopped raising rates a year ago.
http://online.wsj.com/article/the_morning_brief.html
It seems that BB has everyone on Wall Street on hold, awaiting announcements on future planned helicopter drops.
Shy investors await Fed move
ASSOCIATED PRESS
August 22, 2007
NEW YORK – Wall Street ended another erratic session mostly higher yesterday as investors, waiting for the Federal Reserve’s next move to steady the markets, made few big commitments to stocks.
http://www.signonsandiego.com/uniontrib/20070822/news_1b22market.html
Clock is ticking for Fed, say analysts
Signs indicate a decision needed on interest rate cut
By Edmund L. Andrews
NEW YORK TIMES NEWS SERVICE
August 22, 2007
WASHINGTON – Wall Street thinks the Federal Reserve is running short of time.
After another day of restless anxiety in the world’s credit markets, most lenders and investors remained fearful of all but the very safest Treasury securities, and new figures showed that the rate of foreclosures in the housing market in July was almost double those of a year ago.
http://www.signonsandiego.com/uniontrib/20070822/news_1b22fed.html
The pressure on Bernanke must be incredible, and as a wimpy academic, it must be killing him. He needs an outlet, and my theory is that he is posting wacky humor on this blog under the name “Jen Bones”.
One wonders who lurks here under false pretenses?
Okay fess up aladinsane, who are you? I’m guessing Jim Rogers or Bill Gross.
Sincerely,
Paris Hilton
The Federal Reserve is still trying to figure out the losses from the last three weeks: so far at least $150B is needed.
- FBR Research said on Wednesday that $150 billion to $250 billion of permanent capital is needed to normalize pricing in the depressed market for mortgage-backed securities.
However, in a note to clients, the research arm of securities firm Friedman, Billings, Ramsey & Co Inc said the process would take up to a year and will be painful for mortgage investors and originators. FBR Research said the new capital is needed to compensate for the massive “deleveraging” underway among companies that hold mortgages.
More than $20 billion worth of mortgage bonds not backed by mortgage finance companies Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) have been offered for sale in the past few days.
Mortgage investors increasingly question the underlying value of mortgage-backed securities given that orginators’ lax lending standards which led to a jump in defaults. Also, many economists expect weak home prices to drop further.
“Investors believe the collateral has been impaired since they expect home prices to decline materially over the next year,” the note said.
The deleveraging process has involved mortgage originators and investors alike selling large amounts of their mortgage-backed securities to reduce their net borrowings and enhance the quality of their portfolios. That has helped depress asset prices in that market, particularly among those securities not backed by Fannie Mae
Reuters
Does Buffett see opportunity others may be overlooking to buy a firm with free govt-provided too-big-to-fail insurance coverage?
Wall Street Roundup
Countrywide up on buyout speculation
August 22, 2007
Shares of Calabasas-based mortgage giant Countrywide Financial Corp. got a lift Tuesday from buyout speculation, while news from elsewhere in the home loan business remained downbeat:
San Diego-based Accredited Home Lenders Holding Co. said it agreed to sell $1 billion of home loans to an unnamed investor, a move it said would limit its exposure to “margin calls” — demands by its creditors to pay down debt.
In Tucson, Ariz., First Magnus Financial Corp. filed for bankruptcy protection less than a week after the mortgage lender suspended its operations.
Meanwhile, Countrywide shares jumped $1.98, or 10%, to $21.79 after a Wall Street Journal story quoted investors speculating that Warren Buffett’s Berkshire Hathaway Inc. might be interested in buying parts of the business. Countrywide’s debt-servicing business and its investments in high-quality mortgages may be attractive to Berkshire, the newspaper said.
http://www.latimes.com/business/la-fi-wrap22.s1aug22,1,804752.story?coll=la-headlines-business
If I were interested in acquiring assets of Countrywide, I would buy the Countrywide bonds (current YTM ~17%). If the company makes it, great I get an above market yield. If the company gets acquired in a buyout (rumors of other banks interested in acquiring are all over the place) my YTM jumps to 34%. If the company goes into default (BK), I acquire the company without having to buy any stock (shareholders get nothing in BK). WIn-WIn. If Mr. Buffet is playing the Countrywide trade (which I doubt) this is the only reasonable way to invest in this company.
Right. Remember he invested in LVLT that way.
For more on the First Magnus story, here’s the “gift that keeps on giving” part:
http://www.azstarnet.com/dailystar/197618
I wonder if GWB expects to hit the rubber chicken circuit in 19 months giving inspirational speeches at a quarter mil a pop. Frankly I would rather pay to go to the zoo and watch the monkeys fling poop. Paulson will probably go back to Goldman Sachs and reap more millions. He’s a liar, but he’s still smart.
he can’t do that rogue. you’re assuming he can speak without his ventriloquist.
“Frankly I would rather pay to go to the zoo and watch the monkeys fling poop.”
