The Housing Bubble

‘Time to Sell’ Treasuries, Biggest Korean Fund Says (Update1)
By Wes Goodman
Jan. 19 (Bloomberg) — A rally that sent U.S. Treasuries to their best year since 1995 is coming to an end, South Korea’s National Pension Service, the country’s biggest investor, said.

U.S. government efforts to combat the recession will prompt the Federal Reserve to raise interest rates this year, said Kim Heeseok, who oversees $160 billion as head of global investments for the service in Seoul. The decline would snap a surge that sent the securities up 14 percent last year, according to Merrill Lynch & Co.’s U.S. Treasury Master index, as investors sought the relative safety of debt.

“It’s time to sell U.S. Treasuries,” said Kim, who took over as head of investments at the start of the year. “The stimulus plan may cause inflation. The U.S. will raise the benchmark interest rate.”

U.S. government securities headed for their first monthly loss since October after President-elect Barack Obama, who takes office tomorrow, said he will do “whatever it takes” to battle what he called the biggest economic crisis since the Great Depression. Obama is planning an $850 billion stimulus plan, on top of $700 billion approved by President George W. Bush.

Ten-year Treasury yields, used as benchmarks for corporate and government borrowing costs, will rise to 3.08 percent by year-end from 2.32 percent now, a Bloomberg survey of banks and securities companies shows. An investor who bought today would lose 3.3 percent including reinvested interest if the forecast proves accurate, according to data compiled by Bloomberg.

Two-year rates will climb to 1.43 percent from 0.73 percent, according to the survey, which gives heavier weightings to the most recent forecasts.

Higher Rates

The Fed will increase its target rate for overnight loans between banks to 0.75 percent by March 31, 2010, the poll shows. The U.S. central bank last month cut the target to a range of zero percent to 0.25 percent.

U.S. yields indicate traders are becoming more concerned about inflation.

The difference between rates on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes, which reflects the outlook among traders for consumer prices, widened to 53 basis points from minus 8 basis points two months ago.

The spread has averaged 1.19 percentage points during the past six months.

Cutting Holdings

Investors in South Korea cut their holdings of U.S. debt to $28.6 billion in November, less than half of what they owned in 2006, based on Treasury Department data.

China, the largest foreign owner of Treasuries, increased its stake to a record $681.9 billion in November.

Cost of Borrowing Zooms Up for Corporations…
By JACK HEALY and VIKAS BAJAJ
Published: January 18, 2009

Like consumers and homeowners, America’s corporations binged on easy credit when times were flush, racking up huge debts. Now the bills are due, and paying them back will not be easy, or cheap.

This year alone, more than $700 billion in corporate loans will come due, according to Standard & Poor’s. That is the size of the federal bailout of the financial sector. Many companies were counting on being able to borrow more money to meet those obligations and kick their debt further down the road.

But with the credit markets still tight, corporations are being forced to pay much higher interest rates than they did a few years ago, putting more strain on balance sheets already hammered by falling profits and a grinding recession.

It is a lesson the discount carrier Southwest Airlines learned firsthand in December, when it went to the bond markets to raise $400 million, in part to cover its losses from betting that fuel costs would stay high.

Southwest, the only domestic airline with an investment-grade credit rating, put up 17 of its Boeing jets as collateral and agreed to pay interest of 10.5 percent, nearly double the rate it had paid in 2004 to raise $350 million. The company chafed at the costs, but it paid them because it needed cash and did not know what credit markets would look like in six months or a year.

“That’s the market now,” said Laura Wright, the airline’s chief financial officer. “There is not money available at the rates we were able to get a year ago.”

Southwest said it had seized the opportunity to raise cash at a time when other companies could not borrow at all. Companies with poor credit ratings are virtually locked out of credit markets or face the prospect of paying 20 percent interest. Many of them are slashing costs, canceling projects or putting assets up for sale to avoid defaulting on their debts.

Dutch bubble update:

now that the Dutch bubble has started to burst after about 20 years of nonstop growth, homeowners and RE mob have been demanding all kinds of help. Fortunately, the government decided friday that there is little they can do (maybe they are out of money?). Only housing corporations will receive additional backing for home construction loans (but most of these corporations are extremely wealthy, so it is of little help).

