The Housing Bubble

The vendors at the local farmers markets have noticed a drop off in business this year. Several of them have mentioned non-monetary Christmas seasons this year.

A local rental car company has not noticed any drop off.

Ground is shifting under empires of Russian oligarchs…MOSCOW: Are the Russian oligarchs going bust?

In the global financial crisis, perhaps no community of the affluent has fallen as hard, or as fast, as the brash Kremlin-connected insiders whose wealth was tied up in the overlapping bubbles of the Russian stock market, commodity prices and easy credit.

Oleg Deripaska, the richest person in Russia, the nuclear physicist turned post-Soviet corporate raider, has already ceded more than a billion dollars in assets to jittery creditors as his aluminum-to-automobile empire reels.

“Half the Russians could fall off the Forbes list” of wealthiest individuals by next year, Maxim Kashulinsky, the editor of the Russian edition of the magazine, said in an interview.

The crisis is also upending the rules by which the tight coterie of businessmen and the Kremlin do business.

http://www.iht.com/articles/2008/10/17/business/oligarchs.php

These Firefighters Are Pyromaniacs!

America’s pyromaniacs still have a ways to go. There are 150 basis points between the Fed’s current key rate and zero…and the US budget deficit is expected to quadruple – reaching $2 trillion in 2009. In the resulting roast, we predict, even the devil will sweat.

http://www.lewrockwell.com/bonner/bonner350.html

My, My How fast things change, why it seems like only yesterday the hound from hell wanted into the auto business…

Worries grow as GM-Chrysler talks gain momentum
Saturday October 18, 4:13 pm ET
By Tom Krisher, AP Auto Writer
Motor City worries Chrysler will be wiped out as talks of takeover by GM gain momentum

DETROIT (AP) — In the doomsday scenario raising anxiety around the Motor City, General Motors Corp. makes a deal for Chrysler LLC, keeps Jeep and the minivans, and vaporizes the rest of the company.

Tens of thousands of Chrysler’s 66,409 employees lose their jobs as cash-desperate GM swiftly cuts redundant operations and sheds unprofitable models. Factories and dealerships are closed, and the lights go out at Chrysler’s gleaming corporate headquarters campus in the northern suburb of Auburn Hills.

Cerberus wants out of the auto business, and as the credit markets have dried up, GM, worried about running too low on cash before the U.S. auto market rebounds, wants Chrysler’s currency stockpile.

http://biz.yahoo.com/ap/081018/gm_chrysler_merger_talks.html?.v=4

It’s time for a new Bretton Woods…
The system worked until the US tried to wage an expensive war without raising taxes to pay for it. (Why does that sound familiar?) The first sign of stress was when the US dropped silver out of our coinage in 1965 and went to slugs. We fought a long and expensive war in South East Asia without raising taxes to pay for it. Holding the world’s reserve currency, the US was in the enviable position of writing checks without the intent or the ability to pay for them. The chickens have come home to roost.
The world now faces an economic crisis larger than any in history. A basic lack of financial discipline has lead to the creation of a derivatives monster ten times the size of the world’s economy. It’s no less than a giant crap game with the players taking real money off the table when they win and paying in Monopoly money when they crap out.

http://www.321gold.com/editorials/moriarty/moriarty102008.html

http://www.nytimes.com/2008/10/19/business/19cisneros.html?hp

There is way to much of this kind of thing that goes on in all areas of government. Government officials go from a cabinet agency or a regulatory agency to an area of the private sector directly related to their former responsibilities.

From the article:

“As the Clinton administration’s top housing official in the mid-1990s, Mr. Cisneros loosened mortgage restrictions so first-time buyers could qualify for loans they could never get before. Then, capitalizing on a housing expansion he helped unleash, he joined the boards of a major builder, KB Home, and the largest mortgage lender in the nation, Countrywide Financial — two companies that rode the housing boom, drawing criticism along the way for abusive business practices.”

“And Mr. Cisneros became a developer himself. The Lago Vista development here in his hometown once stood as a testament to his life’s work. Joining with KB, he built 428 homes for low-income buyers in what was a neglected, industrial neighborhood. He often made the trip from downtown to ask residents if they were happy.”

“People bought here because of Cisneros,” says Celia Morales, a Lago Vista resident. “There was a feeling of, ‘He’s got our back.’ ”

“But Mr. Cisneros rarely comes around anymore. Lago Vista, like many communities born in the housing boom, is now under stress. Scores of homes have been foreclosed, including one in five over the last six years on the community’s longest street, Sunbend Falls, according to property records.”

A good place to ride out a recession? Would you believe…Buffalo?

http://www.buffalonews.com/home/story/467679.html

Big national banks are failing or needing bailouts to stay afloat. Our locally based banks are in good financial shape, and many have been going out of their way to let consumers know they’re still making loans.

The country has been losing jobs for nine straight months. Our job market is growing. Very slowly, granted. But it’s growing.

Our situation caught BusinessWeek’s attention when it named Buffalo one of the top 20 communities in the United States to ride out a recession, highlighting the area’s diverse employment base.

But Palumbo, the Canisius economist, says this is no time to gloat.

“I can’t tell you that autos are going to be OK. I can’t tell you that financial services are going to be OK,” he says. “If people are gloating because we’re doing better than other places, it’s not that we can’t fall.”

I thought that you non western NYers needed to know where to relocate to safely ride out the financial storm. I guess if you are always living in a recession, then a coming recession isn’t a big deal, it’s just a bigger recession.

everyone talking about the “crisis” here in nyc

have seen drop off in some cases but the city is packed every night
with lots of parties and plenty of spending

the fact that people are shocked about these developments is telling

just an observation but rents are trending down in nyc and that is good as we will be looking for a new place come this spring

-as a side note- i have mentioned many times about my good friend who is a big wig at cerberus partners.

i spoke to his wife this week and she told me he has made sure they have cash on hand (in the house) just in case

and i thought i was the only one with an emergency plan

he has been working 18hr days 6-7 days a week

well you know what so have i

good day to all

CAMP DAVID, Md. (AP) — President Bush, looking for answers to an global economic emergency with just three months left in office, will host an international summit to discuss ways to fix the world financial system but warned on Saturday against reforms that threaten capitalism.

