The Housing Bubble

Can I be #1 because i RENT…or because i am a DJ?

You’re OK dj, you should go to a couple of open houses today to get some good laughs

Both.

LOL!! Love the last line.

Analysis: Ex-Countrywide execs seek to aid housing
Rachel Beck
Associated Press
Sunday, May 31, 2009

NEW YORK — Countrywide Financial placed itself at the epicenter of the housing crisis by making far too many risky loans to homeowners who ultimately couldn’t afford them. Those missteps cost CEO Angelo Mozilo his job when the lender was taken over by Bank of America a year ago at a fire sale price.

Mozilo is now spending most of his time dealing with the dozens of lawsuits naming him as a defendant, but his one-time No. 2 executive and a team of Countrywide alumni are still in the game — shopping around a new business called PennyMac that buys up distressed mortgages and modifies borrowers’ loans.

So, the same people who helped create the housing mess are now trying to make money cleaning it up. As off-putting as that sounds, there’s a certain logic to it.

“What will be important to watch here is whether PennyMac has found a way to make money and can do good for homeowners at the same time,” said Margot Saunders, an expert on predatory lending through her work at the National Consumer Law Center.

PennyMac announced on May 22 that it wants to raise $750 million in a public stock offering. No date for the IPO has been set, and the company declined any comment relating to its business because Securities and Exchange Commission rules prohibit it from going beyond what is spelled out in the IPO disclosure document.

The game plan discussed in the SEC filing starts with PennyMac buying at a deep discount troubled loans that have been clogging the books of the nation’s banks. Financial institutions already have been forced to take massive write-downs since the value of those assets have plunged. Those losses have caused banks to drastically curb lending, which has hurt the overall economy.

Once PennyMac owns the loans, it plans to approach borrowers with offers to modify the mortgages to make them more affordable. That could mean lowering the principal on the loans or cutting interest rates.

PennyMac makes money by buying loans at steep discounts, which allows it to profit when the mortgage is modified so long as borrowers stay current on their reworked loans. If loan values eventually rise with a rebound in credit markets, PennyMac would try to sell them.

PennyMac could buy a mortgage from failed Bank ABC for 20 cents on the dollar, well below the 70 cents Bank ABC had it on its books. PennyMac then contacts the delinquent homeowner, and offers to cut his mortgage payments in half, which would bring the value of the loan down to 35 cents on the dollar.

PennyMac profits from the spread between where it bought the loan and modified value. In this case, that would be 15 cents on the dollar.

PennyMac’s leadership could help fix the economy, or stuff they own pockets. Let’s hope capitalism doesn’t rule.

Still no mini-chile; but we got our lease renewal yesterday.

No price increase - again. We moved here in September of 2006 and have yet to see an rent increase. Last year they cut us a small check just to say thank you for staying, maybe we’ll get the same this year.

Maybe we can get the Baby Einstein DVDs with the money we saved by renting. Naaaaahhhhhhh!!!!!!!

I figure the kid will learn more playing with me than sitting in front of the tv. I like to dig holes and go to tea parties with Mr. Frog and Mr. Bear.

Hey, Olympiagal, my wife and I are going to be visiting the Seattle area at the beginning of July and were interested in visiting Olympic National Park/Forest. If you would be so kind to drop me a line at stheller at hotmail dot com, I’d like to ask you some questions about how to get there, where to stay, etc.

Thanks!

Has economic twilight fallen on nation’s Sun Belt?

http://news.yahoo.com/s/ap/20090531/ap_on_re_us/us_stress_map_sun_belt_sunset

ABU DHABI, May 31 (Reuters) - The central bank chief for the United Arab Emirates said he saw weakness in the dollar as a “temporary situation” and expressed support for the greenback, saying nothing could replace it as a reserve currency.

“There is no other currency to replace the dollar, not the euro,” Central Bank Governor Sultan Nasser al-Suweidi told reporters on Sunday. “It is the currency for investment.”

The comments echo those made several days earlier when Suweidi said the UAE was not diversifying its reserves away from the dollar after the country’s decision to drop plans to join a Gulf Arab currency union fanned speculation it could alter its dollar peg. [IDn:LT295593]

In the movie The Perfect Storm the sun peaked through the clouds right before a giant wave sank the swordfish boat.