Dutch unemployment is expected to double in the next two years, from nearly 2.9% now (lowest in EU, thanks to the most clever statistics) to 5.5% next year. The economy will shrink at least 2% and catch up with trouble in other EU countries. Wages increased several % above inflation in 2008 (this doesn’t mean that real incomes increased, that depends strongly on situation); I guess 2009 will be less benign. With unemployment the biggest factor for home prices, this doesn’t bode well for the housing market.

On another note, Dutch households lost 152 billion euros in the first three quarters of 2008; these losses are far bigger (and quicker) than those from the dotcom bust. Household equity is now about the same as in 1997 or 2002. The biggest loss this year was in pensions, life insurance funds etc. Keep in mind that homevalues were still at record highs around the time, the collapse of the housingbubble will likely mean even bigger losses ahead in the next years.

Brown say’s if this doesn’t work then their economy will fail. What then, do then shut down the country! LOL! Hey Gordo get the hell out of the way dumb ass, let the system flush.

Government finalises second bank bailout plan
Sun Jan 18, 2009 10:30pm GMT
LONDON (Reuters) - The government will guarantee “toxic debt” worth billions of pounds in a second bank bailout designed to boost lending and fend off a prolonged recession triggered by the worst economic turmoil in 70 years, people familiar with the matter said on Sunday.

The government is also likely to swap preference shares it holds in Royal Bank of Scotland for ordinary shares under the plan, which could see Britain increase its stake in the lender to near 70 percent from 58 percent, one of the sources said.

Government officials spoke with bank chiefs throughout the weekend to hammer out a solution to a credit freeze that has crippled industry, small businesses and homeowners already struggling to cope with the downturn.

The Treasury said it will announce the plan before Monday’s market opening, which is at 8 a.m.

Prime Minister Gordon Brown, speaking to reporters in Egypt, where he was attending talks on Gaza, said: “We know the essential problem is the resumption of lending.”

The package is aimed at clearing blockages in the credit pipeline and is designed to “get lending moving in the economy” to help families and businesses, Brown said.

Key parts of the bailout will include a huge state insurance scheme to guarantee billions of pounds of banks’ bad assets, three people familiar with the discussions said. The Treasury will guarantee at least 100 billion pounds of new lending, the Sunday Times said.

WTH? Why, all I have been hearing lately is that gubmint ‘created’ jobs will be the cure all. Well don’t tell B.O. that could screw up his entire plan. Change you can believe in.

California Finds Public-Works Spending No Unemployment Cure-All…

Jan. 19 (Bloomberg) — An hour’s drive through California’s Riverside County takes in neighborhoods of deserted homes, boarded-up businesses, busy unemployment offices — and crews working on millions of dollars in new public projects.

Only four years ago, Riverside and nearby San Bernardino, often called the Inland Empire, were California’s economic powerhouse, accounting for more than a fifth of the state’s new jobs. Today, unemployment reigns in the sprawling region east of Los Angeles. The 9.5 percent jobless rate in the two counties matches Detroit’s as the highest of any major metropolitan area in the U.S.

Riverside also has almost $1 billion worth of public-works projects underway or planned, from widening roads to building a new jail. The county illustrates both the promise and the limitations of the spending President-elect Barack Obama proposes to pull the U.S. economy out of a recession that may become the longest since the Great Depression.

“What infrastructure spending can do is bolster employment in a group of industries, like construction, with workers who are ready to go,” said Brad Kemp, director of regional research at Beacon Economics in Los Angeles. “What it can’t do is stop the unemployment rate from rising currently because there are a lot of forces coming at consumers, who are holding back on spending.”

Soaring Unemployment

While Riverside’s investments put thousands to work, unemployment in the Inland Empire may still soar to 12 percent in the next year or two, said Kemp and John Husing, founder of Redlands, California-based consulting firm Economics & Politics Inc.

“Riverside County is an extreme example of a lot of the economic excesses from the recent boom,” said public economics professor Gregory Hess of Claremont McKenna College in Claremont, California. “It hasn’t hit rock bottom yet, which suggests that either the county is doing something right or there is more bad news to come.”

FHA loan limits fell by about 100K in my area (Palm Beach) from Dec 2007 to Jan 2008.