Bush, meeting with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso, did not announce a date or site for the summit. But Sarkozy suggested it be held in the shadow of Wall Street before the end of November.

“Insofar as the crisis began in New York, then the global solution must be found to this crisis in New York,” Sarkozy said. Fix the world financial system? International summit? Sounds like Bretton Woods all over again, except the big meeting won’t be held in New England. In 1944 the delegates to the international monetary conference in New Hampshire placed their faith in the U.S. dollar, which was backed by gold. Since 1971 it has been backed by nothing.

What’s coming? A one-world currency? Will all the nations call in all private gold upon which to establish a new monetary system? (Gold Confiscation.) Public debt repudiation? There are lots of possible schemes, but the fact that a world-crisis has been declared promises of substantial change in money systems around the globe. NOTE: It’s being called a “financial crisis.” It is actually a “monetary crisis” brought on by fiat currency and reckless human behavior.

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/18/AR2008101800191.html

Is it possible that there will be some downward pressure on college tuition? Even state schools have become ridiculously expensive. Rutgers for a NJ state resident is $21k a year for room and board. Those kind of prices are only sustainable through the availability of credit and government subsidies.

Strategies For Rebuiding Cleveland: What can be learned from other cities

http://blog.cleveland.com/metro/2008/10/strategies_for_rebuiding_cleve.html

Facing the kinds of job losses and abandonment known to Cleveland, Schenectady pursued a creative solution. It introduced itself to an immigrant group in New York City, lured curious couples north to view its impossibly cheap homes, and let capitalism and immigrant dreams run their course.

In less than a decade, people who hail from the South American nation of Guyana have become about 10 percent of the city of 62,000, and streets once considered worthless now stir with fussy homeowners.

“They breathed new life into this town,” said Albert P. Jurczynski, the former mayor who marketed his city with bus tours and his mother-in-law’s homemade cookies. “They changed Schenectady. And they never asked for a dime from anyone.”

Even upstate NY looks good if you are living in Cleveland. At least the people who stay in or relocate to these hardscrabble towns are not in it for the money or the weather.

“We will work to strengthen and modernize our nations’ financial systems so we can help ensure that this crisis doesn’t happen again,” Bush said at the Camp David presidential retreat.”

Oh, God, please NOOOOOOO! God, I can’t stand this moron ANY. LONGER.

Visiting my bro in Fla. He seems to have no fear of muni bonds despite the newly-revealed uselessness of ambac and mbia. He seems to believe in AAA ratings despite the fact (I can attest to) that the govt of Iceland was AAA. What do you guys think about muni bonds (a) in general (b) in California (c) states vs cities. ???

“No social order is ever destroyed before all the productive forces for which it is sufficient have been developed, and new superior relations of production never replace older ones before the material conditions for their existence have matured within the framework of the old society.”

Karl Marx

The drought that has plagued the Deep South for more than a year is creeping northward, and officials in multiple states are restricting outdoor burning in the face of water shortages and forest fire risks from falling leaves and tinder-dry conditions.

Extreme drought conditions, the second-worst possible, have now spread into Kentucky, and severe conditions have returned to West Virginia and southwest Virginia, according to the U.S. Drought Monitor. “The last three months have sucked every bit of moisture we’ve had,” said Ben Webster, a fire staff assistant for the West Virginia Division of Forestry.

In eastern Kentucky, retailers are sending bottled water to drought-stricken Magoffin County after its primary water source, the Licking River, fell to low levels and residents were told to conserve tap water. The county’s school system is serving meals on disposable plates with plastic utensils. Lunch trays have been temporarily shelved to save on dishwashing.

http://www.cnn.com/2008/US/weather/10/18/drought.woes.ap/index.html
======================================

Got riparian rights?

A week or so ago I was talking about how itchy my trigger finger was getting, as I was looking for a good re-entry point into the stock market (been out the last 18 or so months). You know, buy when everyone else is selling, etc.

However, I have since de-cocked the hammer and taken my finger out of the trigger guard. IMO, there’s more pain to come, and it will be shared by equities.

Got cash?

BTW, some folks I’ve talked to here have suggested that part of the selloff in equities is due to the fear that Obama and a congressional supermajority will be very unfriendly to anyone with a positive net worth. What’cha think?

Yesterday the group was discussing the 44 y.o. trader from Chicago who took his own life on Friday. I don’t know if you’re all aware of this, but it is being reported here that he had just bought a $1.1M house in Oakbrook.

It’s sad because he went back to his old neighborhood in Berwyn to do the deed - possibly because it reminded him of happier times? He should have walked from the new house - no RE is worth a life.

Who is buying homes now? Participants in a government-guaranteed knifecatcher encouragement program. If these loans later get foreclosed at a “higher-than-expected” rate, guess who gets to pay for any losses?

Until the government stops undercutting private lenders with guaranteed loan offers to borrowers with poor credit histories, the private mortgage lending system is likely to stay effectively shut down. I sure hope that when the financial emergency finally ends, cooler heads prevail and think through the role of such massive government mortgage lending subsidies in creating the financial mess at hand.

NATION’S HOUSING
KENNETH HARNEY
No shortage of money for home mortgages
October 19, 2008

WASHINGTON – Credit squeeze, credit freeze, credit system seizures: Everybody knows how severe and painful the global financial breakdown has been – with banks unwilling to lend even to other banks.

But what about mortgages and real estate? Can you still get a home loan with less than a 20 percent or 30 percent down payment? Or with a credit score below 720?

Absolutely. It would be a big stretch to label housing the sunny side of the market at the moment, but there’s a lot more light there than in most other financial sectors. Consider these facts:

There is no shortage of money available for home mortgages, no freezing of credit to purchase or refinance a house. Why? Because the American mortgage market effectively has been federalized – at least for the time being. More than 90 percent of new loans now are being made through the Federal Housing Administration (FHA) insurance program, plus Fannie Mae and Freddie Mac. FHA is owned by the federal government, and Fannie and Freddie are operating under federal conservatorship. All three have unfettered access to global capital markets at rock-bottom costs because their borrowings are fully guaranteed by the Treasury. Ginnie Mae, which is FHA’s pipeline to the bond market, recorded an all-time high of $29 billion in new mortgage-backed securities issued in August.

