The Housing Bubble

Calling for 75 billion…. Why don’t these clowns quit screwing around and call for a trillion or two! Will this insanity ever stop.

http://www.ft.com/cms/s/0/6e69275e-ae75-11dc-97aa-0000779fd2ac.html

A Proposal for Reviving the Credit Markets,

Bail out anyone!

http://blogs.wsj.com/economics/2007/12/19/a-proposal-for-reviving-the-credit-markets/

First two entries. Second one particularly.

2002 lows next year? Put holders would be making returns along the line of that subprime hedge fund someone linked yesterday. I’ve got ‘em - do you have them?

Nassau foreclosure filings down, Suffolk up
http://tinyurl.com/3bdxjv

Less surprising are the figures from Suffolk and Queens. Suffolk had 500 filings last month, up 54 percent from November 2006. There was one filing per 1,078 households. In Queens there were 1,338 filings last month, up 55 percent from a year earlier. There was one filing per 622 households.

The Nassau numbers don’t jibe with what area industry insiders are seeing. Local housing counseling agencies are reporting 10-fold increases in calls from people seeking foreclosure prevention assistance.

“There’s something wrong with those numbers,” said Todd Yovino, who runs Huntington-based Island Advantage Realty, which specializes in selling foreclosed properties for banks. His inventory in the metropolitan area is up more than threefold this year.

–
December 20, 2007

Housing & Inflation

Good morning, HBBers.

Housing was and will be the single most important factor, or variable, affecting the inflation rate in the US during 2008. That is because it directly and indirectly affects the “aggregate demand,” of which the consumer spending is the most dominant component, and increase, or decrease, in the consumer spending determines the inflation rate at the margin.

But for housing led increase in consumption, the inflation rate during 2003-07 would have been anywhere from 2-4% lower than whatever inflation rate that you think has existed, i.e., housing bubble was responsible for preventing deflation and allowing the Fed to pursue the policy of controlled inflation.

For 2008, here are my forecasts for consumer spending and inflation rate based on what happens to the housing prices:

Housing prices +10% –> consumer spending to grow bet 3-4% real rate and inflation rate of 2-4%

Housing prices +0% –> consumer spending to grow bet 0 to 1% real rate and inflation rate of 0-2%

Housing prices -10% –> consumer spending to grow bet –3 to -1% real rate and inflation rate of –2% to 0%

Housing prices -15% –> consumer spending to grow bet –5 to -3% real rate and inflation rate of –3% to -1%

It Is the Housing, Stupid!

(That has become the most important variable as to what will happen to the US economy).

Jas

I had a lunch with a friend who is moving out of Michigan to Washington DC. She bought her house back in 1998, put 5% down at the time gained about 30% appreciation over the past 9 years and now is looking at selling her house in the spring (moving by July.) Today that appreciation has all dried up and she is now in the hole. A neighbor across from her listed his house aggressively and is priced about $15k below her original price putting her near a break even which includes losing her minor 5% equity. Also, the house across the street is nicer and slightly larger than hers with a two car garage. So, she is definitely in the negative equity scenario by maybe $20-30k, perhaps even more because her neighbor’s house hasn’t sold and very few buyers are around.

So, we discussed what she might have to do. After realtor costs, the negative equity situation, and a slow moving market she may have to show up with $50-$70k at closing to payoff the mortgage and realtor costs. She is a busy person and doesn’t have time to do FSBO. So she is considering simply walking away from the home since it is highly doubtful any rebound will occur to better her home’s value next year, realizing it will probably lose more value.

Her dilemma is she has the $70k if she taps $20k from her 401(k) and uses the rest from her savings. But that is a lot of money to lose and she is thinking maybe the hit to her credit report is better than having to let go of the $70k of liquid assets she has in the bank. So, what to do.

Is it smart for her to keep her cash and foreclose? Or should she just eat the loss and keep her credit score? Basically, is a credit score with the $70k loss???

I’m thinking she should keep the $70k.

Not sure what to make of this. Asbury Park is “ordering” a developer to return to work after their project failed.

http://www.nj.com/news/ledger/jersey/index.ssf?/base/news-9/1198128962182250.xml&coll=1

Nearly two weeks after construction abruptly stopped at a luxury high rise in Asbury Park, city officials are holding the developer’s feet to the fire and ordering him to restart work or face legal action.