2009 FHA Single Family Limit - 345,000
2008 FHA Single Family Limit - 423,750

That’s going to help push the prices down further, hopefully by the end of this year we star to really approach the bottom. I’m just hoping that the 1.5T that the new administration is planning won’t have a huge impact on my plans.

Anyone want to talk about how incredibly stupid it is to offer “low-income” loans to people for the purchase of homes costing 300-400K? What message does that send to the American people. If only they would put a note on the FHA website that says “For all loans over 300K, a 100K household income (W2/1099 ONLY) is REQUIRED”. That’s the kind of realization that this country really needs to have. 300K homes, and the 100K families that live in them, are only a TINY fraction of the population (~5%-10%, depending on your area). EVERYONE else should be looking at something that’s less then 300K. And frankly, the idea that people need government assistance to buy 300K homes (again, our 100K income family) is just so sick and perverted.

How about this. Mr. 100K family SAVES for a few years. Then get’s a more traditional loan product from a lender who takes a good size downpayment (10-20%) and does ALL the background on the buyer (full income verification, full downpayment verification, full credit history, ONLY 700+ FICO need apply).

Didn’t we learn that loans to the irresponsible don’t work? Now we are trying the same thing again, this time government insured? What a great plan.

1 year lapse for chap 13 and 2 years for chap 7 bankruptcy? More great planning.. What are we thinking?

Western New York’s tax burden highest in the nation.

http://democratandchronicle.com/article/20090119/NEWS01/901190331&referrer=NEWSFRONTCAROUSEL

Selling million dollar condos in Detroit: yes we can!!!

Actually closing a deal though may be a different issue.

http://www.detnews.com/apps/pbcs.dll/article?AID=/20090119/BIZ/901190370

Little story over at Yahoo Finance about 2009 job losses.

They say NYC, LA, Miami, and Chicago stand to lose the most. (180k, 165k, 85k, and 80k respectively).

Ithaca NY, Fairbanks AK, and St. George UT should be ok!

Note that its not a good sign when the “cities” that are predicted to hold up all have to have mentioned with their respective state name for proper recognition.

Peter Schiff running for U.S. Senator of CT??

http://www.schiff2010.com/content/our-cause

Jan. 19 (Bloomberg) — Spain had its AAA sovereign credit rating removed by Standard & Poor’s in the second downgrade of a euro-region government in five days, as the country’s first recession in 15 years swelled the budget deficit.

The risk of losses on Spanish government debt rose to a record, credit-default swaps showed, after S&P lowered the rating one step to AA+ and assigned it a “stable” outlook. It was S&P’s first reduction in Spain’s rating and puts it on the same level as Belgium and Hong Kong.

From yesterdays Palm Beach Post

Financial burden of homeownership spread unequally

By ALAN ZIBEL
AP Real Estate Writer

WASHINGTON (AP) — When it comes to homeownership, Hispanics in New Jersey, single parents in California and senior citizens in Rhode Island all have something in common: More than a third have an unaffordable mortgage.

Inequality in America has traditionally followed familiar patterns of race, age and education. Those long-standing gaps have been magnified by the real estate boom and now the historic bust, according to an Associated Press analysis of 2007 Census Bureau data.

While minorities have made significant gains in wealth and home ownership since 1990, “things are going into reverse gear,” and now the homeownership rate for blacks and Hispanics is falling, said Edward Wolff, a New York University economist who studies income and wealth distribution.

Last year I posted about estimated $1.6 T loss in US debt (Roubini, Bridgewater Associates), but now GS has upped the estimated total loss to $2.1 T, with a huge chunk of it in oversea investors and banks… isn’t globalization a good thing for a change?

January 15, 2009, 12:05 pm
Banks’ Loan Losses Could Reach $2 Trillion

It is little wonder financial markets are taking a beating. Despite all of the talk of fiscal stimulus and the hope of a new administration, one very large figure stands in the way of a real economic recovery. That number is $2 trillion — the losses that investors and financial institutions are potentially sitting on from bad loans.

Estimating loan losses is a fuzzy process. It is very sensitive to what happens to the economy, home prices and other variables. It is muddled by the obscurity of the securities sitting on many financial institution balance sheets. And it is obscured by what one decides to measure — some key estimates these days only look at losses on U.S. loans, not the bad mortgages and debt sitting in places like Europe.