LMAO….. Which reminds me of a statement my 85 year old father said a few years back….. It went something like, “That George Bush has a kind face….. the kind I’d like to throw shit at”. I guess you had to be there because he’s a man of few words and he said it at a family reunion.
I suspect that Mr. Paulson will go where the money is, China.
as for GWB
“The trouble with born again Christians is that they are an even bigger pain the second time around” Mr. Herb Caen
LOL!!!
I must be doing something right the second time around…..I found this board!!!
I miss his and Art Hoppe columns in the SF Chronicle
Has this ever happened before?
Money-market funds latest to feel fallout of credit crunch
By Tim Paradis
ASSOCIATED PRESS
August 22, 2007
NEW YORK – The market turmoil of the past month spawned by growing credit-market problems is spilling over into money-market funds, an investment long seen as a safe and secure place to park cash.
http://www.signonsandiego.com/uniontrib/20070822/news_1b22mutuals.html
1933.
California consumer coalition economics: If you don’t like what is happening in the free market, then just declare a moratorium.
Put moratorium on foreclosures, state consumer coalition advises
By Steve Lawrence
ASSOCIATED PRESS
August 22, 2007
SACRAMENTO – Consumer advocates yesterday called for a moratorium on home foreclosures, warning that California is facing a tidal wave of foreclosures over the next year as more homeowners are hit with payment increases brought on by subprime loans and risky mortgages.
http://www.signonsandiego.com/uniontrib/20070822/news_1b22subprime.html
Not sure what that will solve, aside from delaying the inevitable.
A supremely logical response to a moratorium on home foreclosures would be for mortgage lenders to then declare a moratorium on all future home loans, and for all financial entities to cease buying any paper contaminated by home loans. They’re awfully close to doing that now.
Bingo. The measure would kill all lending.
Yep, that’s our CA politicians. Protect irresponsible losing gamblers at the cost of no one else ever being able to buy at secured finance rates again! Think it will “save” anyone if home loans here go to credit card interest rates?
Fortunately they’re not quite that stupid - it’ll never happen.
The good news is that all of California could then call a moritorium on paying their mortgages.
“The good news is that all of California could then call a moritorium on paying their mortgages.”
I guess this little moral hazard problem never entered the thick skulls of California consumer coalition members?
It was tried before and created more problems than it solved. It is well chronicled in Amity Shlaes’s book, The forgotten man. If you are interested in financial history, I can’t recommend this book enough.
http://www.amityshlaes.com/
I just heard her on the radio this am. I was going to buy her book later this week.
I read it last weekend. Excellent read. Lot’s of parallels to what’s going on today. We are the forgotten man.
Dunno…here are some reviews.
“Amity Shlaes is a distinguished American columnist and author of The Greedy Hand, a plea for tax cuts that is said to have influenced President Bush, among others.”
“Put moratorium on foreclosures”
If you REALLY want to see lending tighten in California, do this. Who would want to lend in a state where lawmakers are amicable to keeping you from collecting on collateral when the loan goes bad. You’d have to add a “collateral acquisition” premium to every loan made in Cali.
I say go for it…
Who would want to lend in a State ,or any State that has a built in crash potential of 20% or more .
A foundation of good lending practice is never make a loan on a declining asset unless you get more down payment to offset the risk . 40% down sounds about right .
How to Sell A House in a Buyer’s Market
http://finance.yahoo.com/expert/article/mortgage/42608
Sellers can use incentive tactics to attract buyers who shouldn’t be buying their house. Paying “permanent” (or even temporary!) points to lower interest rates, or paying closing fees could be negotiated instead of lowering the price.
There is often more “bang for the buck” here, apparently. (Incentive costs less than the price reduction and is more “useful” to the buyers.) All predicated on buyers where down payment is a struggle or who are more concerned at the payment than the house cost.
I think these incentives are more useful for the REALTOR that is pushing them…. They make comission on the sell price, so offering incentives doesn’t cut into the Realt-whore’s comission… Therefore, the seller’s Real-whore tells you to offer incentives instead of price cuts and the buyer’s whore brings the very few buyers toward the properties with the highest potential comission.
Again, it is all based on the Realtors having the monopoly on buyers. Buyers don’t pay the comission, so there is no incentive to not use a realtor. Once the buyer has a realtor, the seller has to or no buyer is shown his house.
All predicated on buyers where down payment is a struggle or who are more concerned at the payment than the house cost.
In other words- The people who are too stupid to be given a loan in the first place.
Just wondering.. How does any manuvering by the Fed help the banks that own the three forclosures in my development? (I rent)
Mtg amount on each over 800k
Indentical homes for sale 675K
Went short CFC this am.
The New Yorker has a piece in the latest issue titled Beware Bailouts. It echoes much of what has been said here over the past couple of weeks, albeit in a more restrained fashion.
From the article:
The fall in housing prices, the drying up of new construction, and the sharp rise in foreclosures in many areas are having a serious impact on employment and economic growth. But these are not problems that the Fed’s action will solve.
