The Housing Bubble

Got FDIC?

IMF calls for Asia to ‘flood’ banking system, cut interest rates
Report marks drastic about-face from earlier advice during the last crisis.
By Chris Oliver, MarketWatch
Last update: 12:42 a.m. EDT May 6, 2009

HONG KONG (MarketWatch) — Asia Pacific nations should flood their banking systems with liquidity and actively support credit growth using unconventional monetary policy and accommodative fiscal policy, the International Monetary Fund said Wednesday.
The global financial body urged the measures as part of a “forceful” strategy to last through next year in efforts to counter the effects of the global crisis.
The IMF also called for a refocusing upon domestic demand and away from exports as a source of economic growth, noting that consumption in the key export destinations of the U.S. and Europe could remain weak for years to come.
The measures, it said, were needed to counter an “astonishing” economic contraction in the poorest nations in the region, excluding China and India, in which gross domestic product fell a seasonally adjusted 15% during the fourth quarter.
The IMF made the recommendations in its Regional Economic Outlook, released Wednesday in Singapore.
“The spillovers from the global crisis have impacted Asia with unexpected speed and force,” the report said. “The downswing has been even larger than in other regions, and sharper than at the epicenter of the global crisis.”
Eating their words
The recommendations are a radical departure from the fiscal austerity measures that the IMF demanded as part of bailout packages during the 1997-98 collapse in the region’s currency and asset markets.

Partially completed SoCal housing tract demolished
Troubled housing market brings wrecking ball down on partially completed SoCal homes…
On Wednesday May 6, 2009, 7:53 am EDT

VICTORVILLE, Calif. (AP) — A foreclosed tract of partially completed homes was demolished after the bank that owns the project deemed it a hazard and calculated that finishing and selling the dwellings would be a money-losing proposition, a bank official said Tuesday.

The planned 16-unit tract on the fringes of a suburb about 65 miles northeast of Los Angeles included four finished homes with granite countertops, whirlpool bathtubs and dual-pane windows.

“The current economic environment requires difficult decisions be made by the government, by banks and by individuals,” said John Wessman, a spokesman for Guaranty Bank of Austin, Texas. “We made the difficult decision to return the site to a safe, clean and undeveloped state keeping in mind the best interests of the community and our shareholders.”

Crews began tearing down the structures in late April and completed their work Tuesday.

Building permits had been issued for the development in September 2007, Victorville city spokeswoman Yvonne Hester told the Los Angeles Times.

At the time, the median price for a home in San Bernardino County, where Victorville is located, was $325,000, according to San Diego-based tracking firm MDA DataQuick.

In March, the most recent month for which data is available, the median price for the county was $160,000, DataQuick said.

Home Prices: Low, But Still No Bargain

http://tinyurl.com/cmlkzy

It’s a month old but a good reinforcement for HBB’ers. Click on the comments tab and read some of those. Appears to be a few realturds developed their own LiarsClub in there.

(Hwy thinks to himself that perhaps he will never find the chance to rub elbows with folks like this at a polo game?)

filed under: “Listen pal, I’m a de-greed “Professional”! …or…”Why Capitalist like leverage”

“It didn’t make sense for the kind of business they were doing.” He also wondered why Sentinel had leveraged itself to the eyeballs; it had almost $3 billion in debt on a capital base of just $3 million.

Grede says the hunt bore quick fruit when he and his legal crew started rummaging through the effects and phone and e-mail trails of Mosley, Sentinel’s head trader and a five-year veteran of the firm.

The discovery of Chicago Bears season tickets tucked into Mosley’s trading desk drawer seemed of no consequence at first — until Grede and his sleuths say they began to understand Mosley’s passion for attending sporting events.

Bankruptcy Sleuths Find Cash in Trader Receipts for Lap Dancers:

May 5 (Bloomberg) By Seth Lubove

Almost One-Quarter of U.S. Homeowners Underwater as Values Sink…

May 6 (Bloomberg) — A growing number of U.S. homeowners owe more than their properties are worth after prices extended their two-year decline in the first quarter, Zillow.com said.

Almost 21.8 percent of all owners were underwater as of March 31, the Seattle-based real estate data service said in a report today. At the end of the fourth quarter, 17.6 percent of homeowners owed more than their original mortgage, while 14.3 percent had negative equity three months earlier.

Property values dropped 14 percent from a year earlier in the first quarter, reducing the median value of all U.S. single- family homes, condominiums and cooperatives to $182,378, Zillow said. The gain in underwater homeowners will lead to more bank repossessions, the company said.

Many owners “would be more willing to bear the financial consequences of bankruptcy or foreclosure,” Stan Humphries, Zillow’s vice president of data and analytics, said in an interview. “You are going to continue to see home prices fall for the rest of this year and some portion of next year.”

The recession cut home values by $2.4 trillion last year, First American CoreLogic said in a March 4 report. More than 8.3 million U.S. mortgage holders owed more than their properties were worth and an additional 2.2 million borrowers will be underwater if prices decline another 5 percent, the Santa Ana, California-based seller of mortgage and economic data, said in the report.

Unemployment Rising

The data demonstrates the challenges facing Federal Reserve Chairman Ben S. Bernanke and the Obama administration as they seek to spark a housing recovery. The Fed has pushed 30-year fixed home loan rates to a record low by purchasing mortgage- backed securities. The jobless rate jumped to 8.9 percent last month from 8.5 percent in March and employers cut at least 600,000 workers from payrolls for a fifth straight time, according to the median estimate in a Bloomberg News survey ahead of a May 8 Labor Department report.