But one thing is sure. The number keeps growing and a sustained recovery for markets is unlikely until the hole is filled.

Analysts at Goldman Sachs were the latest to jack up estimates of potential U.S. loan losses. In a report released late Tuesday night, Goldman economists estimated that losses from delinquent U.S. residential mortgages alone would hit $1.1 trillion as home prices sink, up from an earlier estimate of $780 billion.

Add in losses from commercial real estate, credit cards, auto debt and business debt and Goldman’s loan loss estimate hit $2.1 trillion. Many of those losses will be born by investors and banks overseas, though the estimate doesn’t count losses that U.S. institutions will take on bad overseas loans that they hold.

Observations from a coin/collectible dealer last week:

- Lots of people are coming in and selling valuable stuff - including family heirlooms and such - in order to pay this month’s mortgage, and in some cases to have something to eat. It is very sad.

- Premium for 1oz gold coins is generally about $150-180 over spot now. As soon as he gets any in, they’re gone within just a few minutes. Spot’s been running $830′ish, but he has no problems selling them for $1,000. He said he has people that would buy 50 at that price on the spot if they were available.

FWIW - draw your own conclusions.

From the Boston Globe this morning.

Broker says she’s guilty in subprime loan case
By Jenifer B. McKim
Globe Staff / January 14, 2009

A Dorchester mortgage broker who helped unqualified home buyers secure subprime loans has pleaded guilty to forgery, larceny, and other criminal charges, the state attorney general’s office said yesterday.

Nicole Lyder, 34, was sentenced Monday to two years in the Suffolk County House of Correction after entering a plea in Suffolk Superior Court. The allegations included providing false financial information about clients to lenders, qualifying them for loans they couldn’t afford, and then collecting thousands of dollars in commissions.

Did some research on Charlotte, NC this weekend. City of 600,000 people, with nearly than 12,000 homes for sale - one for every 50 people. Maybe that included the metro area, as it can be hard to tell with realtor.com. The stunner is that there are more than 100 homes priced above 2 million dollars. Another 400 houses priced between 1 million and 2 million.

I am shocked. I googled the archives here and did not come up with any news about Charlotte. Main employers are BOA and Wachovia. Boy is that town in for a world of hurt!

Professor Bear

In case you didn’t get the answer to your question yesterday, you show < and > marks by using:

& lt ; and & gt ;

(Remove the spaces after the ampersands and before semicolons)

More details here

As you can see, you can also use:

& #62 ; and & #60 ;

Again, removing the spaces.

Quick local story-

This pair of beauts bought a 1970’s era shack(and it’s a shack to be sure) for $118,000 (grossly overpaid back then) in 1999. Fast forward to 1/17/09. On the market for $280,000. Sellers told wife they owe $260,000 on it. Deer in headlights look when wifey informed them there are two new shacks (spec houses) a half mile down the road for $295k.

Wifey asked how a mortgage balance grew from 118k to $260k ten years later. No response. Wifey said you’ll never get 280 for it. Response? “We know that but we’re starting high because we want to be made whole”.

Comment by Asparagus
2009-01-19 09:05:47
“I’m thinking of starting a hedge fund that promises a 0% return.

It’s a long/short strategy, long the SP500, short the SP500.
It’s a no lose (no gain) strategy.

I’m only sort of kidding.”

Inflation.

Maintaining a $0 change nominal value does not ensure a $0 change real value. Ask the people of Ice Land if maintiaing nominal value is the same as maintaining real value.

Your strategy is akin to the “stuff the mattress” investment strategy, just with a lot more transaction fees. If there is inflation, you lose. If there is deflation, you win.

The TRUE $0 lose/gain policy would be to go buy everything you are going to need for the rest of your life. The “stuff the basement with can foods and ammo” investment strategy.

Te he he…

I just did a little comparison search between ZipRealty dot com’s MLS listings for our zip code (92127 Rancho Bernardo West) and RealtyTrac’s. It seems the foreclosure listings are beginning to swamp conventional MLS listings:

ZipRealty = 305 single family homes plus condos currently listed for sale

RealtyTrac = 970 homes listed, including pre-foreclosure, auctions, bank-owned, online-auction, government-owned, resale/MLS and for sale by owner.