Geithner sees hopeful signs in US economyMay 31, 2009 9:02 AM ET advertisement

All Associated Press news BEIJING (AP) - U.S. Treasury Secretary Timothy Geithner says the U.S. financial system is in much better shape these days and there is more stability in the overall economy.

Geithner told reporters traveling with him Beijing that there are a number of signs the U.S. economy is beginning to stabilize. The U.S. has been mired in its longest recession since World War II.

But Geithner said much more needs to be done — both in the U.S. and elsewhere — to make a sustainable recovery possible.

OT…sorry but one of our HBB people had some concerns as they have MTG with this bank and I’m in a rush and can’t locate their post.

FYI…

Anchor BanCorp extends credit payback agreement
By Paul Gores of the Journal Sentinel

Madison’s Anchor BanCorp Wisconsin Inc. said Friday it has a new amended agreement that will give it a full year to pay back a $116.3 million line of credit to U.S. Bank.

Anchor, Wisconsin’s fourth-biggest bank, said that under terms of the amended agreement, the maturity date on the balance now is May 31, 2010 and no principal payment is due before then. A previous amended agreement was set to expire Friday. The line of credit is secured by Anchor stock.

Anchor has been wrestling with financial losses. Anchor lost $169.8 million last year and another $20.6 million in the quarter ended March 31 of this year, according to FDIC records.

http://tinyurl.com/kreuoy

Industry Fears U.S. May Quit New Car Habit

DETROIT — For all the drastic cuts and financial overhauls that are meant to secure a future for General Motors and Chrysler, their prospects in coming years will be determined more by the answer to a simple question: Can American drivers live without that new-car smell

In recent years Americans appeared to be hooked on it and took advantage of home equity loans, easy credit and cheap short-term lease deals to send new-car sales to levels of more than 17 million a year.

Now the market has collapsed by 46 percent to below 10 million, as people are making do with the cars they have, leaving the industry to debate — and worry — about what the new normal will be once the recession ends.

I found these charts interesting. Looks like FL, CA, NV and AZ are more than 50% through the correction back to normal ratios (not to say that overbuilding, job loss, and high interest rates right around the corner, wont cause an over-shoot on the downside). The Northeast, however, has a long way to go.

http://mysite.verizon.net/vzeqrguz/housingbubble/

I have grown up in Florida and been here for 60 years. I have heard the BS water shortage gig for all of them. In the last two weeks we received 30 inches of rain due to global warming no doubt.

We have a little phenom called tropical weather and hurricanes. Oh yes I also hear that water runs off and little gets in the aquifer.

All the groves froze out 20 years ago, everyone drinks bottled water from some spring in Tennessee, we now have a million acres of water retention areas, and they are still watering the highways and streets every night with water meant for shurbs.

Water shortage my azz, we are almost under water based upon the polar icecap meltdown. Right!!!!

Hey everyone, my friend JIm just went from print to online for his awesome paper, the first global edition (put dots in the spaces):

www canyoncountryzephyr com

My fav is always “Take it or Leave it”

It’s a very interesting read, and he does all the illustrations himself, he was a close friend of Ed Abbey, and he’s a great guy. I know he’d appreciate your support, just in reading it.

Off to Colorado, with “stuff.” Reminds me of this:

www youtube com/watch?v=MvgN5gCuLac

I enjoyed the 1.5 hour helicopter ride over Grand Canyon much better then ridding a bus along the edge.

36 Hours at the Grand Canyon

MORE than a mile deep at its most majestic, the Grand Canyon can still drop the most jaded of jaws. The sun sparkling across the exposed rock, the delicate curl of the Colorado River, the birds chirping in the pinyon pines — and then a bus grinds past you on a hunt for the best postcards in the park. Yes, the Grand Canyon is big in every way, including the category of tourist trap. Over four million people visit this remote corner of Arizona each year, and the experience can be a bit “death by gift shop,” if you don’t plan ahead — a necessity even if crowds and kitsch are your thing. During peak season, May through September, hotel rooms sell out months in advance, ditto for those mule rides, and certain rafting trips can be a year-long wait or more. Ah, wilderness!

http://travel.nytimes.com/2009/05/31/travel/31hours.html?em

An older article, but I just recently came across it. Bitter fruits of grobalism. Very interesting read.

http://www.dailymail.co.uk/news/worldnews/article-1063198/PETER-HITCHENS-How-China-created-new-slave-empire-Africa.html