The U.S. market with the biggest drop in home values in the first quarter was Salinas, California, where the median price fell 37 percent to $301,793 from year earlier, Zillow said.

CNBC’s On The Money viewed in the evening makes for great vindication. Carmen WhatsHerName takes calls from a wide selection of FB’ers, spendthrifts and other hollowed out economy believers who are neck deep in their self-created financial disasters.

But get this…. one deluded house debtor called last night and asked if she should pre-pay mortgage payments. Good question right? Most of us here would have a common answer…. pre-pay frequently and fast. Nope… not the born and bred dopes on On The Money. Their answer was emphatically “DON’T DO IT!”. They told the house debtor to put it in the bank or buy stocks. FPSS made the case for prepay succinctly(and I’m paraphrasing); “Where else can you get a gauranteed, fixed rate of return exceeding 5% with no risk? Prepay your mortgage”.

I had posted about this small firm called Economic Cycle Research Institute who has called recessions and end of recessions consistently. Here is the latest write up on them:

As Unemployment Growth Slows, a Recovery Could Stir
By DAVID LEONHARDT, NYTimes
Published: May 5, 2009

Ben Bernanke sounded more optimistic on Tuesday than he has in a long time, and President Obama has talked about glimmers of hope. The stock market has risen 34 percent from its 2009 nadir.

On Friday morning, we will get the clearest sign yet of whether these glimmers are real. That’s when the Labor Department will release its monthly jobs report, the single most important economic indicator out there. As bad as the job market is, it no longer seems to be getting worse at an accelerating pace. In both February and March, the economy lost fewer than 670,000 jobs; in January, it had lost 741,000.

In past recessions, a slowdown in the rate of job loss has been a telling sign. A few months after that, the economy typically began growing again. The vicious cycle turned virtuous.

……….

Wall Street has a notoriously bad forecasting record. It almost always predicts that the economy will grow by something like 3 percent a year, which happens to be correct most of the time. But when a forecast would most be useful — when the economy is turning — Wall Street doesn’t offer much guidance. Amazingly enough, Wall Street’s consensus forecast has failed to predict a single recession in the last 30 years.

A small firm in New York called the Economic Cycle Research Institute has a much better record. It was founded by Geoffrey Moore, an economist who helped invent the idea of leading indicators. He used historical patterns to predict the economy’s direction, and unlike most Wall Street forecasters, he wasn’t afraid to stand apart from the crowd. In 2006, while most forecasters were still talking about 3 percent growth, Mr. Moore’s protégés were issuing warnings (though they were still too optimistic).

Today, they think the economy is on the verge of turning. “We’re in the worst recession since World War II,” says Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. “However, the days of this recession are limited.”

Hmmmm….

“Investors should brave the risk of “economic chaos” and buy stocks and real estate, said Yale University professor Robert Shiller, whose 2000 book “Irrational Exuberance” predicted the market’s collapse.”

Zillow says 20% underwater already!

More than one in five homeowners underwater: Zillow
Wed May 6, 2:58 am ET

NEW YORK (Reuters) – Home values in the United States extended their fall in the first quarter, with more than one in five homeowners now owing more on their mortgages than their homes are worth, real estate website Zillow.com said on Wednesday.

U.S. home values posted a year-over-year decline of 14.2 percent to a Zillow Home Value Index of $182,378, resulting in a total 21.8 percent drop since the market peaked in 2006, according to Zillow’s first-quarter Real Estate Market Reports, which encompass 161 metropolitan areas and cover the value changes in all homes, not just homes that have recently sold.

U.S. homes lost $704 billion in value during the first quarter and have depreciated $3.8 trillion in the past 12 months, according to analysis of the reports.

Declining home values left 21.9 percent of all American homeowners with negative equity by the end of the first quarter, Zillow said.

By comparison, 17.6 percent of all homeowners owed more on their mortgage than their property was worth in the fourth quarter of 2008, and 14.3 percent were underwater in the third quarter of last year, the reports showed.

Nine consecutive quarters of declines have left eight regions — including the Modesto, California, Stockton, California, and Fort Myers, Florida regions — with median value declines of more than 50 percent since those markets peaked.

I’m trying to figure out what the grand plan is.

Chrysler shares we got in the bailout are being converted to common shares before the big wipe out.

GM is planning to convert the preferred shares to common shares before doing a 100 to 1 reverse split. Basically shares are worthless.

So, another set of major defaults. All that bailout money is going to our “owners” as Carlin would say; the big bond holders.

BOA, WF and such want to pay back the tarp money but need another 50 billion in capital. Citi is probably worse. Where did that first round of dollars end up? Maybe in the bond holders hands?

Not sure how the plan is supposed to work here. Everything that gets fed to these bankrupt companies just gets burned away under the mountain of debt. Also the banks need reserves, after government allowed them to go without, so we will still have a slowing velocity of money if we give them money. That is if the bondholders and insiders don’t just steal all of it.

The plan was for the tarp and bailout funds to keep productivity up and workers from getting laid off. Did that actually happen?

The plan was for banks to use the tarp money to shore up their balance sheets? Did that happen?

This is your new president and congress at work here. Hope you are all impressed so far. We are shifting from incompetence from guys that wanted to steal all of your money to incompetence from guys that have no clue what to do.

Don’t see this doesn’t end in some kind of default.

Chrysler HDQ was built to be able to be converted into a shopping mall. Did those guys have a crystal ball back in 1990 or what?