This is a tectonic shift in the market which I interpret as a hopeful sign the NAR is losing its monopoly grip on the used home sales business.

Anyone familiar with Charlotte, NC? I did some research on it this weekend, and was stunned. First, there are more the 10,000 properties for sale, which seems awfully high for a city of 600,000 but maybe is not too bad for a metropolitan area of over 2 million.

The prices still being asked for luxury spec houses are incredible. According to Realtor.com, there are more than 100 properties for sale for more than 2 million, and another 400 listed for between 1 million and 2 million dollars. Where the hell are they going to find buyers for these?

I’ve been struck with a slight dilemma as to what to do with my company 401k. We aren’t allowed to choose individual investments, instead we’re given a choice of 5 “strategies” ranging from “very conservative” to “aggressive.”

For the last 2-3 years I’ve held mine in “very conservative”, which has mostly been treasuries/TIPS. I’ve been more than happy with the 1-2% returns. Every quarter they send me a rebalance statement, usually buying more bonds. This quarter they’ve started investing me in a REIT(!). Seriously? Real estate as a “very conservative” investment strategy? I’m left with no options besides choosing a more aggressive strategy and hoping they don’t include real estate.

Well, that or stopping contributions all-together and moving it to an IRA or something.. but then I’d lose the company matching.

Professor Bear

(Apologies if this duplicates)

In case you didn’t get an answer yesterday, you can insert < and < symbols like this:

& lt ; and & gt ;

Leave out the spaces after the ampersand and before the semicolon.

More info here

You can also use:

& #60 ; and & #62 ;

Again, leaving out the spaces

Blue Skye-Last week you mentioned that you read an article about rents dropping in the Phoenix area. Could you please refer me to that article as our lease expires the end of next month and I need a little ammunition to use in my negotiations. Thanks.

HELP!!!!!!

My employer just switched 401(k) administrators. We had Pension Inc, which had a nice Treasuries option that morphed into a “government” and started picking up GSE bonds.

We switched to The Principal.

Options:
Principal Fixed Income Guaranteed Option
69% corporate bonds, 16.2% mortgage loans, mix in small amounts of stocks, real estate, etc.

Ummm… NO THANKS.

Principal Core Plus Bond I Inst Fund
It shows as 170% bonds and -76% cash, so leveraged, right???
And the bonds?
34% mortgage, 30% Government, 8% US credit?? and 27% cash

Ummmm… again, NO THANKS. WAY too much mortgage exposure. And I REALLY don’t want to be leveraged into U.S. Government as it is a safety play, and leverage is ANTI safety.

ALL other options are stock based, except the self-directed.

Oh, and the self-directed has just a few fees….

Annual Fee To have an open Principal Self-Directed Brokerage Account $75
Transaction Fee For equities and mutual funds
$25 via Internet/TeleTouch
$35 representative assisted
Transaction Fee For fixed income securities
$35 representative assisted
Miscellaneous Fees Other fees charged by the clearing firm for specific transactions
Legal Item: $20 per issue
Inactive Fee (annual): $25
Funds Wired: $20
Reorganization Items:
Mandatory: $5
Non-Mandatory: $20
Transfer of Accounts/Outbound (Individual): $75
Dividend Reinvestment: $1 per item

What do I do?????

Pull the money as a loan from myself and stick it in CDs?
Can I roll $10K a year from the 401(k) to IRA?

“The age of excess in 2004-06, those days are over,” says Dennis Smith, president of Home Builders Research. “They will never return.” We’ll see.

http://www.lasvegasweekly.com/news/2009/jan/08/house-loses/#

Hoz posted this above, but it is so deep in a chain that there is no room to post under, so I’m plucking this out.

“Comment by hoz
2009-01-19 09:54:41
http://research.stlouisfed.org/fred2/data/EXCRESNS.txt

Excess bank savings rate for reserves.
2008-03-01 2.978
2008-04-01 1.844
2008-05-01 2.011
2008-06-01 2.272
2008-07-01 1.977
2008-08-01 1.988
2008-09-01 60.051
2008-10-01 267.905
2008-11-01 559.051
2008-12-01 767.422

Dollars in Billions.

Consumer savings rate is just as spectacular. The data is all available.”