“We need Metro Homes to get back to work or get out of the way for someone else to do it,” Mayor Kevin Sanders said at yesterday’s City Hall news conference. “They are in violation of their legal agreement with the city and they have violated their commitment to the people of Asbury Park.”

give up the fico. i had a 630 fico in 2004. then i filed bk7 on $125,000 on 28 credit cards, $2500 per month min payments, march 2004 and my fico went down to 482. now i have 704 fico.

I saw a TV commercial from Best Buy, where two guys (brothers or roommates?) are in an apartment. One guy says, “I thought we weren’t doing gifts this year…” and then the other man holds up a box from Best Buy and they start fighting over it.

What struck me was the I thought we weren’t doing gifts this year line. Clearly Best Buy is well aware that people are trying to “simplify” Christmas. The message is: “Hey, we know your money is tight and you don’t want to overspend. But, look, if the gift is from BEST BUY, it’s okay to splurge.”

Maybe they know something we don’t.
http://chicago.craigslist.org/chc/rfs/514905987.html

Winners and….

http://finance.yahoo.com/career-work/article/104056/Winners-and-Losers

Sovereign Stealth
http://www.stockmania.com/index.php?showimage=117

Hard to see how this is a good thing.

So the Fed will promulgate rules for mortgage lending. Far to late of course. Isn’t consumer protection the governments job? Where were they during the bubble years?

http://www.ibdeditorials.com/IBDArticles.aspx?id=282958073647159

Immigration: Congressional Democrats, and some Republicans, gut the Secure Fence Act in the omnibus spending bill against the wishes of the American people. In a bill with 9,000 earmarks, border security takes a back seat.

As local congressman and presidential candidate Duncan Hunter notes, “The success of the San Diego Border Fence demonstrates the overall effectiveness of the double-layered approach and the importance of extending this infrastructure across the southern land border.”

It is that very success, we suspect, that frightens the open-border crowd and their representatives in Congress. How else to explain that, as the citizen watchdog group Grassfire (grassfire.org) notes, just five miles of fence that meets specifications has been built in the first year after the Secure Fence Act was passed.

The spending bill was written by Democrats and passed 253-154 with mostly their votes. Democrats say they weren’t deliberately dropping the two-tiered fence or the locations specified. They say they were merely adopting language that passed the Senate several times this year.

So the next time you hear candidates for any office say they support border security, give them a post-hole digger and point them toward Mexico.

For the people by the people.

There are new ways for renters to profit in the “new” economy.

http://www.breitbart.com/article.php?id=D8TKMNNO2&show_article=1&catnum=0

When I was a wee lad, the thought of a Communist takeover of
the U.S. would have been cause for alarm. It is hence a bit concerning for me to see the symbiosis go umbilical.

Cashed-up China set to hunt down more US bargains
19 hours ago

SHANGHAI (AFP) — Fresh from a five-billion-dollar investment in Morgan Stanley, China’s cashed-up government is set to go shopping for more bargains as it takes advantage of the financial turmoil in the United States.

http://afp.google.com/article/ALeqM5immDpt8mE2RUwmWnSc_pzVGrlxyw

Ex-Fannie boss fingers White House
Says administration orchestrated accounting scandal that led to his downfall; White House denies wrongdoing.

The documents Raines is seeking aren’t relevant to the shareholder lawsuit and Raines has offered no evidence they even exist, Bush administration lawyers argue. They argue in court documents that conducting a search would be an enormous burden on the White House, which is “already heavily strained by responding to numerous congressional inquiries, in addition to fulfilling their other responsibilities for running the federal government.”

The federal’s governments “Don’t question how we do business” theme is getting old.

http://money.cnn.com/2007/12/19/news/newsmakers/fannie.ap/index.htm?postversion=2007121916

Parents gone wild - Help! Our kids are driving us broke.

http://money.cnn.com/2007/12/12/pf/kids_spending.moneymag/index.htm?postversion=2007121418

More rain in the Sunshine State as S&P downgrades bond insurer ACA resulting in 17 Florida bonds being downgraded. Before the next shoe falls it might be prudent to lighten up on the munis that rely on bond insurers…

“Lack of confidence in a major bond insurer led to a ratings cut Wednesday for 17 bonds issued by Florida government agencies, which could mean higher borrowing costs for cities and other local governments already fearing budget cuts.

The cut in ratings for the Florida bonds and hundreds of others around the country followed a downgrading by the credit rating agency Standard & Poor’s of bond insurer ACA Financial Guaranty Corp. S&P slashed ACA’s rating to junk status.