Loan terms and credit underwriting standards have been toughened up, but you can still put down 3 percent (3.5 percent after Jan. 1) on an FHA-insured mortgage and 5 percent on certain Fannie Mae and Freddie Mac loan programs with private mortgage insurance. FHA’s credit standards are generous and forgiving – the agency exists to help people with less-than-spotless credit histories. Fannie Mae and Freddie Mac have raised their credit score requirements over the past year, but buyers and refinancers with scores in the upper 600s can still qualify for loans carrying reasonable rates and fees.

Buffett investing strategy: “If everyone on the planet follows my advice and buys what I buy, then whatever I buy will go up in price, and we will all look like financial geniuses.”

Sadly for the resident members of the Church of Gold, Buffett did not say he is buying precious yellow metal.

Equities is bet Buffett is making amid crisis
By Warren E. Buffett
October 19, 2008

He may generally be right, except I don’t see any mention in his article that the secular bear markets associated with panics don’t typically bottom out for twenty years or so (e.g. Japan may get there by 2010 or so, after the onset of their “Lost Decade” in 1990).

P.S. Happy 21st Black Monday Anniversary (Oct 19, 1987)

COMMON SENSE
Panics, bubbles have more in common than expected
By James B. Stewart
THE WALL STREET JOURNAL
October 19, 2008

What’s the inverse of a bubble? A panic.

That realization dawned on me as I watched otherwise rational people frantically selling stocks at any price. This was a panic, no doubt about it. But its uncanny resemblance to a bubble in all ways but the result may have struck me because the last bubble was so recent.

Just this summer, I was examining the bubble psychology in oil and commodity prices. When I reread what I had written, the comparison was striking. The following passage is exactly what I wrote in my August SmartMoney magazine column, except that I have substituted “panic” for “bubble,” “margin buyers” for “short sellers,” “pessimism” for “optimism,” and so on:

“What defines a panic? It starts with a development with far-reaching, perhaps unknowable, implications, like the collapse of mortgage-backed securities. Opinion may be sharply divided between optimists and pessimists, but pessimists gain the upper hand, driving prices lower. Margin buyers (optimists) get squeezed and are forced to cover, retreating to the sidelines. With pessimism unchecked and selling reinforced by ever-falling prices, stock values become detached from any rational criteria …

“Eventually, pessimism runs its course, prices turn up, and people step in to buy. Then prices surge.”

If you don’t look very hard, it won’t seem like much mortgage fraud is occurring.

FBI caught short of staff on financial fraud cases
Focus goes to national security, not fighting white-collar crime
By Eric Lichtblau David Johnston and Ron Nixon
NEW YORK TIMES NEWS SERVICE

October 19, 2008

WASHINGTON – The Federal Bureau of Investigation is struggling to find enough agents and resources to investigate criminal wrongdoing tied to the country’s economic crisis, current and former bureau officials said.
…
So depleted are the ranks of the FBI’s white-collar-crime investigators that executives in the private sector say they have had difficulty attracting the bureau’s attention in cases involving possible fraud of millions of dollars. Some companies victimized by fraud have begun turning to private investigators and accountants to do the legwork in the cases before turning their work over to the FBI.

Since 2004, FBI officials have warned that mortgage fraud posed a looming threat, and the bureau has repeatedly asked the Bush administration for more money to replenish the ranks of agents handling nonterrorism investigations, according to records and interviews. But each year, the requests have been denied, with no new agents approved for financial crimes, as policymakers focused on counterterrorism as the chief financing priority.

According to previously undisclosed internal FBI data, the cutbacks have been particularly severe in staffing for investigations into white-collar crimes such as mortgage fraud, with a loss of 625 agents, or 36 percent of the 2001 levels.

Overall, the number of criminal cases that the FBI has brought to federal prosecutors – including a wide range of offenses such as drug trafficking and violent crime – dropped 26 percent in the past seven years, going from 11,029 cases to 8,187, Justice Department data showed.

“Clearly, we have felt the effects of moving resources from criminal investigations to national security,” said John Miller, the FBI’s assistant director. “In white-collar crime, while we initiated fewer cases overall, we targeted the areas where we could have the biggest impact. We focused on multimillion-dollar corporate fraud, where we could make arrests but also recover money for the fraud victims.”

Credit crunch will last into ‘09, economists say
By Dean Calbreath
STAFF WRITER
October 19, 2008
…
“The big issue is how to restore confidence,” said Rafael Bostic, a former senior economist at the Federal Reserve who is now an economics professor at the University of Southern California. “Right now, there’s still a bit of frenzy and chaos in the marketplace.”

The choice of the next Treasury Secretary may pose a conundrum: Is it better to go with an outsider of dubious qualifications, or an insider whose connections may create the appearance of myriad conflicts of interest?

I admit to not having investigated this deeply, but aren’t Whitman and Fiorina both Silly Valley drop outs? Aside from their gender, what superior qualifications do either of them have to be Treasury Secretary? By contrast, former Treasury Secretaries Rubin and Summers are highly consummated insiders.

Economic crisis to boost stress load of next treasury chief
By Tom Raum
ASSOCIATED PRESS
October 19, 2008

WASHINGTON – The next president’s choice of a treasury secretary may well be the most important appointment he’ll make – someone to grab the reins of a trillion-dollar-plus program to shore up the world’s largest economy, probably in the middle of a severe recession, and at the right hand of a chief executive who’ll be a rookie himself.

In normal times, the job can be demanding enough. In an economic crisis, as now, it can be one of the most powerful and stressful jobs in the government. Just ask Henry Paulson, the former investment banker who’s made it clear that he’s not interested in keeping the title.

If not Paulson, then who?

Meg Whitman

Carly Fiorina

Robert Rubin

Lawrence Summers

Just when you think Iceland couldn’t behave more m*ronically: Iceland fixes crown at different rate to market.

Having been untraded for days after it collapsed, Iceland’s crown is moving towards a dual exchange rate with the central bank selling foreign currency to locals much cheaper than the international market rate.