Bernanke says this is all the TARP and Fed swap money. Banks are holding it to cover future losses. So, as the losses are booked and the swaps expire, this money just goes away, right?

It isn’t real money that they could loan out long-term, or hand out as dividends.

Do you have details on the consumer savings?

How come it takes hours for any of my posts to go through?

Check out the pie chart down the article, first one I have seen regarding the new ’stimulator’ plan…825b

http://www.321gold.com/editorials/sobolev/sobolev011909.html

Holy crap, if this happens, you talk about a POS! LOL!

Reports: Chrysler, Fiat holding discussions about potential partnership

AUBURN HILLS, Mich. (AP) — Fiat SpA is holding discussions with Chrysler LLC about taking a stake in the U.S. car maker and creating a partnership that would allow the Italian auto maker to build and sell its small cars in the United States, two publications reported Monday.

Unnamed officials familiar with the discussions told The Wall Street Journal and Automotive News that Chrysler would have access to the Turin-based automaker’s engine and transmission technology as part of a potential deal.

Chrysler spokeswoman Lori McTavish said in a statement Monday that “in today’s economic environment, talks are going on between companies in all industries — ours is no different.” McTavish said Chrysler as a policy “does not confirm or disclose the nature of its private business meetings.”

A Fiat official did not immediately comment on the reports.

Fiat Group SpA, which makes Fiat, Lancia and Alfa Romeo vehicles, has been trying to re-enter the United States for the first time since 1983. The company has expressed interest in bringing its Fiat 500 compact car and the Alfa Romeo brand to the U.S. market.

Chrysler, which is 80.1 percent owned by Cerberus Capital Management LLP, has been hurt by its reliance upon slow-selling trucks and sport utility vehicles and analysts have said it probably won’t survive the year as an independent company despite receiving a $4 billion government loan.

The Treasury Department said Friday it will provide a $1.5 billion loan to Chrysler’s financing arm, Chrysler Financial, and the automaker plans to offer zero-percent financing on several models and expand lending to car buyers with less than ideal credit.

Hoz wrote:
“Jane Wino borrows $100K and spends it on boobies. She defaults on the loan. Bank writes off loan and gets government moneys to support bank from failure. It matters who takes the slap for the old debt. Not who gets new debt.

What happened to the $100K that Ms. Wino borrowed for her new boobies?”

It ended up being passed through a Wall Street bank, and the mega-gazillionaires skilled it off and handed it out as an end-of-year bonuses.

1% of the population controlls 90+% of the wealth (Probably an exageration, but intended to make a point). Too bad those 1% of the people can’t buy all the oil, all the food, all the cheap goods from China…

The 90% of the people that use 85% of the stuff, ain’t got no moooooooney.

Unless we figure out a way to get money into the hands of the little people, and for them to not just use it to pay down debt, demand will continue to crash and supply grow, and we will continue to see deflation.

Keeping mega-gazillionaires, mega-gazillionaires is NOT going to help those that have been living on debt continue to consume beyond their means.

“Wall Street Cynical on Bailouts”

http://www.cnbc.com/id/15840232?video=1005183738

WS can just KMA!

Roidy

How bad is the U.S. new home construction market? As documented on this graph, housing starts last year were the lowest in 50 years, by a significant amount.

Housing market optimists (like Chris Thornberg) who say the market will bottom out by 2009 seem to have lost sight of the ARM reset schedule. The reset tsunami does not crest until 2011 as shown in this famous Ivy Zelman chart. I can’t imagine why anyone would assume the market will bottom out before that point.

Vozzie
Will Citi sell its Japanese holdings to Mitsubishi UFJ? 1st Morgan and now a home base. They wanna be a big player.

Citi spent $15B on expansion last year of the Nikko Cordial (Sounds like a drink) and gonna punt for a few B. God Citi’s trading department stunk.

Every day that Citi is open, the bank loses at least $50MM from its trading desk. Pathetic mopes.

This market is looking like being real ugly this week - equities and bonds both. If the market responds to the inauguration the way they did to the election, watch out. I’d say at least a 50-50 chance for new lows in equities by the end of the month.

Off for a short visit to Colombia tomorrow - avoiding the hurlworthy inauguration proceedings and a cold spell arriving here.

I hate whiny kids at the beach!