With the cut in the rating for the insurer, the municipal bonds guaranteed by ACA also lose their top ratings. Lower ratings means issuers must pay higher interest on the bonds.

National analysts said the downgrade could lead to a borrowing crisis for some local governments, who could see higher costs when trying to finance projects. But officials with the Florida agencies that issued the now-downgraded bonds said for the most part they’re not concerned.

Many say they have set interest rates on their current bonds, and while it could affect the cost of future bond issues, most small local governments don’t bond out projects that frequently.

That’s the case for the Leon County Education Facilities Authority, which had bonds for a recent student housing project at Florida State University insured by ACA.”

http://biz.yahoo.com/ap/071219/fl_bond_ratings_florida.html?.v=1

“Who moved my interest rate subsidy?”

And BTW, is there a public record of which banks attended the Fed’s money auction? Link, please.

Banks grumbling after Fed auction
$20 billion lent, but some say rate too high
By Jeannine Aversa
ASSOCIATED PRESS
December 20, 2007

WASHINGTON – Cash-strapped banks took the Federal Reserve up on its offer of $20 billion in short-term loans to help them overcome credit problems, but the interest rate wasn’t as low as some had hoped.

The central bank said yesterday that it had received bids for $61.6 billion worth of loans, more than three times the amount that was made available. The loans carried an interest rate of 4.65 percent, which is slightly less than the 4.75 percent the Fed charges banks on emergency loans through its “discount” window. Banks have been reluctant to use the Fed’s discount window because of the fear that investors will believe they are having trouble getting funds in a normal manner.

http://www.signonsandiego.com/uniontrib/20071220/news_1b20fed.html

JUDGMENT CALLS
Robert J. Samuelson
A Sequel to the Subprime Mess?

The danger is another wave of large financial losses and a chain reaction of fear that paralyzes investors and banks.

Dec 24, 2007 Issue

http://www.newsweek.com/id/78252

RESIDENT EXPERT
Daniel McGinn
When Mortgages Made Sense
Should we go back to using the old-fashioned rules for lending?
Dec 18, 2007 | Updated: 11:41 a.m. ET Dec 18, 2007

http://www.newsweek.com/id/80719

I may be labeled an ideologue for saying so, but I personally don’t believe that engineering solutions (or bald-faced lies, for that matter) will suffice to restore trust to the banking system.

Others may feel free to differ with my opinion. It’s a free country, after all.

Geithner Says Fed, Central Banks Reviewing More Tools (Update1)
By Craig Torres and Anthony Massucci

Dec. 13 (Bloomberg) — Federal Reserve Bank of New York President Timothy Geithner said central bankers are looking at “additional instruments’’ to provide funds to banks in times of stress.

http://www.bloomberg.com/apps/news?pid=20601103&sid=anRK.SnmTcps&refer=us

CAPITAL
By DAVID WESSEL
Don’t Count on a Stimulus Plan
December 20, 2007; Page A2
…
Fiscal stimulus, the argument goes, is a great idea — in theory. The reality is that Congress and the president inevitably move so slowly that the stimulus arrives too late, or they use recession jitters as an excuse to pursue pet projects that don’t actually stimulate much. Yes, a sluggish economy got a well-timed boost from the Bush tax cuts in 2001, but the past quarter century suggests that relying on the Fed to fight recession usually works.

Still, when deficit-fearing Harvard University economists Martin Feldstein, who advised Ronald Reagan, and Lawrence Summers, who advised Bill Clinton, begin prescribing fiscal stimulus (and when former Fed Chairman Alan Greenspan — incorrectly, by the way — is viewed as a fellow traveler), it’s time to listen carefully.

http://online.wsj.com/article/SB119809264981940109.html?mod=hpp_us_inside_today

Return with us now to those thrilling days of yesteryear…. The Loan Ranger Rides Again!

Has the level of fraud in the mortgage finance industry become too big to prosecute?

BTW, I would appreciate if anyone can add to the list of firms which might become targets of law suits going forward.

Mortgage-industry lawsuits
The finger of suspicion
Dec 19th 2007 | NEW YORK
From The Economist print edition

In America and elsewhere trial lawyers, state prosecutors and regulators look for the crime in subprime

FINANCIAL firms have already been drenched by mortgage-related losses. Now a wave of litigation threatens to assail them. According to RiskMetrics, a consulting firm, between August and October federal securities class-action lawsuits were filed in America at an annualised pace of around 270—more than double last year’s total and well above the historical average. At this rate, claims could easily exceed those of the dotcom bust and options-backdating scandal combined.