The Price Range Strategy

THREE years ago, when someone knocked on the door of Adriana Karekinian’s waterfront home here, and offered her $1.4 million for it, she turned the person down. She had just redone the stucco exterior, installed an in-ground pool and replaced the windows. The house wasn’t even on the market.
Fast forward to this spring. In the midst of a divorce, Ms. Karekinian, a former circus performer, needs to sell.
“I wish I would have known” about the souring market, she lamented.
But even while kicking herself for not having grabbed the unsolicited offer, Ms. Karekinian has joined a small group of pricing pioneers on Long Island: Rather than settling on one number for her five-bedroom colonial, she opted for a “value range price” of $999,000 to $1,194,876. She decided to adopt the tactic in listing the property last fall with Carol Poetsch of Prudential Douglas Elliman’s East Meadow office.
“I am not just going to say I want $1.3 and that’s final,” Ms. Karekinian said, signaling her flexibility but vowing that she won’t sell below the range. “Now I’m flexible — not stupid flexible, but flexible.”
http://www.nytimes.com/2009/05/31/realestate/31lizone.html?ref=realestate

Dam I thought it was the buyer who decides the price of a house. LI is a very strange place. People with money flaunt it.

Bear in mind that it does cost less to cool a house than to heat one. If it is 90 degrees, you’re only lowering the temp 15 degrees to be comfortable. If it is 30 degrees, you’ve got to raise it at least 35, depending on your comfort level. Of course, you’ve got to factor in various regions and how long the temps are at a certain level. For example, we’ve got about 5 months where temps hover between 85 and 95 with humidity. Up north, I think it is only about 3 months of bone-chilling temps.

This is nowhere close to being true. I spend much more cooling my house in Texas than I did heating it in Alaska. And here in Texas my power costs are 75% lower in winter than in summer. Air conditioners are FAR less efficient than heaters in modifying air temperature. A typical air conditioner uses several times more watts of electricity to cool a unit of air by 1 degree compared to what a heater uses to raise the temperature of a unit of air by the same degree. Not to mention the fact that heating houses can be done directly through gas combustion whereas air conditioning is done indirectly through electricity.

Finally, most American houses in hot climates are actually designed for winter insulation rather than summer cooling. To keep a house warm in winter you wrap it with a lot of insulation and seal it up good to prevent air flow and heat loss. That works well when you want to save on heating costs. And with all the windows, most American houses receive a decent amount of passive solar heating. But this is exactly the opposite of how you’d design a house for passive cooling. Traditional housing in hot desert climates comes much closer to the mark. Look at the housing in places like southern Greece, southern Italy, and the cities in North Africa. Massively thick masonry walls, everything is painted white to reflect the sun, especially the roofs, doorways and windows are designed to encourage air flow through the house, houses are close together or attached to minimize sun exposure. Exactly the opposite of what you see in say….suburban Phoenix.

REO depts have slashed their prices once again. One on my watch list has been smacked down 25% in one shot. And it’s only been listed for 6 weeks.

Zip code 90094 is the Playa Vista Development in West L.A. that ruined the old wetlands. They finished a third of it and quit. All the units were built and sold from 2003 through 2006/7. Using Zillow for sales history and ZIP for current listings I see that units are not selling even at 100 - 300k below the original sales price.

I can guess that it’s more of the same with all the Marina Towers just a mile north.

In Heartland Death, Traces of Heroin’s Spread

Federal officials now consider the cartels the greatest organized crime threat to the United States. Officials say the groups are taking over heroin distribution from Colombians and Dominicans and making new inroads across the country, pushing a powerful form of heroin grown and processed in Mexico known as “black tar” for its dark color and sticky texture.