The Chrysler headquarters building is a spectacular sight from I-75 in Michigan. But the Auburn Hills edifice and its sprawling campus sit in the middle of one of the most economically depressed areas in the country. When the building was erected in the early 1990s, it was designed so it could be repurposed into a shopping mall without too much modification if the perennially troubled Chrysler should go out of business. But there is no interest in another shopping mall in a commercial corridor where unemployment and foreclosure rates are both above 20%, and one of the best-performing malls in the state, The Somerset Collection, sits 15 minutes away in Troy, Mich.

http://www.businessweek.com/bwdaily/dnflash/content/apr2009/db20090423_428911.htm

Wow. speechless.

Americans want to be lied to. . . .

“I thought I wanted a new era of transparency and accountability, but honestly, I just can’t handle it,” Ohio resident Nathan Pletcher said. “All I ever hear about now is how my retirement has been pushed back 15 years and how I won’t be able to afford my daughter’s tuition when she grows up.”

“From now on, just tell me the bullshit I want to hear,” Pletcher added. “Tell me my savings are okay.”
Always kernels of truth in tongue-in-cheek reports from The Onion.

Re: comments on yesterday thread CC not checked

Don’t sign the back of your credit cards but use a black sharpie and write “check i.d.” so that clerks will check for proper identification.

If anybody in the media says inflection point one more time I think I will throw up. Jump out of an airplane. Eventually you reach terminal velocity. Doesn’t mean you won’t hit the ground.

Rich Americans Default on Luxury Homes Like Subprime Victims
By Bob Ivry and Dan Levy, Bloomberg

Chuck Dayton put down a quarter of the $950,000 purchase price when he bought his house in Newport Beach, California, in 2004. He was making $500,000 a year with his drywall company and he expected home values to keep rising.

Then the mortgage market collapsed, new construction stopped and builders no longer needed his services. Dayton, 43, went into default four months ago because he couldn’t afford payments on the three-bedroom home, located within a block of the Pacific Ocean. He hopes his lender will agree to sell the seven-year-old house for less than he owes to avoid a foreclosure.

“It’s just wait and see right now,” Dayton said.

Borrowers such as Dayton, whose 2004 compensation was almost 10 times the median U.S. household income, are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money.

The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

Talk about pent up supply.

The Big Picture: “In a separate survey of homeowner sentiment, 31 percent of homeowners said they would be at least “somewhat likely” to put their property up for sale in the next 12 months should they see signs of a recovery.”

latest news
[BAC] Goldman Sachs raises US bank sector to attractive

MARKETWATCH FIRST TAKE
Lewis can’t survive after $35 billion capital raise
Commentary: Government pressure feels like payback after CEO criticism
By MarketWatch
Last update: 8:29 a.m. EDT May 6, 2009

NEW YORK (MarketWatch) — Ken Lewis will be out as Bank of America Corp.’s chief executive before the end of 2009, and here’s why: The government’s demand for $35 billion in additional balance-sheet cash will be too dillutive, prove too much of a burden for the bank and its shareholders.

So long as these too-big-to-fail banks have access to unlimited bailout monies, who can argue the banking sector is not in great shape?

UPDATE 1-Stress test banks need $75 bln capital: Citi analyst
Wed May 6, 2009 2:11pm BST

May 6 (Reuters) - Banks undergoing U.S. government stress tests will need a total of $75 billion in capital, with Bank of America and Wells Fargo having the largest need, analyst Keith Horowitz of Citigroup said.

The analyst expects 10 of 16 banks he covers, including KeyCorp, Regions Financial Corp and U.S. Bancorp, to raise capital after the stress tests.

While Bank of America is likely to need a substantial increase in common stock, the brokerage said it believes the bank can cover it via conversion of preferred stock.

“The (Bank of America) stock looks the cheapest in the group,” the analyst said.

“The government has thumbed their noses at people who have jumbo mortgages,” said Steve Habetz, president of Threshold Mortgage Co. in Westport, Connecticut.

Thumbing your noses at blue noses is so… uncouth

b: lacking in polish and grace : rugged c: awkward and uncultivated in appearance, manner, or behavior : rude

Hedge Fund Leader Blasts Obama for “Bullying” and “Abuse of Power”
Posted May 06, 2009 07:38am EDT by Tech Ticker in Investing.

Cliff Asness, whose firm manages some $20 billion of assets, has written an open letter blasting President Obama for his attack on the hedge fund industry in the wake of the Chrysler bankruptcy.

As you’ll recall, hedge funds, which hold approximately $1 billion in Chrysler bonds, refused the government’s offer to take approximately thirty cents on the dollar. Obama accused hedge funds of holding out “for the prospect of an unjustified taxpayer-funded bailout.”

These comments have enraged many in the industry but few have spoken out publicly. Asness, whose firm doesn’t hold Chrysler bonds, says the industry is genuinely afraid in the face of Obama’s power. Stating that he himself is “fearful writing this,” Asness still pulls no punches:

* “Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing.”
* “The President screaming that the hedge funds are looking for an unjustified taxpayer-funded bailout is the big lie writ large. Find me a hedge fund that has been bailed out. Find me a hedge fund, even a failed one, that has asked for one. In fact, it was only because hedge funds have not taken government funds that they could stand up to this bullying. The TARP recipients had no choice but to go along.”
* “The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him. Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good? Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power.”

LOS ANGELES (Reuters) – California Governor Arnold Schwarzenegger said on Tuesday he welcomes a public debate on proposals to legalize and tax marijuana, which some suggest could provide a lucrative new revenue source for the cash-strapped state.

The Republican governor, whose term in office expires at the end of next year, was asked about the idea of treating pot like alcohol at an appearance in northern California to promote wildfire preparedness.