At most risk are banks that peddled mortgages or mortgage-backed securities. Investors have handed several writs to Citigroup and Merrill Lynch. Bear Stearns has received dozens over the collapse of two leveraged hedge funds. A typical complaint accuses it of failing to make adequate reserves or to explain the risks of its subprime investments, and of dubious related-party transactions with the funds. Several firms, including E*Trade, a discount broker with a banking arm sitting on a radioactive pile of mortgage debt, are being sued for allegedly failing to disclose problems as they became apparent to managers.

But one thing that sets the subprime litigation wave apart from that of the 2001-03 bear market is its breadth. After the collapses of Enron and WorldCom, lawsuits were targeted at a fairly narrow range of parties: bust internet firms, their accountants and some banks. This time, investors are aiming not only at mortgage lenders, brokers and investment banks but also insurers (American International Group), bond funds (State Street, Morgan Keegan), rating agencies (Moody’s and Standard & Poor’s) and homebuilders (Beazer Homes, Toll Brothers et al).

Borrowers, too, are suing both their lenders and the Wall Street firms that wrapped up their loans. Several groups of employees and pension-fund participants have filed so-called ERISA/401(k) suits against their own firms. Local councils in Australia are threatening to sue a subsidiary of Lehman Brothers over the sale of collateralised-debt obligations (CDOs), the Financial Times has reported. Lenders are even turning on each other; Deutsche Bank has filed large numbers of lawsuits against mortgage firms, claiming they owe money for failing to buy back loans that soured within months of being made.

“It seems that everyone is suing everyone,” says Adam Savett of RiskMetrics’ securities-litigation group. “It surely can’t be long before we get the legal equivalent of man bites dog, where a lender sues its borrowers for some breach of contract.”

The authorities, too, are baring their teeth. Several Wall Street banks have received subpoenas from New York’s attorney-general, Andrew Cuomo, requesting information on their packaging of now-stricken securities. This comes on top of a deepening probe into possibly inflated home-price appraisals by brokers and lenders, including Washington Mutual and First American Corporation. Ohio’s attorney-general, Marc Dann, has been just as hyperactive, suing over a dozen lenders and brokers.

http://economist.com/finance/displaystory.cfm?story_id=10337884

MBIA going down, discloses $8.1 billion in insurance on CDOs.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aiWFuQTJbvvY&refer=home

To the extent that municipal mortgage bond insurance is an important industry, I can only hope people are organizing pools of capital to replace the existing companies when they fold. Of course, what would any company use to evaluate the riskyness of the bonds? Moody’s or S&P?

A question for the Technical Analysis folks here. When looking at the 1 yr chart for the S&P (^GSPC) it looks like there are resistance levels at 1500 on the upside and 1400 on the downside. Do you see any indicators that it will retest the upside or is everything indicating downside movement at this point? I know this is TA 101, but I am trying to understand and learn.

Termites, dry rot, mold, UV’s…don’t do anything to gold.

Add Bear Steans to the Chinese shopping list…

Dec. 20 (Bloomberg) — Bear Stearns Cos., the second- biggest underwriter of U.S. mortgage bonds, reported its first loss as a public company after writedowns for subprime holdings and declines in the firm’s three largest divisions.
The fourth-quarter loss of $854 million, or $6.91 a share, in the three months ended Nov. 30 compared with net income of $563 million, or $4, a year earlier, the New York-based firm said today in a statement. The loss was almost four times wider than the average estimate of analysts surveyed by Bloomberg.
Chief Executive Officer James “Jimmy” Cayne said he and senior managers will forgo bonuses for the year after producing “unacceptable results.” Revenue dropped in the fixed-income, equities and investment banking units, and the company took a $1.9 billion writedown on subprime mortgages. Lehman Brothers Holdings Inc., Morgan Stanley and Goldman Sachs Group Inc. posted gains from trading stocks and advising on mergers. “

Suntrust Acts to Protect Money Market from Losses.