Cutting the discount rate is not going to help subprime borrowers get new loans, nor will it get the housing market moving again. What it will do is reassure investors and save some money managers from well-deserved oblivion. It may be that the risk of a full-fledged credit crunch was high enough to make this worth doing. But there is something unseemly about watching the avatars of free-market capitalism rely on the government to pay for their bad bets.
Linky
There’s nothing ” unseemly about watching the avatars of free-market capitalism rely on the government to pay for their bad bets.” They’ve done it for decades, they do it all the time.
The only “free markets” I ever participate in are “flea markets.” The markets I get my food & fuel from are not free.
Anybody notice how “normalization” is taking more and more time to achieve?
“The European Central Bank said it will lend 40 billion euros ($54 billion) to banks for three months in a further step to support a “normalization” of the money market and indicated it may still raise the benchmark interest rate.”
Bloomberg
http://tinyurl.com/2uomcs
It’s “normalized”, “stabilized”, and “contained” …. babeeeeeeeeeeeee
Oh garçon, some more Single Malt Scotch…and some imported:
“Neil’s Buttered Derivative Popcorn”
same old same old……more artificial pumping of stocks……anything to delay the other shoe from dropping. nothing new created, just another shell game maneuver to keep the ship afloat.
“nothing new created”
Real wealth creation no longer matters. The FED’s game plan is to use the think method to make us all feel wealthier.
‘To see all the latter for what it is, just go watch “The Music Man,” the great Meredith Wilson musical (staged in 1959, filmed in 1962), whose hero, Professor Harold Hill, is a con man who goes from one provincial town to another, convincing parents (on wooly-headed moral grounds) to form marching bands for their children, then selling them (at inflated prices) instruments and uniforms and sheet music and skipping town before they realize that he doesn’t know a tuba horn from a two-by-four. To explain away the chaos at rehearsals, he tells everybody that he is teaching the kids with the revolutionary new “Think Method.” All they have to do is think about the song. The rest will come naturally.’
http://www.melancholyeskimo.com/EskimoThinkMethod-1.htm
Yep. 1 day loans become 3 day loans become 2 week loans, become 30 day loans. Now 90 day loans.
Not only that its like teeter-totter:
ECB injects 1 day loans
FED injects 3 day loans
ECB injects 2 week loans
FED injects 30 day loans
ECB injects 90 day loans
FED injects ___ day loans?
Yep, 90 day loans. Gotta get the reports of constant CB credit injections outta the headlines. I mean if the sheeple keep reading about their banks needing a handout every day, they might start to get nervous.
Isn’t Haliburton moving there Corp. headquarters to Dubai?…well, now at least this guy below can take some of his wives & children on a QE2 cruise to… Lost Wages
Please send more US taxpayer $$$$$$ money to Middle East Islamic Democracy’s via our military export buisness…
Hey Cheney, got Oil?
UAE father of 78 eyes new brides for century target
http://www.reuters.com/article/oddlyEnoughNews/idUSL2020651320070820
Dubai World Boosts Ownership in U.S. With $5 Billion Investment in MGM Mirage
“…Dubai World this month signed an agreement for control of the Barneys New York department store. A division of Dubai World spent 100 million this year to buy the QE2, the majestic ocean liner that has carried millions of people across the Atlantic during its 40-year history.”
“The company plans to turn the giant passenger ship into a first-class floating hotel, retail and entertainment destination, berthed off Dubai’s manmade Palm Jumeirah island.”
http://biz.yahoo.com/ap/070822/mgm_mirage_dubai.html?.v=6
Escrow payments from mortgage company to property tax collector have not been credited on time.
Some of my properties do not have escrow accounts, so I call the property tax collector to pay by phone using a credit card. The property taxes were due Aug 20 and become delinquent in 10 days. I usually call the day after the due date (Aug 21) to pay by credit card over the phone the properties with no escrow accounts. BUT,
half the properties with escrow accounts still had not been paid. There is a 10 day grace period, but they are usually paid by the due date. Will the mortgage companies with my escrow accounts stiff the tax collector? This is the next crises.
FBI - “Sorry but the timing’s not right.”
http://bakersfieldbubble.blogspot.com
Too busy busting Spicoli and his dime bag.
“Spicoli”
Hey bud…let’s party!
“But 17 News has learned there are no cases of mortgage fraud being prosecuted right now. In fact, a spokesman for the District Attorney’s Office said he can’t remember a single case coming across his desk in the last five years.”
Well, since Lennar homes is only building x1 home in Bakersfried this year…I’d say the future work load… looks good for the D.A.’s Office.
LOL!
Crispy,
Any more news on Crisp getting arrested in the UK? If it’s true that he was drunk and hiding in a bank- wow you can’t pay for publicity that good >; )
Of course Jaegels isn’t going to prosecute. The Kounty management is in it up to its eyeballs. And the regional FBI office is owned by the good ol’ boys who put them there. The only way this is going to come down is when the Vega$ guys get stiffed…which should be any day now. Couldn’t happen to a nicer bunch of pedophiles and crooks. Cannot WAIT.