Suggestion: Don’t buy a home until the TAF is shut down. Unless you believe in the hyperinflation-reflation scenario, in which case you should buy ten foreclosure homes as investments ASAP

Monday, January 5, 2009
Decoder: Term Auction Facility
Trader watching markets

Some financial experts would tell you to thank your lucky stars for the Term Auction Facility, which has helped keep the rough economy going. Janet Babin explains how by taking us for a walk on the beach.
…
The Federal Reserve has always lent banks emergency cash through its Discount Window. The Term Auction Facility came into the mix when things got crazy about a year ago. It also gives banks loans, but the terms are longer — sometimes up to 84 days.

Seiberg: The large banks submit bids to the Fed on how much they’re willing to pay to get that money. And the Federal Reserve shifts through the bids and decides who the winners are.

The auction’s happen every two weeks. And Seiberg says we should be glad they do:

Seiberg: We should be singing hallelujah. Because this was a desperately needed solution to a liquidity crunch at the banks.

If the banks don’t have cash to lend, the economy screeches to a halt.

Professor Bill Brown at Duke Law School says its like whiny kids at the beach when all but one of their toys gets washed away:

Bill Brown: And so what the Fed is doing with this facility is saying we know that you’re no longer sharing toys, because you only have one toy each. We’re going to give you more toys.

In hopes that if banks get enough toys, they’ll start sharing again. But so far, that hasn’t happened, even though the Fed has been lending $150 billion every two weeks through the TAF program.

Brown: We should be worried that the Fed is exploding its balance sheet, we should be worried that things aren’t getting better, even though we keep trying to throw more money at it.

Yeah, can’t we all just go back to the beach? Maybe when the Fed closes the Term Auction Facility. That would be a sign that the economic tide has shifted.

I’m Janet Babin for Marketplace

SOS!!! The three-headed dog needs a bailout immediately!

Cerberus to cut staff as it seeks assistance
By Martin Arnold in London
Published: January 19 2009 21:01 | Last updated: January 19 2009 21:01

Cerberus Capital Management, the private equity group specialising in stripping costs out of struggling companies, is taking some of its own medicine with plans to cut 10 per cent of its 275 members of staff.

While Cerberus is the latest in a string of big private equity groups to announce cost-cutting measures as a result of financial and economic turmoil, its move underlines the massive problems it faces at some of its most recent investments.

Cerberus Capital Management, the private equity group specialising in stripping costs out of struggling companies, is taking some of its own medicine with plans to cut 10 per cent of its 275 members of staff.

BwaHAHAHHAHAHAHAHAHHAHAHAAAAHAAHAAAAAAAAAAAAAAAAAAA!!!!

Enraged citizens throwing stuff at City Hall?
Furious over budget cuts and empty shelves?
25% of the folks suddenly out of work?
Nation on verge of bankruptcy?

You might think that kind of thing will happen someplace else, if it ever does.

Well, it IS happening somewhere else right now.
Just give it 6 months to a year, and it’ll be on our doorstep:

http://tinyurl.com/ayblgd

My humble advice is: stock up and get prepared for some nasty times. Have a talk with your family and decide just WHAT you need to stock up on.

Prime Minister Vladimir Putin on Monday ordered changes to this year’s federal budget to take into account the sharp drop in global oil prices, a decision that could pave the way for further spending of the Reserve Fund.

The Finance Ministry must base the budget on the price of $41 per barrel, or less than half of the $95-per-barrel estimate that is a cornerstone of the existing budget…A Finance Ministry spokesman said the prices were for Russia’s main Urals blend…The Urals price averaged $42.90 in the first 16 days of this month, Economic Development Minister Elvira Nabiullina said…
—–
devalued Ruble, skyrocketing rates…..troubled times indeed behind the curtain…

The new car showroom of 2010:

http://tinyurl.com/7dd73d

Asian Stocks, U.S. Futures Fall as Recession Concern Deepens
By Shani Raja

Jan. 20 (Bloomberg) — Asian stocks and U.S. futures slumped after the U.K. widened a rescue plan for Royal Bank of Scotland Group Plc, sparking concerns that more companies will need bailouts as the global recession deepens.
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“We are in the middle of the economic Pearl Harbor right now,” billionaire investor and Berkshire Hathaway Inc. Chairman Warren Buffett told NBC in an interview aired on Jan. 18. “Now we have to get mobilized to win the war.”