“No, I don’t think it’s time for that, but I think it’s time for a debate,” he said. “And I think we ought to study very carefully what other countries are doing that have legalized marijuana and other drugs, what affect it had on those countries, and are they happy with that decision.”

The former Hollywood actor, who has admitted smoking marijuana in the past, cited his native Austria as a country where “they want to roll back some of the decisions that were made in European countries.”

He said a decision to legalize marijuana, which has been outlawed in the United States since 1937, should not be made on the basis of raising revenues alone.

Schwarzenegger’s comments come days after a statewide Field Poll found that 56 percent of California voters support the idea of legalizing cannabis for recreational use and taxing its proceeds.

A bill introduced in the state Legislature by Assemblyman Tom Ammiano, a Democrat from San Francisco, would do just that — permitting taxed sales of marijuana to adults while barring sales to or possession by anyone under age 21. A similar regulatory structure already exists for alcoholic beverages.

Ammiano said his proposal would generate up to $1.3 billion in revenue for the state, which faces another multibillion-dollar budget shortfall just weeks after a landmark deal closing a $42 billion deficit.

George better rehire Costanza.

Yankees Pitch $48 Steak, Bad Burgers at New Stadium:

Review by Ryan Sutton May 6 (Bloomberg)

“Ballparks across America are known for serving forgettable, overpriced food. That’s the only way to excuse the dining options at the new Yankee Stadium.”

“The Steinbrenner family, criticized for authorizing exorbitant player contracts that yield disappointing results, has built a $1.5 billion stadium that dishes out disappointing cuisine.”

Maybe Phil Gramm was right, we Americans are just whiners within a mental depression. ;-(

And presenting, straight from today’s front page of the local paper The Olympian:

‘Thurston median home price down 11.5 percent’

Thurston County’s median home price declined to $232,600 in April, an 11.5 percent drop compared with the same month last year, according to figures released Tuesday by the Northwest Multiple Listing Service.

But DON’T panic, man! Didn’t you hear me?! STOP PANICKING!

But Steves said he’s seeing sales activity increase as first-time home buyers take advantage of both the low prices and the $8,000 federal tax credit recently approved by Congress“We’re hovering near the bottom,” Steves said.

Whew…
* dabs at brow with lace hanky *
For a minute there I was worried we weren’t different after all…

There are no geniuses in the outhouse…
By Joe Bageant

Sometimes you overhear a remark so wonderfully prescient you wish you’d said it yourself. Especially if you are a writer. Sitting in back of the Troubadour Club, a West Virginia honky tonk high in the Blue Ridge Mountains, I’m listening to Petie Yost, an auctioneer, talk to Bud Shanholtz, who lives on Social Security and drives a snowplow occasionally during the winter.

Now ole Petie uses exotic economic terms such as “investment return” and “percentage.” He says things like, “I don’t do household auctions ’cause there ain’t no real percentage in it.” Which makes him an economic expert in these beery circles. And right now he is telling Bud why our Social Security and the FDIC do not exist.

“Whadaya mean they don’t exist?” asks Bud.

“Because they are both absolutely broke,” replies Petie. “Tits up. Nada.”

“How do ya mean?”

“Well, it’s like this. If you only have $100, and no job, but you owe $15 on your phone bill, and $700 for your rent and $400 on your credit card, you’re in deep shit. Right? You can’t just pay one of those bills and figure you’re OK. Right?”

“I’d say so” agrees Bud.

“Well, that’s the fix the U.S. Government is in. If you ask if the government has enough money to fund the FDIC during a bank run, and sure as Nellie’s goat eats cans there’s gonna be one, the government says yes. And if you ask if the Social Security checks will keep coming and never bounce, it says yes. But it’s one set of bills that comes out of one government pocket. Ain’t no special safe in Fort Knox where they keep the Social Security money or the FDIC money. So the government pays the $15 light bill and hope people never ask for their bank savings to be covered by the FDIC. Lucky for them, ain’t many people even got savings anyway.”

Bud nods and Petie continues.

“Meanwhile, they pay out the Social Security money as it dribbles in from kids flippimg hamburgers, and pay the $15 light bill, and pray to hell the Ay-rabs keep loaning them some dough now and then, until they can pawn off the rest of the country and maybe break even in the long haul. That is, if the bailouts keep the bankers’ shell game going long enough so nobody can figure out what’s up. Of course the bankers ain’t gonna squeal on the whole deal because they’re the only ones getting richer in this thing. But still the government is working out of one pocket where the hundred bucks used to be.”

Bud makes a sour face, and says, “Well, that stinks like a country outhouse in July, don’t it?”

“Worse, I’d say. Nobody expects a whole country to be run out of a shithouse. But everybody figures the shithouse in Washington is full of geniuses.”

I bought them both a round just for the pleasure of hearing some common sense for a change.

test…did I get put in the penalty box for some reason?

Foreclosures aren’t just for subprime buyers anymore
Bloomberg News
May 6, 2009, 6:04AM

Foreclosures have come to the Hamptons, the beach towns about 100 miles east of New York City on Long Island, where homeowners have included Blackstone Group LP Chief Executive Officer Stephen Schwarzman, hedge fund manager John Paulson and Goldman Sachs Group Inc. CEO Lloyd Blankfein.

Almost 90 borrowers entered the foreclosure process in the towns of East Hampton and Southampton in the first 10 weeks of 2009. That compared with 109 in the same period last year and 73 in the first 10 weeks of 2007, according to the Real Estate Report in West Islip, N.Y.