Starting to stick a toe in the water on the short side. Small, expecting to be down for awhile.
Thanks for your input, TX. I gain confidence in my own moronic moves when I hear your doing similar things.
How exactly would a bail out work? I can see them giving the fb’s a fixed interest rate, but they would still owe 500k on a 200k house. So is it more wishful thinking on the banks part or could it really screw up my plans for 2009?
One way would to be “give” each FB $100,000 each to pay down the interest rate on a fixed rate mortgage, so that they could make (lower) payments than their current ARMs, and not have to worry about resets. I picked $100,000, because that is how much Ohio is allocating to each household it helps in its bail-out of homeowners.
Wouldn’t that be great? Make a risky decision (buy a home that you couldn’t afford), and then have the government reach into the pocket of those that played it safe (renters, long time owners that didn’t HELOC their properties to death), and give it to these new owners $100,000 at a time? Kind of makes you want to weep with joy.
The bailout would have to be 1x annual income to EVERY American (based on what they claimed to the IRS). Of course, I’d limit it to people that didn’t cash in on the bubble, so no money if you recenly sold a home in the bubble but did not buy like kind for more or same amount.l And not involved in creating the bubble such as mortgage brokers, realtors, appraisers, bankers, fund managers, etc, etc, etc… Oh, and anyone with $1 million in net worth, or over $100K a year income… etc.
IF you have debt in excess of your bailout amount, then the money is used to pay off your debt. If you don’t have debt in excess of the bailout amount, then you get handed a check.
Make the bailout (cash injection) for ALL (non filthy rich, didn’t make this bubble) Americans, not just the FBs. Lots of “investors” and people that bought WAY over their heads would still be screwed as 1x income wouldn’t be enough to make a difference… But there would be lots of renters with access to cash for a down payment.
“pay down your debt”, not pay off your debt.
This whole scam was set up by the lenders/banksetc as they wanted to have as many “debt slaves” as possible to continue “paying” them for years in the future. Federal Reserve “prints money, banks/lenders “loan” it out to the serfs/debt slaves who will lanor every day to pay on these loans for a vast number of years. Pretty good scam. They also have the government behind them [judgements] to keep the slaves in line. Only way to get out is a lottory win or death. Too bad so many fell for the big scam. It’s over for many. Perhaps some will get a second, third job to make the lender/bank happier. Then they can enjoy their vacations and steady incomes without any worry!
“One way would to be “give” each FB $100,000…”
If the gov’t “gives” FBs $100K and does not also “give” $100K to renters, then I am leaving the country. Taking money from savers to give to FBs is my personal definition of “end game.” Unfortunately, I fear that is exactly what will (is) happening. That’s why I’m working on my escape plan even as I write.
The bailout is for the lenders, NOT the FBs. As you point out, nothing can be done for the FB.
“I can see them giving the fb’s a fixed interest rate, but they would still owe 500k on a 200k house.”
Exactly. I just don’t see how you can bail out po’ folks living in homes valued over $500K without some kind of massive transfer payments from folks living in Richistan. After all, the middle class, with its negative savings rate, is hardly in a position to offer welfare payments to pay off the mortgage debt of those whose labor incomes are nowhere near up to the task.
“without some kind of massive transfer payments from folks living in Richistan. After all, the middle class, with its negative savings rate”
Just inflate the money supply…use the $$$ printed to pay down (”hardship grants”) the mortgages, and let inflation take care of the rest.
Of course, you would need wage inflation as well, but how hard can that be in today’s global economy. Oh, wait…
Wait until the feds find out what % of borrowers never intended on living in the property for long ,or have never moved into the property, and they were flippers or speculators on a 2 years plan to make a killing and pay no taxes .
Agency MBS succumbs to global credit squeeze
“At roughly $7 trillion in size, which includes the subprime sector, the mortgage bond market is the world’s largest, dominated by Fannie Mae and Freddie Mac.
“Liquidity in the agency MBS market is not only worse than it was a few months ago, it is worse than it was a just a few weeks ago,” said Deutsche’s Frank….
…Liquidity in the MBS market will probably not ease going forward because $400 billion of agency and non-agency ARMs are resetting in each of the next three years, according to Matthew Jozoff, head of mortgage research at JPMorgan in New York.
“With many of these being subprime borrowers, there will be a number of borrowers looking to refinance in a period of tighter lending standards and impaired liquidity,” his team said in recent research.
Legislation, however, may buoy “agency” MBS.
On Tuesday, U.S. Senate Banking Committee Chairman Christopher Dodd said he asked the Bush administration to lift the portfolio caps on Fannie Mae and Freddie Mac, but Treasury Secretary Henry Paulson expressed reluctance to do so.”
Reuters
Aug 22
See the stuff about Citi et al borrowing 500M each from the discount window? Increased my short indices position.
3 others did too… for “confidence” reasons. Even though they could allegedly borrow cheaper elsewhere. Does that make any sense??