Dec. 20 (Bloomberg) — SunTrust Banks Inc., the seventh- largest U.S. lender, said it will buy $1.4 billion of securities from two of its money-market funds to protect investors from possible losses.
SunTrust expects to take a pretax writedown of as much as $250 million because of the purchases and more than double its reserve for credit losses to $337 million in the fourth quarter because of declining home prices, the Atlanta-based bank said in a regulatory filing today. The company said it expects to be profitable in the period and maintain its dividend.
Bank of America Corp., Legg Mason and SEI Investments Co. have stepped in to make sure their money market funds don’t fall below the $1 a share net asset value, known as “breaking the buck.” The 10 largest managers of U.S. money funds have about $50 billion in short-term debt of structured investment vehicles, some of which has defaulted.

OT,
does anyone follow DBA, an etf that tracks agriculture?

The death of elitisim- The thing that really P’s me off in this whole thing is the elitist attitude of WS, the media, and the rating agencies.

I am no economist and never claimed to be one. The people on this blog blow me away with their knowledge and ability to understand the systems in place. I do not and probably never will.

However these suits who sit behind these big consoles and make all these money plays seem to me to be plain ol’ high stakes gamblers who have no skin in the game. They also make money even if you lose. WTF? That never made sense to me.

But had any one of these asshats gotten on an airplane and spent a day in the field with this old appraiser in the 2005-06 period and taken the time to observe the equity withdrawal and the likes of the $500K home purchaser he/she would have slammed on the brakes of his/her organization.

This is the rub for me. All the suits sit in their highrise office buildings and feed off the same BS instead of getting off their duff and taking a look for themselves. Business is and has been run on shoe leather not finger tapping and formulas.

Truthfully I think these aholes laugh at the situation when not in public.( I got mine) And I do understand that they did not care to know the truth but that is a whole thing too!

China to ban investing in any country that bans sovereign funds.

China fund warns against protectionism

By Martin Arnold in London

Published: December 11 2007 01:25 | Last updated: December 11 2007 01:25

The head of China’s new $200bn sovereign investment fund on Monday warned western governments against using “national security” as an excuse for protectionism, saying his fund would boycott such countries.

Speaking at a dinner hosted by the Lord Mayor of London at Mansion House, Lou Jiwei, chairman of China Investment Corporation, said: “National security should not be an excuse for protectionism.”….

http://tinyurl.com/2rapev
Financial Times

December 20, 2007 — In another sign that Bank of America chief Ken Lewis is intent on getting out of the investment-banking business, the Wall Street giant is in discussions to sell its prime brokerage unit to hedge fund giant Citadel, according to sources familiar with the matter.

Citadel, which recently snapped up a large stake in online retail broker E*Trade, has recently inspected the books of BofA’s prime brokerage business, according to one individual. It’s unclear if a deal can be reached and sources noted that the operation is not being widely shopped. …

NY Post
http://tinyurl.com/3d9vot

Something fun for TXChick:

“According to David Rosenberg, with 90% of companies reporting, third quarter operating EPS fell 8.5% year-on-year; while reported earnings, which include charge-offs, fell 28% year-on-year! Rosenberg also notes that “at $15.29 reported EPS for the S&P 500 in the third quarter of 2007, the P/E multiple on this basis is a lofty 23x - not the 18x ‘cheap’ multiple (or 14x on forward estimates) that is constantly being bandied about in the media.” He adds dryly: “[T]he current $15.29 estimate for reported EPS is the lowest level of earnings since the fourth quarter of 2004. And where was the S&P 500 trading at that time? Answer: It averaged about 1,162 that quarter - just in case you were thinking of buying this dip.” (I can’t wait to hear the Goldilocks’ crowd’s positive spin on these dismal earnings.)”

–
I friend just forwarded a Merrill Lynch report: “Housing deflation could be a multi-year process”

As if I, or many HBBers, needed to know that!

From the report: “Looming dominance of the “move down” buyer — But with the sales backdrop still softening, they may have to slice their construction plans by another 30% before we hit bottom on a cyclical basis. And, that bottom could be as long as a year away. Beyond that, weak demographic fundamentals point to years of sluggish real estate activity, particularly in terms of the “price”. The looming dominance of the “move down” buyer suggests that home values will continue to soften long after the building industry mops up the current excess supply. In fact, real estate pricing in general can be expected to be in the doldrums through 2012.”

As people “move down” what will happen to McMansions and Troll Brothers?

Jas

Late Friday admissions of malfeasance, are so last week.

This is shaping up to the be the exmas that never was.

Hope is a dangerous thing I think.