Home sales in the Hamptons fell 67 percent in the first quarter from a year earlier, the most since records were first kept in 1982, according to Town & Country Real Estate of the East End LLC. The median sale price slid 28 percent from a year earlier.

Rule changes spurred by rising defaults now require lenders to work with delinquent New York homeowners before beginning the foreclosure process, said Pat Ammirati, president of the Real Estate Report.

Saw an interesting political cartoon today.

Shows a bunch of politicians and academics shovelling money out of the back of a trailer.

The text has -

“Planned Economy or Planned Destruction?”

“Plan of Action for the U.S. - Spend! Spend! Spend!”

“Under the guise of recovery- bust the Government - blame the capitalists for the failure - junk the Constitution and declare a dictatorship”

Originally appeared in the Chicago Tribune, April 1934.

Gold futures rise again as data points to inflation ahead
By Kate Gibson, MarketWatch
Last update: 1:25 p.m. EDT May 6, 2009

NEW YORK (MarketWatch) - Gold futures on Wednesday climbed higher, furthering the prior day’s strong gains, as the latest economic data fueled thinking of inflation ahead, bolstering the dollar-denominated precious metal’s appeal as a hedge.
“We’re up today on renewed enthusiasm along with the equities market. With mortgages increasing and the positive ADP numbers … it could lead to inflation down the road,” said Rob Kurzatkowski, senior commodities analyst, OptionsExpress.
In another signal that the pace of the economy’s decline is moderating, an industry report found private-sector employment fell by an estimated 491,000 jobs in April, the smallest decline in six months. Read about ADP Employment Index.
Also helping boost sentiment, the Mortgage Bankers Association reported a 2% rise last week in the count of mortgage applications, adding to thoughts that the troubled housing market could be stabilizing. See detailed story.
In early afternoon trade, gold for June delivery climbed $4.5, or 0.5%, to $908.80 an ounce on the New York Stock Exchange, after rising as high as $913.50 earlier on.
Copper for July delivery gained 10 cents, or 4.8%, to $2.18 a pound on the Comex division of the NYME.
“Spot gold has been up for the last day or two on a weak dollar and concerns over the U.S. bank stress test results,” said George Gero, vice president, RBC Capital Markets Global Futures.
Published reports varied on the amounts needed to comply with the government-administered test, with the New York Times reporting Bank of America Corp. (BAC:
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BAC 12.48, +1.64, +15.1%) would need more than $30 billion in additional capital. Read more.
Viewed as a safe haven amid any trouble in the financial markets, gold on Tuesday rallied above $915.00 an ounce, the contract’s highest level in a week, before sliding as the dollar switched direction and rose against the euro.
The precious metal in February climbed above $1,000 an ounce, and fell to a near three-month low of $864 in mid April.
On Wednesday, the U.S. dollar reversed losses and gained against most of its major rivals. See Currencies.
On Wall Street, stocks were mixed, with banking and energy sectors striking solid gains while other sectors slipped. Read full report. End of Story
Kate Gibson is a reporter for MarketWatch, based in New York.

Financial Times
Subprime lobbyists in $370m battle
By Edward Luce in Washington

Published: May 6 2009 05:02 | Last updated: May 6 2009 05:02

The top 25 US originators of subprime mortgages – the risky assets that sparked the global financial crisis – spent almost $370m in Washington over the past decade on lobbying and campaign donations as they tried to ward off tighter regulation of their industry, an investigation has shown.

The study, which will be released today by the Center for Public Integrity, a non-profit investigative journalism organisation, is likely to strengthen public calls for much tougher financial regulation in the US.

It shows that most of the top 25 originators, most of which are now bankrupt, were either owned or heavily financed by the nation’s largest banks, including Citigroup, Goldman Sachs, Wells Fargo, JPMorgan and Bank of America. Together, they originated $1,000bn in subprime mortgages in 2005-07 – almost three-quarters of the total.

At least eight of the top 10 were backed at least in part by banks that have received bank bail-out money.

Eleven of the lenders on the CPI list have made payments to settle claims of widespread lending abuses, including four recipients of Tarp funds.

“Their unbridled political contributions and massive lobbying created the lack of regulation and oversight that led to this ­crisis,” said Bill Buzenberg, who headed the CPI investigation. “Despite the signs, Congress, the White House and the Federal Reserve all dithered while the subprime disaster spread.”

The too-big-to-fail banks that automatically qualified for bailout funds appear to have been among the key perpetrators of the financial crisis. Apparently moral hazard and financial engineering don’t mix.

Financial Times
Few escape blame over subprime explosion
By Edward Luce
Published: May 6 2009 05:02 | Last updated: May 6 2009 05:02

Chronicling the explosion of subprime mortgages is a bit like reading Murder on the Orient Express. As in the novel, in which everyone is revealed to have had a hand in the murder, America’s subprime story implicates almost every power centre – including the Bush administration, the Federal Reserve and the Democratic party.

Take Roland Arnall, founder and chief executive of Ameriquest Mortgage Co, the California-based company that made more than $80bn in subprime mortgages between 2005 and 2007.

Ameriquest was repeatedly held up by regulators and courts for abusive lending practices, most recently in 2006 when it agreed to pay a $325m fine after it was shown it had misled borrowers, falsified documents and pressed appraisers to inflate home values.

The company, which has since closed, gave $263,000 to George W. Bush in campaign contributions. Mr Arnall, who died last year, went on to become Mr Bush’s ambassador to the Netherlands. To keep things even-handed, his company donated $1.57m to the Democratic party.

Between 2005 and 2007, which was the peak of subprime lending, the top 25 subprime originators made almost $1,000bn in loans to more than 5m borrowers, many of whom have had their homes repossessed, says the Center for Public Integrity, a Washington-based journalistic watchdog.