Also, I just read something about the ECB talking about RAISING interest rates next week…..anyone else see this?? Isn’t that the exact opposite of what is being clamored for here??
IMHO, in 1929 after the market drop, a large number of banks and wealthy private individuals went onto the floor of the NYSE and caused a few day rally stating ‘business was fine, earnings are great and the Federal Reserve has a handle on it’, this is Jay Rockefeller redux done by the large banks. Smoke and Mirrors
These banks followed Basel II without implementing any safeguards. The hedge funds may have been completely long and wrong, but at least the hedge funds tried to follow Basel II safeguards. So far the world wide real losses are approaching 350B and growing.
Who do you think is in trouble? I don’t think its the guys that showed up at the window. My guess:
1. CFC
2. WM
3. WFC
“…the companies believe it is important at this time to take a leadership role in demonstrating the potential value of the Fed’s primary credit facility and to encourage its use by other financial institutions.”
JPMorgan Chase, Bank of America and Wachovia Encourage Use of Fed Discount Window
http://biz.yahoo.com/bw/070822/20070822005653.html?.v=1
“…When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates.
The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s….”
1966
Mr. Alan Greenspan
Gold and Economic Freedom
I like Geoffrey Chaucer’s rhyme’s better. “Make a virtue of necessity.”
Thanks for the reminder Hoz…from the lips of the “Master” himself, “you can call me Al” Greenspent”
But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence.
I am speechless.
Me too.
The regulators are keeping the caps on Fannie and Freddie to minimize the damage when they go down. They are simply one of the last dominos in line. GSE to Treasury spreads have been slowly but steadily widening for a while now. There has been very little consideration of just how sound the GSEs are financially. It will likely be the guarantees rather than the securities they hold in their own portfolios that will cause people to question their stability and ability to pay.
Edible corn prices rise due to Ethanol…next egss & tomato’s?
Can’t “The Decider”… President Push…ever give a speech out in the open to the general Public? On second thought, it might cause a national shortage of eggs & tomato’s
“As long as I am commander in chief we will fight to win,” Bush said to heavy applause from the Veterans of Foreign Wars conference. “I’m confident that we will prevail.”
Bugs: “eh, yeah right…hey Daffy, is Yosemite Sam still signed up for the National Guard?”
http://news.yahoo.com/s/ap/20070822/ap_on_go_pr_wh/bush
Citibank taps Fed discount window for $500 mln for clients
By Gabriel Madway
Last Update: 12:13 PM ET Aug 22, 2007SAN FRANCISCO (C) said Wednesday it Citibank unit, on behalf of clients, has accessed $500 million in 30-day term financing under the discount window program announced on Friday by the Federal Reserve Bank of New York. “Citibank stands ready to continue to access the discount window as client needs and market conditions warrant,” the New York-based financial services giant said in a statement. “Citi is pleased to inject liquidity into the financial system during times of market stress and to support creditworthy clients.” Shares of Citi fell 9 cents to $47.97 in Wednesday afternoon trading.
Isn’t C’s top brass part of Team PPT?
Don’t know but BSC is getting slammed. Something’s up.
Maybe the bagholders quit showing up. Not worth it for the market manipulators to keep pumping if they’re not getting any more bandwagon jumpers. Interestingly, my “financial enablers” short portfolio has done well this week despite the modest upward move in the indicies. New highs to new lows still shows a lot of weakness under the surface.
Yes. And several junior stocks that i follow haven’t even had much of a dead cat bounce after the whacking last week. There are literally little if any bids out there for some of this stuff. Scary.
CFC moreso.
Currency issues. Rumor.
Check out this cartoon on the bubbles the Fed has created. It’s hilarious.
http://editorialcartoonists.com/cartoon/display.cfm/40140
LMAO!
Tiny Bubbles…Sir, Don Ho
It would be hilarious, if it weren’t so on target.
Hey Prof Bear,
I’m going to enlarge, er, I mean..EXPAND it… and put it on my refrige… for all the kitchen lounge lizards too gaze upon during my next social gathering… that ought to break the ice…
Think if we sent the cartoon to the FED they would understand it. Some people can only comprehend pictures, not words.
http://www.dailynews.com/news/ci_6683739
Should city bail homebuyers out?
Alarcon wants Los Angeles to help those facing foreclosure
Warning that the region is embroiled in a foreclosure upheaval, Alarcon said he’s also considering asking lawmakers to declare a state of emergency to direct state and federal money to counseling and loans for people about to lose their homes.
Another bailout of the lenders. Let the FB refi to a lowere rate loan.. the FB still folds when his house is worth half what he owes, but the original lender is off the hook!
On the same subject. I’m staying in a hotel on a business trip. USA Today shows up at the door this morning… I see a headline “3 ways to help without a bailout”. Oh no… thinks I. Fannie-Freddin-FHA????
Nope!!! Their suggestions? 1) Alter bankruptcy laws to allow judges to modify mortgage terms… force the bank to eat the loss on the bad loan wihout taking the house from the FB. 2) Couneslling, to help the FB start over after the foreclosure. and… dang, I don’t rememebr the 3rd… But I do know all 3 involved the lender taking the full cost of the loss….