Iceland’s government took control of its banking system last week and has since imposed harsh foreign exchange controls, holding an auction every day to set the value of the crown.

Friday’s fix valued it at 151 to €1 and 112.69 to the dollar, slightly weaker than yesterday’s levels. But the Reuters matching dealing system showed the crown at almost half that value in international trade at 275 to the euro.

“What the government is doing is giving away foreign exchange locally at much cheaper than the market rate.”

If the crown continues to strengthen internationally even while weakening locally, the differential between the two rates might disappear and reach equilibrium. Otherwise, with Iceland’s foreign reserves dwindling, the analyst said it could only continue local foreign currency selling for days or a couple of weeks.

BWAAAAAAHAHAHAHAHHAHAHAHHAHAHHAHAHHHHHHHHHHHHHHHHH!!!

Colin Powell endorses Obama. He is talking to Brokaw right now. I don’t know if you know this but I have a tendency to be a little cynical. But I still really like, and respect, this guy. The rest are a cauldron of bums.

Just an observation:

I live on a quiet street in SF in an “up and coming” neighborhood - meaning that the graffiti and drug dealing have slowly been replaced with Mercedes, people walking dogs, kids running around, local cafe flourishing. It’s been nice to witness. Almost all the houses on our street have gone through some form of renovation. One brand new structure went up where a garage once stood - so, a lot of change and growth and pretty damn quick.

But now it appears the brakes have been put on. One place which was in bad shape was gutted, the exterior and interior revamped, but unfinished. And that’s where it’s stayed now for about 3 months. Still some boards covering the foundation, electrics missing… no activity for quite some time. Same with the house next door to it, the people were evicted (a foreclosure) and now it’s been sitting empty waiting for the people that bought it to start the renovation. Nada…

I like the silence - seems like I’ve heard hammering or scaffolding or saws every single day since I moved in to this house several years ago. Now, it’s dead quiet.

A sign o the times? In the heart of San Francisco? I thought it was different here ;).

I would like to respond to something that was in yesterday’s thread.

Statement: “They are not failing because of incompetence. They are failing because certain ppl decided to max out and retire early or move on.”

Response: “Here I would tend to disagree with you. The system is failing due to the systematic risk built in by lending people money against depreciating assets without doing the brain check to make sure people could pay back the money. There’s incompetence everywhere I look.”

The problem was that these ppl didn’t expect long time job security, and were paid on commission. As such, their lack of due diligence in many cases had more to do without giving a damn about the long term, and maximizing the bonuses today, than to do with inability to examine risk to the company. Those with huge deal volume were rewarded with large compensation, while those that were conservative and turned away bad deals were canned. I would argue it was a short term business strategy to get in and grab what you can before you get out. While publicly saying the ride would never end, they were secretly putting together exit strategies, at least those with a clue were. Yes, there were certain ppl serving as instrumentalities that didn’t pick up on the game, but that doesn’t mean the game wasn’t being played. I don’t know a single top level investment banker that didn’t have an exit strategy at the peak.

Went into Carmel and Monterey yesterday, more businesses going out of business. Day started out with rain so I thought that foot traffic would be light, wrong. Lot’s of people out shopping and buying, locals. Others walking around looking like zombies.

One gentleman in the Carmel has been trying to sell a 2002 retro t-bird and has been lowering the price by $5 per month.

Hearing more stories about people worried about their retirement accounts than property values, but these people bought their houses long ago and didn’t refi.

Seeing more trailers unloading furniture into houses already occupied by one family, looks like older kids returning to the nest but with spouse in tow.

What triggered the bubble? I’ve had this question running around in my head lately. Was it one thing, like easy money, or was it a combination of events.

I kown that in So Cal the proliferation of construction defect litigation completely shut down the building of any new condo projects, and without this “first step” to home ownership the cost of all homes was elevated.

Maybe it would be fun to try make a list of all factors which led to be bubble and try to rank them.

Just thinking out loud….thanks for your time.

Got a hot date with a 1,500 year old, adios.

S&P 500 earnings estimates over the last 18 months:

2008 earnings estimates
Mar 2007 $92
Dec 2007 $84
Feb 2008 $71.20
Jun 1, 2008 $68.93
July 25, 2008 $$72.01
Spe 30, 2008 $60
Oct 15, 2008 $54.82

2009 Earnings estimates
Mar 2008 $81.52
Apr 9, 2008 $72.60
Jun 25, 2008 $70.13
Aug 29, 2008 $64.66
Sep 10, 2008 $58.87
Oct 14, 2008 $48.52

It would be surprising if earnings estimates aren’t still to high.

Anyone watch the Barrett-Jackson car auction out of LV? Amazing to see the prices people throw at ‘collectible’ cars; something that must be stored, insured and will be hard to off-load in hard times. I drove or road in a lot of those cars in their time, and I appreciate all of the safety features of the modern car. I must admit that I miss the simplicity of being able to maintain and work on the earlier autos.

10-13-08
Their Great Depression and Ours: Part 2
By James Livingston

“Last time out, I asked five questions that would allow us to answer this one: Does the current economic turmoil bear the comparisons to the Great Depression we hear every day, every hour? On my way to these questions, I noticed that mainstream economists’ explanations of the Great Depression converge on the idea that a “credit contraction” engineered by the hapless Fed was the “underlying cause” of that debacle. They converge, that is, on the explanation offered by Milton Friedman and Anna Jacobson Schwartz in 1963 in A Monetary History of the United States, 1867-1960. In this sense, the presiding spirit of contemporary thinking about our current economic plight—from Niall Ferguson to Henry Paulson and Ben Bernanke—is Friedman’s passionate faith in free markets…..”

http://hnn.us/articles/55614.html

A different way of looking at what caused the Great Depression.

Purgatory loans sound rather unpleasant to me. When will Washington finally learn the lessons that Milton Friedman tried to teach, which is that a free market should be based on equality of opportunity, rather than equality of results, and that markets work best when the government limits its role to enforcing a rule of law and letting private individuals on both sides of a transaction make rational decisions in their mutual best interests?