CPI contacted the chief executives or former CEOs of all of the 25 originators. Most did not respond. Of those that did, Goldman Sachs said in a statement: “As an industry, we collectively neglected to raise enough questions about whether some of the trends and practices that became commonplace really served the public’s long-term interest.”

Those loans lit the fuse that led to the global financial meltdown. The Fed, which refused to tighten regulation of these non-bank companies, since it is charged only with direct regulation of banks, told Congress it would be too expensive to provide oversight.

Last October Alan Greenspan, former Fed chairman, told a congressional committee: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief.” But resistance to regulation went deeper than Mr Greenspan’s ideological objections.

The CPI investigation shows most originators spent millions of dollars lobbying Washington in the mid-1990s, much of it to prevent new legislation that would tighten restrictions on subprime lending.

The financial sector has spent $3.5bn in the past decade lobbying in Washington and made $2.2bn in campaign donations, says the Center for Responsive Politics, an independent watchdog.

The CPI investigation shows that at least 21 of the 25 top subprime originators, most of which are bankrupt, were either owned or financed by the biggest recipients of troubled asset relief funds, including Citibank, Bank of America, Wells Fargo and JPMorgan – also the largest political donors in Washington.

HSBC, the British bank, is listed as the eighth largest subprime originator because of its purchase of Decision One in 1999 and Household International in 2003. From 1999 to 2008 HSBC donated more than $6.4m and spent $21m on lobbying activities in Washington.

“The largest American and European banks made the bubble in subprime lending possible by financing it on the front end, so they could reap the huge rewards from securitising and selling mortgage-backed securities on the back end,” says Bill Buzenberg, who led the investigation. “Washington was warned repeatedly over the last decade that these high-cost loans represented a systemic risk to the economy. It is hard to believe the major banks were unaware of what was going on, or what the consequences might ultimately be.”

Among the other top originators were New Century Financial Corp, which was alleged by investigators in its 2007 bankruptcy proceedings to have had an “aggressive manner that elevated the risks to dangerous and ultimately fatal levels”. Its largest financial backer was Goldman Sachs, which has received $10bn in Tarp bail-out funds.

WASHINGTON (AFP) – US and foreign banks were not unwitting victims of circumstance but deliberately culpable in the financial meltdown that engulfed the United States last year, a campaign group said Wednesday.

The Center for Public Integrity named 25 “subprime” mortgage companies whose risky lending was blamed for the US property market collapse and the subsequent global economic crisis.

Many of the lenders were either controlled by US and European banks, or could not have indulged in their high-risk lending spree without the connivance of banks, the investigative journalism group said in a new study.

“The mega-banks that funded the subprime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves,” the center’s executive director Bill Buzenberg said.

“These banks were deliberate enablers that bankrolled the type of lending that’s now threatening the financial system,” he said.

The study was released as the US House of Representatives was set Wednesday to vote on a Senate-approved bill that would set up a 9/11-style commission of experts to probe the root causes of the financial crisis.

The purpose is not “to point fingers and place blame,” Republican Representative Darrell Issa said, “but rather to identify mistakes” to prevent a future recurrence.

The purpose is not to point fingers?????????????? Why the F not Darrell, there should be more than finger pointing going on.

BULLETIN CRUDE-OIL FUTURES CLOSE AT SIX-MONTH HIGH

PAUL B. FARRELL
‘Goldman Conspiracy:’ Bogle’s ‘pathological mutation?’
Machinations on Wall Street, in government give rise to 13-episode TV plot
By Paul B. Farrell, MarketWatch
Last update: 6:50 p.m. EDT May 4, 2009

ARROYO GRANDE, Calif. (MarketWatch) — Prediction: The new movie “Public Enemies” will be a mega-blockbuster. Not because everybody loves “Pirates of the Caribbean” star Johnny Depp and Christian Bale, star of “Terminator: Salvation” and “Dark Knight.”

No, it’ll be a blockbuster because we get a chance to cheer for a new dark antihero, the infamous Depression era gangster, machine-gun-toting John Dillinger: Cheer because this new Dillinger is doing what we all secretly want to do — rip off our corrupt banking system, turn the tables on the guys who have been ripping us off for too long.

Dillinger must be the guy former SEC Chairman Arthur Levitt had in mind when he told Fortune: “America’s investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask.” That was the last recession. Today, it’s a heck of a lot worse in the “Great Recession:” Bad banks, financial weapons of mass destruction, AK-47 derivatives.

Yes, this time the banks are the gangsters. They’re robbing Main Street’s Treasury. And it’s an inside job. Hank Paulson, the “Goldman Conspiracy’s” Trojan Horse, plays a “Dillinger,” leading a much bigger conspiracy, the “Happy Conspiracy,” that robbed America’s 300 million citizens and taxpayers. They made off with trillions, while our “guards,” a clueless Congress, laid down their guns and surrendered the keys to the vault.

I’ve seen suicides of Freddy Mac executives and of FB’s before, but this is the first stressed out building contractor I’ve seen take this dark path.

http://www.latimes.com/news/local/la-me-murder-suicide7-2009may07,0,2401998.story

An electrical contractor who was having financial problems shot to death his live-in girlfriend and 3 1/2-year-old son before killing himself, police said today. …
A work van labeled Rubin Electric was parked outside the apartment.

Too bad he decided to take others with him.

LOL!

Chinese drywall has hit MSM :

http://www.cnn.com/2009/US/05/06/florida.chinese.drywall.family/index.html

Haven’t you guys been joking about this, for a while?