Cayne ousted his co-president, Warren Spector, after Bear Stearns closed the two troubled hedge funds. Spector was considered to be an heir-apparent at the company.

However, shares rose $1.78 to $92.36 as investors hoped the worst might be over for the company.

http://biz.yahoo.com/ap/071220/earns_bear_stearns.html

“In the past decade or so, maybe in the last 50 years, the idea that the United States is a unique nation seems to have taken root in the U.S. public psyche. It’s perhaps not an absolutely groundless notion. It’s a historical phenomenon that in 250 years, a nation could move from a colony into the most prosperous nation of the world and the leader of the world. It is indeed an achievement, a tribute to the talent of the American nation, the American people and an optimal political and economic system. However, as a rule, leaders do not have rights; they mostly have commitments and obligations. When they come to think that they have rights, they tend to lose their position and authority. When we used to have two world groupings, the so-called Western bloc headed by the United States and the so-called Eastern bloc headed by the Soviet Union, both sides instilled strict discipline among members of their communities. That worked at the time. Today, when the vast majority of actors in the international scene do not feel such an external threat, this manner of conduct of dictating to anyone—please don’t take offense at this—indicates a lack of understanding and utter rejection. Today other forms and instruments of international intercourse are called for, as well as other means of countering the prevailing threats. Today to be successful, one must be able to reach agreements, to compromise. The ability to compromise is not a diplomatic politeness toward a partner but rather taking into account and respecting your partner’s legitimate interests.”

http://english.pravda.ru/russia/kremlin/20-12-2007/103037-vladimir_putin_time-0

Ill close with the Chinese Foreign Minister talking of reductions in international capital investment being discouraged for “national security” reasons would be damaging to international relations as a SLAP IN THE FACE….

We Whipped you the jobs…
We Gave you the money…

We enjoyed the spoils…

somebody has to be a loser….CRASH THE MARKET….and they all fall down…Wall Street has caused this mess, Wall Street will pay for this mess, and Americans will be better off WITH COUPLING. Goldilocks comes home tatterd and bruised…..but she will do OK…she just needs a break and some good old fashioned home cookin.

gmme some of that old time…brother can you spare a dime….

Im ready to put people to work, again.

From friday’s WSJ

http://online.wsj.com/article/SB119820566870044163-email.html

Did the “Deadbeat Specuvestor Tax Reduction Act of 2007″ that W. signed into law today make any exception for fraud? If not, then this guy just made a lot of $$$$ tax-free:

http://online.wsj.com/article/SB119820566870044163-email.html

PAGE ONE
Fraud Seen as a Driver
In Wave of Foreclosures
Atlanta Ring Scams
Bear Stearns, Getting
$6.8 Million in Loans
By MICHAEL CORKERY
December 21, 2007; Page A1

ATLANTA — Skyrocketing foreclosures are a testament to how easy it was to borrow from mortgage lenders in recent years.

It may also have been easy to steal from them, to judge from a multimillion-dollar fraud scheme that federal prosecutors unraveled here in Atlanta. The criminals obtained $6.8 million in mortgages from Bear Stearns Cos., including a $1.8 million mortgage to Calvin Wright, a New Yorker who told the investment bank that he and his wife earned more than $50,000 a month as the top officers of a marketing firm. Mr. Wright submitted statements showing assets of $3 million, a federal indictment alleged.

http://online.wsj.com/article/SB119820566870044163.html?mod=hpp_us_whats_news

Pricing Probes On Wall Street Gather Steam
By Susan Pulliam and Kara Scannell
Word Count: 937 | Companies Featured in This Article: Morgan Stanley, UBS, Merrill Lynch, Bear Stearns

Regulatory investigations into mortgage-securities pricing are examining whether financial firms should have told the public earlier about the declining value of such securities and how they priced them on their books, people close to the matter say.

The regulators, led by the Securities and Exchange Commission, also are delving into whether Wall Street firms placed higher values on their own securities than those they placed on customer holdings, the people say.

“As in most investigations, the issue comes down to what did people know and when did they know it,” said Mark Schonfeld, director of the SEC’s New York office.

http://online.wsj.com/article/SB119819956565943809.html?mod=hpp_us_whats_news

SEC Probes WaMu on Appraisals
By Amir Efrati
Word Count: 559 | Companies Featured in This Article: Washington Mutual, Freddie Mac, Fannie Mae, First American

The Securities and Exchange Commission is investigating how retail bank Washington Mutual Inc. handled and reported on mortgage loans that may have been based on inflated home appraisals.