Above all, subsidizing interest rates on supersized mortgage loans in order to encourage fools to buy homes they cannot afford appears to perpetuate the very policies which got us into the mortgage mess.

New midlevel mortgages get ‘purgatory’ rates
Dina ElBoghdady, Washington Post
Sunday, October 19, 2008
(10-19) 04:00 PDT Washington –

The federal government’s efforts to make jumbo mortgages more available to borrowers have created a three-tiered mortgage market in areas with expensive housing.

There are the standard loans that Fannie Mae and Freddie Mac buy from lenders and then sell to investors. For years, those loans could not exceed $417,000 for single-family homes.

There are the loans larger than that, or jumbos. It used to be those were the higher-interest loans that many borrowers in pricey areas had to use to finance their homes.

Now there’s a middle tier that falls between the $417,000-and-under loans and the jumbo ones.

“It’s kind of like purgatory,” said Gibran Nicholas of CMPS Institute in Ann Arbor, Mich., which trains mortgage bankers and brokers. “It’s not heaven, and it’s not hell. It’s somewhere in between as far as rates go.”

“OPEC to cut oil production by 1 Million Barrels Per Day”

“Iranian officials have repeatedly said crude at $100 seems fair. Others, including Qatar’s oil minister and Venezuelan President Hugo Chavez, have pushed for levels closer to $80-90. ”

Ahh, the art of price fixing. You have 13 members in this organization who are basically the mafia. Who’s going to take orders from whom?

So the price of oil is tanking….let’s see if the Iranian and Venezualan president keep flapping their lips about how big and bad they are. They were riding high like housing but in this case, it was oil.

Is it really in the typical American taxpayer’s interest for the government to be funneling interest rate subsidies into the hands of people who are wealthy enough to afford homes that cost nearly 3/4 of a million dollars ($729,750+)? If I were a tax paying voter in flyover country looking at my scarce wealth getting funneled into the pockets of wealthy coastal homeowners, I would be livid.

When investors stopped buying jumbos, some lenders stopped offering them. Others raised the jumbo rates. The result: Jumbo rates spiked, meaning people who needed larger loans faced sharply higher costs.

Enter the federal government.

To bring rates down, the government earlier this year temporarily raised the limit for loans that Fannie Mae and Freddie Mac can buy to $729,750 in some of the nation’s priciest housing markets, including the Bay Area.

In those markets, that created that middle tier - generally called jumbo conforming - because Fannie and Freddie can now buy loans that fall between the old $417,000 limit and the new $729,750 cap.

That new cap expires Dec. 31.

At the start of next year, a lower cap - $625,500 - should take effect. Of course, all of this could change in a flash as the government tries out new ways to untangle the economic crisis.

You have to have a heart of stone to not love this story.

* Business
* Banking sector
So long, suckers. Millionaire hedge fund boss thanks ‘idiot’ traders and retires at 37

* Andrew Clark in New York
* The Guardian,
* Saturday October 18 2008
* Article history

The boss of a successful US hedge fund has quit the industry with an extraordinary farewell letter dismissing his rivals as over-privileged “idiots” and thanking “stupid” traders for making him rich.

Andrew Lahde’s $80m Los Angeles-based firm Lahde Capital Management in Los Angeles made a huge return last year by betting against subprime mortgages.

Yesterday the 37-year-old told his clients that he had hated the business and had only been in it for the money. And after declaring he would no longer manage money for other people, because he had enough of his own, Lahde said that instead he intended to repair his stress-damaged health; he made it clear he would not miss the financial world.

“The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking,” he wrote. “These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government,” he said.

“All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”

SPECIAL REPORT AMERICA’S MONEY CRISIS
Record declines in hedge funds
Industry report shows third quarter saw all-time highs in investor redemptions and asset shrinkage.
By Ryan Derousseau, CNNMoney.com contributing writer
Last Updated: October 17, 2008: 1:18 PM ET

* Former Lehman Brothers CEO subpoenaed
* U.S. subpeonas 12 Lehman execs
* Record declines in hedge funds

Quick Vote
How gloomy are you about the nation’s economy?

* This is the worst I’ve seen
* This is bad, but I’ve seen worse
* This isn’t so bad

NEW YORK (CNNMoney.com) — Nervous investors fled hedge funds as the market meltdown got underway, setting records for investor redemptions and asset declines in the third quarter, according to a report from an industry research firm issued Friday.

Hedge Fund Research, a Chicago-based firm, said investors took out more than $31 billion in the quarter, the largest net capital redemption in the industry history.

This redemption of capital by investors has contributed to a record $210 billion decline in industry assets during the quarter, most of it from investment losses. The quarterly drop was more than last year’s total record inflow of $194 billion.

“Investors in the current market conditions are eagerly looking to rush to cash,” said Kenneth Heinz, president of Hedge Fund Research.

“They’re so distraught by performance losses, not only by hedge funds, but wherever you are in financial markets,” said Heinz.

CNN Reader Poll
QUICK VOTE RESULTS Thanks For Your Vote!
1. How gloomy are you about the nation’s economy?
This is the worst I’ve seen 68%
This is bad, but I’ve seen worse 16%
This isn’t so bad 15%

Recession Watch 2008

Slower growth, but no recession - forecast

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AMERICA’S MONEY CRISIS

* Former Lehman Brothers CEO subpoenaed
* U.S. subpeonas 12 Lehman execs

The NY Times today has an article about Henry Cisneros, the Clinton Adminstration, and how the push to get mortgages for poor people led to this mess.

http://www.nytimes.com/2008/10/19/business/19cisneros.html?hp

However the Times stopped short about blaming these greedy deadbeats:

While Mr. Cisneros says he remains proud of his work, he has misgivings over what his passion has wrought. He insists that the worst problems developed only after “bad actors” hijacked his good intentions but acknowledges that “people came to homeownership who should not have been homeowners.”

From people dizzily drawing home equity loans out of increasingly valuable houses to banks racking up huge fees, few [at least he didn't say 'nobody'] wanted the party to end.

I hope you all can read the link without registration….

Giving money to people with money problems is as silly as giving alcohol to people with alcohol problems.