WOOT!!!!!!
Darrell, here’s your article.
Lots of good comments tacked on afterward. It seems talk of bailouts pisses off not just the hbb.
“Alter bankruptcy laws to allow judges to modify mortgage terms… force the bank to eat the loss on the bad loan wihout taking the house from the FB…all 3 involved the lender taking the full cost of the loss….”
That would tighten up housing lending even more (same as a moratorium on foreclosures). You’ve got to love the law of unintended consequences, the steps being proposed to save the housing industry are the ones that will hasten its downfall. If you think that lenders/investors are reluctant to lend on sup-prime, alt-A, and prime jumbo now, just wait until some of these “save the homeowners” projects pass.
‘Just smile and wave, boys, just smile and wave…’
They did that on cars in the 1990s. Cram down the fmv vs. the amount actually owed. Came out of some case in Kansas if I recall. I don’t think it’s done anymore.
Better open more homeless shelters.
Tip of the Day… ;-O
Hey txchic…what company… makes toothpicks?
China arrests or warns 60 for spreading rumors
“In one case, police in July detained two men who sent text messages to more than 200 relatives or friends, claiming people with AIDS were spreading the disease by using toothpicks at restaurants and returning them to their containers, it said.”
http://www.reuters.com/article/newsOne/idUSPEK22883820070822?src=082207_11_DOUBLEFEATURE_airspace_row
Urgent!…Urgent!…Urgent!… from the Desk of…”The Daily News”…stop…revised…stop…new byline…stop
Breaking News: today, 8/22/2008 12:00 PST
Angelo has sold all his stock and has fled the country for an undisclosed Pacific Ocean Island.
Angelo R Mozilo
CEO Countrywide Mortgage
Total Compensation: $57.0 mil
How America is… “different”… from China
Nice try, check out his cashing out on yahoo…..at least 72 mil since June 1!!!
Good thing “they” didn’t start this rumor.
08/22/2007 15:01
CHINA
Cancer-causing textiles and re-used chopsticks
In Beijing a factory recycled used chopsticks and sold them without sterilising them first.
http://www.asianews.it/index.php?l=en&art=10112&size=A
I can’t imagine that any of these GM workers use the OT to help out with their mortgages…”that’s inconceivible!”
GM scales back production at Arlington plant, others
As a result, previously scheduled overtime at the plants, including Arlington, has been eliminated, said GM spokeswoman Pam Reese.
http://biz.yahoo.com/bizj/070822/1509772.html?.v=1
They’ve been using OT exactly that way for years. I’ve run into quite a few the last few years who were headed to foreclosure ONLY because they lost their OT…they were still working 40 hours at $25, $35, $40 an hour. They were also in danger of losing their cottage up north, and the full size truck, the motorcycle, and so on.
Dear HBBers
Ha. The notion that housing bubbles can burst is obviously wrong? Don’t you know that Americans have a RIGHT to own a home. The US government will always bail out Americans who stand to take a loss on their investments, so renting is probably the dumbest thing that anybody could do. The only person on this blog who ever said anything that made any kind of sense was Jose Manalo, who said “What’s your problem?”
Dear HBBers
Ha. The notion that housing bubbles can burst is obviously wrong? Don’t you know that Americans have a RIGHT to own a home. The US government will always bail out Americans who stand to take a loss on their investments, so renting is probably the dumbest thing that anybody could do. The only person on this blog who ever said anything that made any kind of sense was Jose Manalo, who said “What’s your problem?”
Sorry for the double post. Also, reverse the first ? with the first .
Too much adrenaline.
Subject: Welfare
A guy walked into the local welfare office to pick up his check.
He marched straight up to the counter and said, “Hi. You know, I just HATE
drawing welfare. I’d really rather have a job.”
The social worker behind the counter said, “Your timing is
excellent. We just got a job opening from a very wealthy old man who
wants a chauffeur and bodyguard for his beautiful daughter.
You’ll have to drive around in his Mercedes, and he’ll supply all of
your clothes. Because of the long hours, meals will be provided.
You’ll be expected to escort the daughter on her overseas holiday trips andyou will have to satisfy her sexual urges. You’ll be provided a
two-bedroom
apartment above the garage. The salary is $200,000 a year.”
The guy, wide-eyed, said, “You’re bullshittin’ me!”
The social worker said, “Yeah, well . . . you started it.
If you’re tired of sleeping well at night, check out the description of Option ARM contract language at Bankrate’s site:
http://tinyurl.com/yvzthm
Presuming they didn’t post this “primer” long ago, it’s a real shame. The “what it really means” balloons are very informative — essentially, “…and here is how you are toast.”
Bugs: “eh Daffy, look in the yellow pages & see if you can locate the FED discount window…I need to get some of that “easy money” to expand my carrot soup shops nationally, I’m modeling it after Taz’z “shake & stir smoothie shops…
Daffy: Uh, Bugsy…I don’t think the FED really like to put US cash down yer silly wabbit hole, hare brained idea of a… National carrot soup shop.