Hey, anybody remember who was the poster was that called SKF going to 40 bucks?

Good morning USA! (Well, good evening I guess…)

Sydney checking in…our Depression’s starting in good and earnest now. First up, record loss reported by Bankwest (a subsidiary of one of our Big 4, CBA) of $139MM for the year 2008. (Banks aren’t supposed to report losses here, only profits.) A major contributor to this loss was a jump in loan impairment expense, from $87.8MM to…wait for it…$825.3MM. I reckon that’s, what, roughly a 9.5x jump in a year?

Due mostly to commercial lending and property losses in South Australia (mining country) and Queensland (tourist country).

Links to follow in next post of course…

AND, the Sydney Morning Spin is really starting to turn goth these days…this the latest from this morning (excerpt):

City dwellers sinking deeper into debt
Adele Horin
May 7, 2009

EVEN before the recession threw tens of thousands of people out of work, Sydneysiders were struggling to cope financially, failing to save or budget, and unable to pay their bills on time.

A survey by the Wesley Mission, conducted in December, shows Sydney residents were financially worse off than they were when surveyed two years earlier. Almost one in three Sydneysiders said it would be difficult or impossible to cope with a $160 increase in their monthly expenses compared with 14 per cent in August 2006. There was also a near doubling in the numbers who would find it difficult or impossible to raise $2000 on short notice, rising to 30 per cent of Sydney residents. And 23 per cent could not pay their electricity, gas or telephone bills on time compared with 13 per cent in 2006.
…
Based on a survey of 450 Sydneysiders, it shows almost half had no savings and one in eight were on the verge of insolvency by spending more than they earned. Many would find it hard to cope with an emergency, such as an unexpected medical bill, the report said. An alarming 20 per cent of credit card holders could never pay off their balance in a 12-month period, yet more than half the residents surveyed had neglected to draw up a budget in the previous year.

(link to follow)

We’re still a year behind you guys, but I think we might be able to *do* this Housing Depression *deeper* and harder when all is said & done… (aussie aussie aussie, oi oi oi?)

Anyone up for some late night KFC chicken?
All those green shoots gave me a case of the munchies.

Society is like a stew. If you don’t keep it stirred up you get a lot of scum on the top. -Edward Abbey, naturalist and author (1927-1989)

It seems that the time is ripe for some stirring.

On the other hand… be careful what you wish for.

Financial Times
Senate bill gives freer hand to mortgage market
By Saskia Scholtes in New York
Published: May 7 2009 01:28 | Last updated: May 7 2009 01:28

The US Senate on Wednesday passed legislation that seeks to prop up the housing market by giving mortgage servicers freedom to modify problem home loans without fear of investor lawsuits.

The bill also revamps the Hope for Homeowners programme aimed at helping borrowers remortgage and raises the Federal Deposit Insurance Corporation’s coverage on individual bank accounts and its ability to borrow from the Treasury. It also strengthens the terms of the Troubled Asset Relief Program.

The House of Representatives has already passed its version of the legislation and the Senate tried to tailor its bill, which passed 91-5, so the two could be easily reconciled. The legislation protects servicers from lawsuits filed by mortgage bond investors when they modify loans under government anti-foreclosure initiatives.

This so-called “safe harbour” provision has been controversial because investors owning securities backed by borrower’s main mortgages say banks owning riskier second-lien mortgages could use the legislation to avoid billions of dollars of losses.

Second-lien loans are mostly owned by banks, which also own the mortgage servicers. Investors say the “safe harbour” provision could allow servicers to favour banks that own them.

Financial Times
John Gapper
How banks learnt to play the system
May 6, 2009 9:54pm

My Thursday FT column this week is about the US bank stress tests and Basel:

Those who cannot remember the past, wrote George Santayana, are condemned to repeat it.

Twenty years ago, global banking regulators declared that every bank ought to hold core capital equivalent to 4 per cent of its risk-weighted assets. Today, the US government will say the same thing differently.

This repetition will be expensive. It may force Bank of America to raise an extra $34bn (€25.6bn, £22.6bn) of common equity, and Citigroup to raise up to $10bn. More than half of the 19 banks under scrutiny could be told to drum up capital.

The difference between 1988 and today is that tangible common equity is the new tier 1 capital.

To all but bankers or regulators, that last sentence is incomprehensible, of course. Yet it encapsulates why two decades of reform intended to protect banks against collapse not only failed to work but had the perverse effect of hiding the problem.

Cleveland – Workers at the largest financial institutions are on pace to earn as much money this year as they did before the economic collapse, according to a recent article in The New York Times. Goldman Sachs just set aside $4.7 billion for bonuses and compensation in the first quarter. And traders and investment bankers at JP Morgan Chase are projected to earn an average of over $500,000 this year.

Financial Times
Gold sales cost Europe’s central banks $40bn
By Javier Blas in London
Published: May 6 2009 23:31 | Last updated: May 6 2009 23:31

Europe’s central banks are $40bn poorer than they might have been after they followed a British move taken 10 years ago on Thursday to shrink the Bank of England’s gold reserves, analysis by the Financial Times has shown.

London’s announcement on May 7 1999 that it would sell a large share of the Bank’s gold reserves in favour of assets offering a return, such as government bonds, was the high water mark of so-called “anti-gold” sentiment among European central banks.

GoldMany of these banks, such as those in France, Spain, the Netherlands and Portugal, decided later in 1999 to follow Britain and sell off their reserves. At that time, gold was worth around $280 an ounce, less than a third of its current level of more than $900.