From Times Online
October 16, 2008
Paulson: bailout for ‘regulated’ firms only
The US Treasury Secretary hints that he is unwilling to bailout hedge funds, only lending institutions and savings banks
Suzy Jagger, New York

Henry Paulson, the US Treasury Secretary, has hinted that he was unwilling to bailout hedge funds after indicating that his capital injections plans are only aimed at lending institutions and savings banks.

In an interview on Bloomberg television, the former chief executive of Goldman Sachs said: “Right now we’re focused on financial institutions, regulated financial institutions. The program right now is for banks and thrifts.”

The predicament of hedge funds was highlighted after Citadel Investment, one of the world’s most successful hedge funds, admitted that returns in September have dropped by 26 per cent to 30 per cent.

Citadel was forced to admit to its performance after rumours swept across Wall Street that its figures would be far worse. It is thought that wild speculation about a possible hedge fund collapse also helped to drag down the Dow Jones Industrial Average on Wednesday night.

In some news from across the pond:

Repossessions in Wales hit a 15-year high
http://www.walesonline.co.uk/news/wales-news/2008/10/19/repossessions-in-wales-hit-a-15-year-high-91466-22065729/

Tales of subprime mortgages, home prices 75% higher than 5 years ago, home prices rising much faster than incomes, and a suicidal borrower.

In some news from across the pond:

Repossessions in Wales hit a 15-year high
http://www.walesonline.co.uk/news/wales-news/2008/10/19/repossessions-in-wales-hit-a-15-year-high-91466-22065729/

Tales of subprime mortgages, home prices 75% higher than 5 years ago, home prices rising much faster than incomes, borrowing against equity to make home improvements and buy a car, and a suicidal borrower takes his life at the prospect of losing his home.

The stock market is still plagued by an excess of optimism and a shortage of hopelessness…

Fundamentally
Is the Catharsis Yet to Come?
By PAUL J. LIM
Published: October 17, 2008

BY at least one measure, investors late last week were more fearful than they had ever been before.

On Thursday, a main gauge of market anxiety, commonly known as the VIX — its formal name is the Chicago Board Options Exchange Volatility Index — shot up to more than 80 for the first time. That reading, of 81.2, was more than 50 percent higher than its peak during two previous severe downturns on Wall Street: the Asian currency crisis of the late 1990s and the market drop after Sept. 11, 2001.

“The markets reached their most extreme levels of panic and fear in modern times,” said David Kovacs, chief investment officer of quantitative strategies at Turner Investment Partners in Berwyn, Pa. “We’ve not seen anything like this since maybe the 1920s or ’30s.”

Based on the VIX alone, Mr. Kovacs said, you might conclude that “the markets have experienced meaningful capitulation,” defined as that state of hopelessness that is often said on Wall Street to be the prerequisite for a big rally. Yet he said it was too soon to tell if we have witnessed “final capitulation,” when the sense of despair among investors reaches such cathartic levels that it signals the end of a bear market.
…
Capitulation among retail-level investors, Mr. Ablin said, is likely to come later, once they “realize how hard this economic downturn could be.”

One group that doesn’t seem all that worried about a potential recession is Wall Street analysts, at least not yet.

This raises another question: whether there is enough hopelessness in this market to say that true capitulation has been achieved. Ninety percent of money managers surveyed recently by Merrill Lynch now think that the domestic economy is likely to slip into recession in the next 12 months. Yet surprisingly, stock analysts are holding out hope that corporations remain healthy enough to increase their earnings substantially in the coming months and quarters.

According to a recent survey by Thomson Financial, Wall Street analysts are expecting earnings for companies in the Standard & Poor’s 500-stock index to soar 40 percent in the fourth quarter, versus the year-earlier quarter, and 20 percent in 2009, versus 2008. Even more astonishing, those consensus 2009 projections have remained fairly steady in recent months, despite growing fears among investors that a recession is unavoidable.

“Wall Street analysts are notorious for being overly optimistic,” said Christopher N. Orndorff, head of equity strategy at Payden & Rygel, the asset manager based in Los Angeles. “However, the cold, hard reality of disappointing earnings will be with us for some time longer.”

October 19, 2008 2:23 P.M.ET
BULLETIN
Old homes surviving crisis

Data likely to show latest existing-home sales still holding up
Despite the ongoing turmoil in the credit and housing markets, sales of pre-owned homes are doing surprisingly well over the past year, especially when compared with sales of new homes.

Can I get some help here with terminology?

In an article about Venzuela discussing their credit situation is the following quote:

“Six months ago, Venezuela’s bonds were yielding between 7-9 percent depending on maturity. Currently yields have dropped to a range of 15 percent to 16 percent, indicating investors are increasingly nervous about getting paid back on the bonds.”

This is the second time I’ve seen this phrased this way, I think the first time was hoz or vozworth.

I understand the relationship between a bond’s price and yield. What confuses me is when the yield goes up, in this case from 7 percent to 15 percent, the author is saying “yields have dropped”.

Now, is this just a funny way that bond dealers/traders talk or am I missing something. In the above example, the yields have actually INCREASED, right? Which would imply the price dropped. Why are they saying “yields have dropped” instead of saying “prices have dropped” or “yields have increased”?

Interesting discussion with a friend today. He is 68 years old, and in dire straights financially. He gets most of his money from SS, but earns $400 per month working part-time. Turns out he has $25k in credit card debt, and was calling for advice because…get this..I am the only one he knows that seems sensible financially. What a huge change from only a couple years ago!

So he wants some advice. I am thinking about his situation, and I am not sure BK is the best way to go. Since most of his income comes from SS, I don’t think they can garnish that. And I believe California only allows 25% garnishment in total, so the worst thing that would happen to him is maybe $100 per month in garnishments. He now pays $700 in CC bills each month. I also think there may be a minimum amount someone needs to make before they can even take that.

I guess I am wondering why he should even consider the hassle of BK. With the new laws they would still make him pay it back a little at a time, so garnishment seems like a similar outcome, without going nuclear. He owns no assets, not even a car. So they have nothing to get from him.