Fed cash not reaching mortgage players forcing sales
“…The problem for many lenders, including Thornburg, is that they rely on private funding sources and cannot borrow directly from the Fed, and so are being forced to sell assets to raise cash, analysts said.
Is anyone else getting sick of the term “subprime” being used over and over by the media. I not only dislike the “subprime is contained” stories we heard a few months ago, but I also dislike the “subprime may be spreading” stories we hear today.
This was never about subprime at all. This was all about affordability and the tools the were used to temporarily mask the affordability problem - exotic financing.
Subprime was merely the first sector to be hit. Subprime borrowers are more likely to default do their their history and, quite frankly, they have little to lose. Subprime ARM’s tend to reset earlier than non-subprime ARM’s.
I’m afraid that we’ve been reporting about subprime problems so long that the history books are going to report this as a subprime problem that spread throughout the economy.
Perhaps the use of the term “sub prime” is elitist…hear me out…if you call it Sub prime and associate that with people that can than be looked at as “less than” aka sub human if you will. Add to that talk: that those with these sub prime loans should have never bought a home, could not afford it, and never planned to pay on and on, bla bla bla. Now, I know that there is some truth to this but to an elitist it helps them feel better about their alt A loan that they got for their “flip”. But the flip was a good thing as I was only participating in the “greatest story never told”. I was using these “innovative financial products” to “build my wealth” doing my job as a good capitalist. Why you ask….denial, as in my bad decision is not my fault, I am but a victim…of those people those “sub” primers, those unwashed masses that we hold such contempt for. How dare they try to purchase a home to live in, don’t they know that a house is not a home but a vehicle to glorious wealth? Better to believe in this convoluted excuse for logicic than to bear the full weight of the fact that the elitist up that food chain just saw them as chum for their feeding frenzy and them just chum for the next shark up the food chain. And so on and so on until every one but the real elite have been royally screwed glued and tattooed.
And the HBB credit carnage spreads its arms to:
Aug. 22 (Bloomberg) — U.S. banks and thrifts suffered the biggest increase in late loan payments in 17 years as more homeowners fell behind on mortgages, the Federal Deposit Insurance Corp. said.
Loans more than 90 days past due rose 10.6 percent to $66.9 billion in the period ending June 30, the largest quarterly rise since 1990, the FDIC said in its Quarterly Banking Profile released today….
http://www.bloomberg.com/apps/news?pid=20601087&sid=as2Ho_PwtqjM&refer=home
Is there an echo in here?…
It’s “normalized”, “stabilized”, and “contained” …. babeeeeeeeeeeeee
Oh garçon, some more Single Malt Scotch…and some imported:
“Neil’s Buttered Derivative Popcorn”
Lehman Throws in Towel on BNC Mortgages, Fires 1,200
Just breaking on Bloomberg, Lehman closes its subprime unit, BNC Mortgages, and fires 1200.
Yawn…
Lehman to Close BNC Mortgage
Dow Jones Newswires
Word Count: 326 | Companies Featured in This Article: Lehman Brothers Holdings, Delta Financial
Lehman Brothers Holdings Inc. said it will close its BNC Mortgage LLC unit because current market conditions have forced Lehman to reduce its resources and capacity in the subprime market.
The closure affects about 1,200 employees in 23 U.S. locations.
The New York financial services company said it expects to record a $25 million charge and a $27 million writedown as a result of the closure.
http://online.wsj.com/article/SB118780861416605549.html?mod=MKTW&ru=MKTW
We’re right up against the underside of the uptrend line. Adding more to short positions. We’ll see if they can bust them over the trendline.
I always feel so naked with no shorts or puts. LOL
I started shorting a few minutes ago. Just the positions I could not get off in Fridays rally. I still expect a possible 100 pts upside before the tank.
Apologies if this has already been posted. Looks like WaMU may be the next domino:
http://tinyurl.com/3am2mr
In BB’s defense, Volcker did not face the scary thick global undergrowth of hedgies when he extinguished burgeoning inflation in the 1979-1982 period. I doubt that anyone on the face of the planet has the slightest clue about how bad the problem of myriad collapsing too-big-to-fail replicas of LTCM might get…
THE GURU’S CORNER
The Fed blinked
Commentary: Where have you gone Paul Volcker?
By Irwin Yamamoto, The Yamamoto Forecast
Last Update: 11:29 AM ET Aug 22, 2007
KAHULUI, Hawaii (YF) — We warned investors of the subprime mess, the real estate bubble, the troubles with the hedge funds and the stock market sell-off before these international headlines became reality.
Our next warning? Inflation. On Aug. 17, the Federal Reserve blinked when it lowered the discount rate.