European banks sold about 3,800 tonnes of gold, reaping about $56bn, according to calculations from official sales data and bullion prices.

Taking into account the likely returns from the investments in bonds, the banks have gained another $12bn. But because today’s gold prices are far higher, they are about $40bn poorer than if they had kept their reserves.

The biggest loser is the Swiss National Bank which sold 1,550 tonnes over the decade and at today’s gold prices is $19bn poorer, followed by the Bank of England, which is $5bn poorer.

The Fed sees green shoots, and signs of a year-end recovery. Meanwhile, out in the real world, …

Wall Street Journal

* REAL ESTATE
* MAY 7, 2009

Deserted Building Sites Add to Property Bust’s Toll

By JIM CARLTON

TORRANCE, Calif. — After a cash-starved developer halted construction last November of an assisted-living center here, it left a hole in the hillside that neighbors say is loosing possibly contaminated dust on their homes.

Local authorities say they haven’t detected any pollution. But nearby residents, citing their own tests and some health problems, are calling for an independent investigation. Several trooped recently to City Hall, demanding action.

It’s another facet of the real-estate bust: Across the country, local authorities are facing a rise in complaints about environmental and safety hazards from construction sites where work has been frozen.

In the Phoenix area, where scores of unfinished condominiums and other projects dot the horizon, local officials report a surge in calls about increased dust and tumbleweeds from sites cleared of native foliage. In San Diego, a block of sidewalks was torn up for several months where construction of a 14-story residential tower was halted in early 2008.

View Full Image
Work halted in January on an assisted-living center in Torrance, Calif., shown here under construction last year.
Charles Bennett / Daily Breeze

Work halted in January on an assisted-living center in Torrance, Calif., shown here under construction last year.
Work halted in January on an assisted-living center in Torrance, Calif., shown here under construction last year.
Work halted in January on an assisted-living center in Torrance, Calif., shown here under construction last year.

On the Gulf Coast south of Sarasota, Fla., trash and other debris was blowing into Lemon Bay from an unfinished condominium project until local officials ordered a barrier fence put up in January. The four-story project of luxury condos had halted construction in late 2007, said Larry Bailie, a broker for the property.

There are so many abandoned work sites in Florida that some local entrepreneurs started a Web site, UnfinishedConstruction.com, to keep up with them all. The Web site’s latest tally: about 100 properties in Florida, most of them commercial.

“The complaint we hear the most about from these is the safety factor,” said John Rebimbas, a partner in the Naples, Fla., site, which also acts as a brokerage for people seeking to buy or sell unfinished projects, including the Lemon Bay site. “Sites are left unsecured, and that means kids can play on balconies with no railing.”

He says not to blame the bankers, but wasn’t it the lobbyists for the banks that used overwhelming force to destroy sound regulatory policy?

Wall Street Journal

* OPINION
* MAY 7, 2009

Capitalism in Crisis

It’s hard to run a safe banking system when the central bank is recklessly easy.

By RICHARD A. POSNER

The current economic crisis so far eclipses anything the American economy has undergone since the Great Depression that “recession” is too tepid a term to describe it. Its gravity is measured not by the unemployment rate but by the dizzying array of programs that the government is deploying and the staggering amounts of money that it is spending or pledging — almost $13 trillion in loans, other investments and guarantees — in an effort to avoid a repetition of the 1930s.

Much of this sum will not be spent (the guarantees), and probably most will eventually be recovered. But a commitment of such magnitude — stacked on top of enormous budget deficits enlarged by sharply falling federal-tax revenues — could lead to high inflation, greatly increased interest costs on a greatly increased national debt, much heavier taxes, the restructuring of major industries, and the redrawing of the line that separates business from government.

How did this happen? And what is to be done?

…let’s place the blame where it belongs. Not on the bankers, who are not responsible for assuring economic stability, but on the government officials who had that responsibility and failed to discharge it. They failed even to develop contingency plans to deal with what everyone knew could happen in a context of escalating housing prices (it had happened in Japan in the late 1980s and the 1990s). Lacking such plans, the government responded to the crisis with spasmodic improvisations, amplifying uncertainty and mistrust and thus retarding recovery.

And let’s not forget to apportion some of the blame to the influential economists who assured us that there could never be another depression. They argued that in the face of a recession the Federal Reserve had only to reduce interest rates and flood the banks with money and all would be well. If only.

Mr. Posner is a federal circuit judge and a senior lecturer at the University of Chicago Law School. He is the author of the just-published “A Failure of Capitalism: The Crisis of ‘08 and the Descent into Depression” (Harvard University Press).

Spoiler alert! Major banks in the Alt-A Bay Area appear to have failed their stress tests…

Major banks reportedly failed stress tests
James Temple, Chronicle Staff Writer
Wednesday, May 6, 2009

The Bay Area’s three dominant banks reportedly need to inflate their capital cushion by a collective $54 billion after failing government stress tests, a requirement that threatens to tighten lending, undermine deposit growth and reduce the ownership stake of existing shareholders.

The stress tests were designed to evaluate the ability of the nation’s 19 largest banks to weather a deepening recession. Financial companies deemed likely to struggle for survival in that climate are being instructed to improve their capital positions as a buffer against possible escalating losses. Analysts expect that at least half of the banks tested will be asked to do so.

Wells Fargo & Co. of San Francisco is short by about $15 billion, Bank of America Corp. by around $34 billion and Citigroup Inc. by approximately $5 billion, Bloomberg News reported, citing people familiar with the tests. The banks all declined to comment.

Up and at ‘em, Ben! No rest for the wicked!