Of course his credit will be damaged, but that is going to happen regardless at this point. As a bonus, he gets to stick it to 3 credit card companies, all of which had no business extending $15k credit limits on someone making that little money. They have it coming. I guess they jacked up his rate to 22% recently as well, even though he hasn’t missed any payments.

The way I see it, they bought our politicians so they could eliminate the usury laws. They extended the credit knowing the rules. They have been screwing us for far too long. I say screw the CC companies as much as possible, but I want the wisdom of the blog before going that route.

What do you guys think?

Dutch banking and insurance company ING is to receive a 10bn euro ($13.4bn; £7.7bn) cash injection from the Netherlands government.

The deal was agreed between ING, the finance ministry and the central bank.

http://news.bbc.co.uk/1/hi/business/7679021.stm

Received via email, important update on Japanese banks.

Following the problems with Lehmann Bros and in the sub-prime lending market in America and the run on Northern Rock, HBOS and Bradford & Bingley in the UK, uncertainty has now hit Japan.

Furthermore, 500 staff at Karate Bank got the chop and analysts report that there is something fishy going on at Sushi Bank where it is feared that staff may get a raw deal.

Alright. Here’s a blow against the Republicans and also you cannot say that I am blind to Repub misdoings:

http://biz.yahoo.com/ap/081019/the_influence_game_housing.html

AP
AP IMPACT: Mortgage firm arranged stealth campaign
Sunday October 19, 5:46 pm ET
By Pete Yost, Associated Press Writer
AP IMPACT: Mortgage giant, GOP firm targeted Republican senators for defeat of regulatory bill

WASHINGTON (AP) — Freddie Mac secretly paid a Republican consulting firm $2 million to kill legislation that would have regulated and trimmed the mortgage finance giant and its sister company, Fannie Mae, three years before the government took control to prevent their collapse.

… for more, just read the link.

Ailing U.S. economy may cost Republicans big
Sun Oct 19, 2008 8:31am EDT
By Thomas Ferraro

WASHINGTON (Reuters) - Fear and anger about the U.S. economy may cost the Republicans big-time in next month’s election — and give Democrats a 60-seat majority in the 100-member U.S. Senate for the first time 30 years.

With their polls rising, Democrats have a plausible shot at gaining nine seats to hit 60, which could provide the votes needed to clear Republican procedural hurdles and move quickly to keep campaign promises.

“Imagine what we can accomplish with a filibuster-proof Senate majority,” Democratic presidential nominee Barack Obama, who polls show is leading Republican rival John McCain, wrote in a fund-raising appeal last week.

Forbes
The Hedge Fund Apocalypse
Liz Moyer, 10.17.08, 3:50 PM ET

Billionaire investor Warren Buffett wants his fellow Americans to buy stocks, but the Greenwich, Conn., set couldn’t take his advice if they wanted to. As investors scream for their money back, hedge fund managers are as paralyzed as the rest of Wall Street.

Hedge fund assets shrank by $210 billion in the third quarter, hit by volatility, higher borrowing costs and $31 billion in redemptions after a wave of investor panic.

The carnage is the worst in the industry’s history, surpassing the jolts in 1998, 2002 and 2005, according to Chicago’s Hedge Fund Research, which has tracked fund assets and performance since 1990. Funds are scrambling to meet the withdrawal requests, helping to push the major stock averages down in the last few days, and many won’t be able to continue in business.

So far this year, 350 funds have closed shop, but that doesn’t count the third quarter, when most of the bloodletting has taken place. Ken Heinz, the president of Hedge Fund Research, says he wouldn’t be surprised to see 1100 funds liquidate this year.

That would be three times greater than in 1998, when $4 billion Long-Term Capital Management had to be rescued. “We’ve never seen it happen in this magnitude,” Heinz said.

“Like it or not, the person who just retired after 25 or 30 years on the job signed a contract 25 or 30 years ago. The terms of that contract cannot be unilaterally changed. They also signed contracts in the interim, as each contract ran out.”

Public employee pensions are unilaterally sweetened every year, retroactively. If people hired 25 or 30 years ago has the same pension benefits as the day we were hired, we’d only have half the problem we do now in NYC.

The other half is that as part of the same deal to sweeten the pensions, they typically CUT the contributions!

The Oakland Raiders almost snatched defeat from the jaws of victory and somehow prevailed in spite of themselves, and as far as i’m concerned…

Raider Nation is most emblematic of the financial trajectory of our country, for those of you keeping score.

Since 2005(height of the housing bubble)

The Raiders have amassed 12 wins, against 41 losses

Superb “KING OF THE HILL” tonight, on as we speak.

Neighbor dies, property sold, turned into McMansion, fragile construction “your shoddy McMansion” as per Hank. Nearly clobbers the neighbors during a storm.

Housing bubble/bust indeed MSM’d

regards

-evil

Anyone notice how 20 years or so ago, it became popular to lease cars rather than buy them? This allowed people to buy more car than they otherwise could. There’s a nice comparison to the housing bubble here, I think.

Financial Times of London
Job losses spread in Silicon Valley
By Richard Waters and Chris Nuttall in San Francisco
Published: October 19 2008 23:29 | Last updated: October 19 2008 23:29

A wave of job losses has started to spread across California’s Silicon Valley as the trademark optimism of the region’s technology start-ups has turned to pessimism amid the financial market rout.

The rapid reversal in mood has reawakened memories of the dotcom bust in 2001.

The Financial Times of London
The view isn’t pretty as the banking crisis dust settles
By Tony Jackson
Published: October 19 2008 17:00 | Last updated: October 19 2008 17:00

As the hullabaloo of the banking crisis fades, it seems increasingly to have been a kind of distraction from the wider topic. Investors are now once more contemplating the non-financial corporate world. It is not a pretty sight.

As an apparently minor sign of distress, take the Baltic Dry Index, which measures bulk shipping rates. It has halved this month, and is down more than 90 per cent from its peak in May.

The Reckoning
Building Flawed American Dreams
By DAVID STREITFELD and GRETCHEN MORGENSON
Published: October 18, 2008

SAN ANTONIO — A grandson of Mexican immigrants and a former mayor of this town, Henry G. Cisneros has spent years trying to make the dream of homeownership come true for low-income families.