In the summer of 2007, Fed Chairman Ben Bernanke encountered his first major crisis — and he panicked. Basically, the financial community coerced and forced him to do something he was totally against — give up the fight on inflation.
http://www.marketwatch.com/news/story/have-you-gone-paul-volcker/story.aspx?guid=%7BFC39F929%2DB835%2D431D%2D90E7%2DC48585790133%7D
It’s fingerpointing frenzy time…
War of words breaks out between banks
By Peter Thal Larsen and Chris Giles in London
Published: August 22 2007 21:41 | Last updated: August 22 2007 21:41
Recriminations flew between two of Britain’s biggest banks on Wednesday after Barclays appeared to blame HSBC, its larger rival, for forcing it to tap emergency financing from the Bank of England.
HSBC executives were understood to be furious at suggestions that it had made a processing error that forced Barclays to borrow £314m from the central bank’s emergency facility on Monday afternoon.
The row underlines the fragile state of the financial markets as investors search for any signs of distress in the banking sector. On Tuesday, news that an unnamed institution had borrowed from the Bank’s emergency facility briefly spooked the markets and sparked a frantic search for the lender involved.
http://www.ft.com/cms/s/0/0f252d6e-50e8-11dc-8e9d-0000779fd2ac.html
What this Minsky moment means
By George Magnus
Published: August 22 2007 19:14 | Last updated: August 22 2007 19:14
The “Minsky moment” in financial markets – the point where credit supply starts to dry up, systemic risk emerges and the central bank is obliged to intervene – has duly arrived. The Federal Reserve’s decision to lower the discount rate last week, while largely a symbolic act, was greeted with much enthusiasm – not least because of a sense of relief that the Fed was prepared to act. This followed a week in which both the Fed and the European Central Bank had injected large amounts of liquidity to help maintain orderly markets. This week the Bank of England also injected liquidity into UK markets as credit supply and funding tightened up.
But while equity markets have stabilised temporarily in anticipation of policy loosening by the Fed, credit markets remain deeply troubled. The immediate focus is on short-term funding, financing flows and counterparty risk. This week, three-month US Treasury bills touched 2.99 per cent, compared with a yield of 5 per cent a month ago. Investors are avoiding securities collateralised against or invested in mortgages. This Minsky moment is not yet over – interest rates in the US and perhaps elsewhere will come down sooner or later. The path ahead is littered with losses, lawsuits and greater regulation. But what about the economic consequences?
http://www.ft.com/cms/s/ddb7842c-50c2-11dc-86e2-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2Fddb7842c-50c2-11dc-86e2-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
CNBC talking heads are declaring that the market is again focussed on fundamentals and all is well.
Roidy
P.S. Thank goodness!
(sarcasm off)
U.S. Loan Delinquencies Jump
By Damian Paletta
Word Count: 680
Loans at least 90 days delinquent rose in the second quarter by $11.4 billion, or 36.2%, compared with the second quarter of 2006, the Federal Deposit Insurance Corp. said Wednesday, marking the largest increase in 16 years.
The new data, released as part of the FDIC’s Quarterly Banking Profile, illustrates a banking industry under pressure even before credit and liquidity markets worsened this month.
Banks also charged off $9.2 billion in bad loans in the second quarter, 51.2% more than they charged off in the second quarter of 2006, the FDIC said.
http://online.wsj.com/article/SB118780928976605536.html?mod=hpp_us_whats_news
Expect the unexpected from now on.
GM Cuts Reveal Troubles
Sector Faces Threat
Of Extended Slump
Amid Sales Decline
By JOHN D. STOLL and NEAL E. BOUDETTE
August 23, 2007
General Motors Corp.’s move to cut production of full-size pickup trucks is underscoring fears that the auto industry is headed for a longer and more painful downturn in the U.S. than many had expected.
A longer downturn, industry observers say, could threaten the turnaround plans of GM and the two other U.S.-based auto makers.
U.S. auto sales declined sharply in June and July as falling home values and credit worries damped consumer interest. Early reports from dealers and market researchers have shown slight or no improvement this month compared with what was regarded as an unusually weak August a year ago. The sales weakness has hit both Detroit’s Big Three and Japan-based auto makers like Toyota Motor Corp., which saw U.S. sales drop last month after a string of healthy increases.
http://online.wsj.com/article/SB118779383578005349.html?mod=hpp_us_whats_news
Given the liquidity shortage, it is amazing all these CBs can find the cash to pump in to prop up markets. Where does it all come from?
Central Banks Inject More Cash
By Joellen Perry, Carrick Mollenkamp and Emese Bartha
Word Count: 739 | Companies Featured in This Article: Barclays
Amid persistent fears of a global credit crisis, central banks world-wide continued pumping cash into money markets.
The Federal Reserve injected $3.75 billion, following the $3.5 billion it put into markets Monday. The European Central Bank allotted €275 billion ($371 billion) in one-week funds, which is €46 billion more than it estimated banks need for routine business. And the Bank of Japan put 800 billion yen ($6.96 billion) into its market, following an infusion of one trillion yen Monday.
http://online.wsj.com/article/SB118769149419503941.html