Is this for real, or pure tinfoil?

FINANCE-US: Treasury Nominee Failed to Halt Bond Scam
By Lucy Komisar*

NEW YORK, Jan 19 (IPS) - U.S. senators at Timothy Geithner’s confirmation hearing for Treasury Secretary Wednesday may want to ask him about a failure to act that is costing the U.S. a lot more than the amount he evaded on taxes.

The Federal Reserve Bank of New York, which he has led since 2003, conducts the operations on Wall Street of the Federal Reserve Bank in Washington, the country’s central bank. The New York Fed under Geithner’s presidency has failed to stop massive naked short selling of U.S. Treasury bonds that threatens the stability of the market and sale of the bonds.

Ironically, the scam, enabled by a lack of regulation at the behest of Wall Street brokerage houses, makes it more expensive for the U.S. to bail out those same financial institutions.

It happens this way: an individual or fund is allowed to sell bonds without owning them. This is called short selling. The seller, whose broker has generally “borrowed” bonds from another broker, is supposed to subsequently buy them on the market, and return them to the lender. The seller does this because he believes that the bond is going down, and he will buy them at a cheaper price than he sold them for.

Dealbook
Obama’s Bailout Challenge
By ANDREW ROSS SORKIN
Published: January 19, 2009

Another week, another bailout.

Governments in several countries are suddenly scrambling to deliver a second round of financial support to their teetering banking systems, after a first wave handed out at the height of the financial crisis failed miserably in its mission of getting credit flowing again.

Britain on Monday set the stage for a full takeover of its banking system. And now, Barack Obama is trying to figure out how to shore up this nation’s banking industry as its crisis snowballs.

Mr. Obama is going to have one heck of a first day on the job. Already, his aides have a bevy of ideas to sift through, ranging from having government buy banks’ troubled assets, to creating a “bad bank” to soak them up.

And it doesn’t stop there. Others say he should follow the model of Sweden and flat-out nationalize the American banking system. Or he should inject more money into the banks and force them to lend it. Another view says he should take a page from Henry M. Paulson Jr., the Treasury secretary, and try to “ring fence” the entire system with the equivalent of government insurance for banks.

Lawrence H. Summers, Mr. Obama’s chief economic adviser, hinted Sunday that he’d been developing a new plan, and seemed to suggest he was leaning toward finding a way to press banks to lend more money. “The focus isn’t going to be on the needs of banks,” he said. “It’s going to be on the needs of the economy for credit.”

Here we are back to the philosophical debate over whether taxpayers or someone else will get to eat the fallout from the Fed’s printing binge.

Wall Street Journal

* JANUARY 20, 2009

Fed Grapples With a New Risk Reality
Balance Sheet Swells From the Assets Accumulated on a Rescue Tour
By SERENA NG and LIZ RAPPAPORT

It has loads of subprime-mortgage bonds, souring commercial real-estate debt and collateralized debt obligations worth a fraction of their original value. This isn’t Citigroup Inc. or Merrill Lynch. It is the Federal Reserve.

In the past year, the Fed lent out more than $1 trillion in its efforts to stabilize the financial and credit markets. A chunk of that was used to buy mortgage-related securities and loans in the rescues of Bear Stearns Cos. and American International Group Inc., as well as other debt shunned by investors.

Now, the government’s recent aid packages for Bank of America Corp. and Citigroup have the Fed playing the additional role of a backstop guarantor for portfolios of about $400 billion in troubled assets that were dragging down those banks. Those assets include residential- and commercial-mortgage loans, mortgage securities, corporate leveraged loans and credit-derivative positions.

Over the past year, the Federal Reserve (above) has assumed, backstopped or committed to take on some $2 trillion in assets from financial institutions and companies including Bear Stearsn, AIG, Citigroup and Bank of America.

As the U.S. central bank, the Fed has a mission to maintain financial and economic stability and contain systemic risk in the markets. It lends only when the loans can be “secured to [its] satisfaction,” according to laws that govern the Fed’s activities.

But as the economy slows, mortgage and corporate defaults climb, and asset prices continue to decline, analysts are beginning to argue that U.S. taxpayers could end up shouldering losses from some of the Fed’s moves.

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