Inflating the Bubble

THE DEVELOPER Henry Cisneros in his office in San Antonio with Sylvia Arce-Garcia, an executive assistant. He is the head of CityView, a developer.

As the Clinton administration’s top housing official in the mid-1990s, Mr. Cisneros loosened mortgage restrictions so first-time buyers could qualify for loans they could never get before.

Then, capitalizing on a housing expansion he helped unleash, he joined the boards of a major builder, KB Home, and the largest mortgage lender in the nation, Countrywide Financial — two companies that rode the housing boom, drawing criticism along the way for abusive business practices.

And Mr. Cisneros became a developer himself. The Lago Vista development here in his hometown once stood as a testament to his life’s work.

Joining with KB, he built 428 homes for low-income buyers in what was a neglected, industrial neighborhood. He often made the trip from downtown to ask residents if they were happy.

“People bought here because of Cisneros,” says Celia Morales, a Lago Vista resident. “There was a feeling of, ‘He’s got our back.’ ”

But Mr. Cisneros rarely comes around anymore. Lago Vista, like many communities born in the housing boom, is now under stress. Scores of homes have been foreclosed, including one in five over the last six years on the community’s longest street, Sunbend Falls, according to property records.

While Mr. Cisneros says he remains proud of his work, he has misgivings over what his passion has wrought. He insists that the worst problems developed only after “bad actors” hijacked his good intentions but acknowledges that “people came to homeownership who should not have been homeowners.”

Is Jimbo soon to go the way of Gary Watts and David Lereah, never to be heard from again?

The Media Equation
Jim Cramer Retreats Along With the Dow

A somewhat milder Jim Cramer, host of CNBC’s “Mad Money,” tries to find the right tone in a time when building stock wealth seems like a thing of the past.

By DAVID CARR
Published: October 19, 2008

Last Friday afternoon, Jim Cramer, CNBC’s star stock-picker, took time before taping his hourlong show, “Mad Money,” to talk to a visitor in the cable network’s headquarters in Englewood Cliffs, N.J.

After weeks of dreadful performance, it looked as if the Dow was finally giving investors a chance to exhale, up some 200 points during the day, though it later ended down 127 points. He chatted for a few minutes about how the market’s volatility was testing everyone, then he happened to glance at the computer screen in his office.

“We’re now down a hundred just since we started talking,” he said, shaking his head in disbelief. “Wow, what a terrible market.”

So terrible that Jim Cramer, the happy warrior who cheered the Dow on his cable show surrounded by his menagerie of stuffed animals, sound effects and bobble-heads has traded the pom-poms for a votive candle, praying that the market finds a way to right itself — and maybe restore some of the luster to his chosen profession.

After years of selling the stock market as a reliable path to riches, Mr. Cramer came in for some brutal criticism recently from viewers and competitors.

In March, he said Bear Stearns “is not in trouble.” After Bear Stearns tipped over, he wrote in his New York magazine column that the bottom had finally come. “I feel the bear has been tamed, and the worst of the clawing is over,” he said. And on Sept. 15, he hosted his friend Robert Steel, chief executive of Wachovia, and suggested that its $10.71 share price was a bargain. Two weeks later, it was at $1.84.

On Oct. 6, he went on the “Today” show on NBC (which, like CNBC, is owned by NBC Universal) and said, “Whatever money you may need for the next five years, please take it out of the stock market. Right now. This week,” he told a surprised Ann Curry. “I do not believe that you should risk those assets in the stock markets.”

The Dow dropped 18 percent in the week that followed. In a follow-up visit to “Today,” one of the viewers wrote in to accuse him of shouting fire in a crowded building. (His reply: “But what happens if there is a fire in the building?”) When the Dow zoomed up 936 points on the following Monday, he was accused of leaving his loyal viewers standing on the sidelines.

He says he has tried to make amends for Bear Stearns and Wachovia.

“I apologized to my viewers,” he said. “I apologized on the ‘Today’ show. It is a completely humbling market.” But he won’t apologize for his five-year comment.

“It was one of the greatest calls of my life,” he said, “and I’ve been pilloried for it.”

I was reading about OC bank robberies being up 50% and it reminded me of Bonnie and Clyde, and how they became very popular in the 1930s during their bank robbery run. People were so pissed off at what they saw as big business and the political establishment screwing America, they were actually rooting for Bonnie and Clyde.

Will we get another Bonnie and Clyde? If the bank robbery numbers are any indication, there are a lot of new wanna be’s in training!

A proposal to the pro-tax side:

Gov inspections of meat have failed me plenty. Now I read the gov stops meat packers from testing their products themselves more thoroughly. As in real estate, a person is better off using a private inspector, preferably someone you know.

A McD’s drive-thru runs better than a State DMV or Fed TSA airport screen. It seems as though a private company could run Air traffic quite well. Think UPS here.

Nuclear is a lab.

Police officers & firefighters are great private company potential - remove the gov. monopoly & create opportunity. Security is a personal responsibility.

Medical clinics are labs.

We have far too many road signs, some countries even have none, I think. Local businesses could maintain road signs.

HazMat, for the labs?

Lifeguards are hand-holders - enter at your own risk - or hire a private lifeguard.

!8-wheeler safety inspections are just like food inspections, they fail now - as things are currently. A private company could easily do this & probably with less corruption.

Pay a private company a toll to cross the bridge, no problem.

If this were done, safety would improve, jobs would become more secure, efficient, and less flawed overall.

And then… opportunity would be huge - Inspectors, security personnel, medics, lifeguards, and firemen could start their own businesses. People could have some connection to their world, so unlike today’s, hollow, no money down - nothing else in it -world.

Heh- We don’t want your so-called free government services, and stop taking our money. If government had to ask each of us for the money, & we could say no, things might be alright for everyone.

/dream off.

A great comparison to the railroads & the Panic of 1873 with the Bursting of the housing bubble today, Title: The Panic of 2008 and Financial Socialization, by Michael S. Rozeff

A great comparison to the railroads & the Panic of 1873 with the Bursting of the housing bubble today, The Panic of 2008 and Financial Socialization, by Michael S. Rozeff

http://www.lewrockwell.com/rozeff/rozeff231.html