The SEC’s inquiry is in its infancy and involves several possible issues, including whether WaMu accurately disclosed to investors of mortgage-backed securities how its loans were appraised as well as whether the company properly accounted for its loans in financial disclosures to investors of the company, according to the people familiar with the situation.

Washington Mutual said in a statement: “We are voluntarily and fully cooperating with the SEC’s inquiry as well …

http://online.wsj.com/article/SB119819701310243567.html?mod=hpp_us_whats_news

December 20, 2007, 6:33 pm

Gross: Economy in Recession, Hedge Funds a ‘Con’

Pimco founder Bill Gross said the U.S. has begun to go into recession, sounding a downbeat note on the country’s economy, the Financial Times reported on its Web site Thursday.

“If I had to be bold I’d say we began a recession in December,” he said in a interview with the FT, in which he also repeated a call on the Federal Reserve to cut interest rates to 3%.

Gross said he thought the recession would last “four to five months,” adding it would be prolonged if the Bush administration and Congress failed to “take some rather unperceived and unforecasted measures in terms of fiscal stimulation.”

Gross was also critical of the U.S. government’s attempts to stabilize credit markets, describing “Super SIV” and plans to freeze mortgage teaser rates as a “temporary fix,” he told the FT. “What needs to be done is something fairly radical compared to Republican orthodoxy, which means spend money and absorb the deficit as opposed to pretending that you’re fiscally conservative.”

He blasted complicated financial instruments as having exacerbated the credit squeeze, saying the trend of over-leverage was a “dying concept” that will “lead to an implosion at the edges … of this new financial marketplace.”

http://blogs.wsj.com/economics/2007/12/20/gross-economy-in-recession-hedge-funds-a-con/

UBS called to account over subprime fallout
By Haig Simonian in Zurich
Published: December 20 2007 22:00 | Last updated: December 21 2007 01:44

When UBS announced it would raise more than SFr19bn ($16.5bn) in new capital to address huge losses in US subprime securities, the world’s biggest wealth manager was probably prepared for a raft of class-action suits by US lawyers.

What may have come as more of a surprise was the backlash in its native Switzerland, as private shareholders, institutions and the media all found reason to take issue with the plans.

EDITOR’S CHOICE
UBS faces rebellion over fund injection - Dec-20
Lex: Banks in 2007 - Dec-20
SWF cash boosts M&A rankings of target banks - Dec-20
Comment: No more easy cash - banks must take their losses - Dec-20
MBIA bond exposure hits credit confidence - Dec-21
Central bank blessing for UBS injection - Dec-13

http://www.ft.com/cms/s/2ecb8bfc-af2c-11dc-880f-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F2ecb8bfc-af2c-11dc-880f-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus

Deal volumes suffer sharp fall
By Lina Saigol in London and James Politi in New York

Published: December 20 2007 19:20 | Last updated: December 21 2007 01:23

The volume of mergers and acquisitions worldwide suffered a dramatic fall in the second half of the year as credit dried up for private equity deals and many chief executives scrapped plans for bold takeovers.

Global M&A in the year to date reached $4,740bn surpassing last year’s record of $3,910bn. But volume in the second half dropped 26 per cent and September was the lowest month since November 2005, according to Dealogic, the data provider.

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Years of foreboding followed by years of pain
By Saskia Scholtes in New York

Published: December 21 2007 00:24 | Last updated: December 21 2007 00:24

After years of foreboding – sadly much of it outside the real estate industry – the US housing bubble finally burst in 2007.

Amid a spike in late payments and defaults on subprime mortgages made to borrowers with patchy credit histories, the liquidity that helped fuel the US housing boom drained rapidly away, leaving behind a global financial markets crisis that looks set to linger into 2008.

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Root out bad debt or more pain will follow
By Mark Fisch and Benn Steil

Published: December 20 2007 19:11 | Last updated: December 20 2007 19:11

The devastating credit squeeze that has been gumming up the interbank and commercial paper loan markets for months shows few signs of letting up. The underlying problem remains firmly in the market for subprime mortgages.

During the savings and loan crisis of the late 1980s, dud mortgages were held by the banks that issued them. This made identification of the infected institutions simple and the solution obvious: shut them and sell their assets at a steep discount. The bill to the US taxpayer was considerable, about $125bn, but the damage to the wider economy was minimal because the crisis was well contained.

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