http://www.nytimes.com/2009/05/31/us/31border.html?ref=todayspaper

well Ben he is a renter and you know people who rent are weird……

myself being a pretty weird guy

what with no mortgage and no credit card debt and
actual savings i am a freak
~~~~~~~~~~~~~

I’m not sure if this got posted so excuse if it was twice.

I am also a freak: no mortgage or credit card debt and actual savings. And I am a homeonwer. And I can do as I please with my home without answering to a landlord.

“Not to mention the fact that heating houses can be done directly through gas combustion”

My dad used to try that when I was a kid growing up in Minnesota. It nearly killed us on occasion. Taco night was always the night when we planned on having the most heat generated via gas combustion. Thank god we had a drafty house or we might all have died from his internal heating mechanism.

He he….

But actually the point is valid. If you heat your house by gas, close to 100% of the joules produced by the combustion of the natural gas in your heater are converted into heat inside your house.

By contrast, if you cool your house by electricity what actually happens is that coal is burned in a remote powerplant (must sunbelt cities receive electricity from coal) and the heat from that coal drives turbines that generate electricty. The electricty is converted from DC to AC and shipped hundreds of miles through powerlines at extremely high voltage until it finally reaches your neighborhood where the voltage is scaled back down and the electricty is used to drive your air conditioner. Power is lost every step of the way meaning that only a small fraction of the energy contained in a lb of coal is used to cool your house compared to practically all the energy in a lb of natural gas being used to heat your house.

Something new has just started around our hood: Homes with UHS signs are posted out front with a “FOR LEASE” sticker appended. I drove past one of these yesterday and noticed “FOR LEASE” replaced by a “SOLD” sticker. Saw the owner today, whom I happen to know, and asked him about the sale. He said the UHS did not have any signs that said “LEASED” or “RENTED,” so they just went with the “SOLD” sign instead.

Is this legal? I believe the common understanding in real estate is that “SOLD” and “RENTED” are mutually exclusive statuses, which suggests the “SOLD” sign amounts to deceptive advertising.

Arizona realtor acknowledges coming wave of foreclosures:

“We’ve been told [by Fannie Mae and Freddie Mac] that there are thousands and thousands of foreclosures in the pipeline,” said Darrah Dremler, an agent with Coldwell Banker Excel Realty who specializes in foreclosure sales. “Banks are starting to price things a lot lower to clean out their inventory before this big rush hits.”

“Although sales rose, she said it’s false hope given the number of foreclosures in the pipeline.
“What we’re hearing is that it will be August, September when they would hit the market,” Dremler said.
And that’s just the first wave, she said. Another wave is likely by early next year.”

http://tinyurl.com/nwf4cu

Parade Magazine
Intelligence Report
Is Your Property Tax Too High?

Across America, home values have plunged, but property taxes—the tax homeowners pay based on their homes’ assessed value—have not.

“Nationwide, we have properties that may be overassessed by as much as 60%,” says Pete Sepp of the National Taxpayers Union, a watchdog group in Washington, D.C. Since those figures are based on studies conducted before the housing bubble burst, it’s likely that even more homeowners are paying too much property tax today. “Many localities are still charging taxes based on the housing-boom values of a few years ago,” Sepp explains.

You have a good library, Dennis. For another damning account of the consequences of transforming parched lands, we might also recommend “Cadillac Desert” by the late Marc Reisner. Takes you deep inside the BLM.
The following points also could be added to PB’s cotton complaints:
– The crop is one of the most intensive users of restricted use pesticides in the nation.
– Aerial applicators often miss, despite the best of intentions, and scorch other crops instead, leading to lawsuits and unknown health questions.
– The federal water subsidy gets the United States into trouble abroad as it tries to argue under the WTO that subsidies should be withdrawn or reduced. A UC Davis ag economist pointed this out and nearly got his head handed to him; tenure had saved him, but that was three or four years ago.
– The USDA support price distorts the world price, and developing nations in Africa can not grow and export to compete effectively, embedding poverty in those nations.
– Water for cotton could easily, from a practical point of view, not a political one, be diverted from the fiber to food - namely almond orchards which are being abandoned, almonds a crop not long ago that was in the enviable position of seeing increased bearing acreage and increased prices. (That happens once in a dusty moon.)

A case could be made to cut off rice farmers in California, too, because of excessive water use. But groups such as Ducks Unlimited wield power in congress, and they like to shoot birdies in soggy wet fields.

Alfalfa is another story. A huge water consumer. But the dynamics there are a little different, since nearly all the alfalfa goes for dairy cow feed, which turns the water into a liquid which is consumed.

I digress.

It was supposed to be a happy piano concert, about 120 gathered in a concert room at a local piano store today. Chopin. Sonatinas. Numbers entitled “Beach Boogie” for the younger fingers.
Here’s the bubble connection.
Host, a piano sales guy, makes usual intro remarks. Then proceeds to tell us about a bankruptcy at a music store in Bakersfield, where his company had some inventory. So if there was ever a good time to buy a Yamaha baby grand, he says, this is it.
I recall the Bakersfield store. It did swimmingly when subdivisions such as Seven Oaks were increasing in “value” by $10,000 a month a couple years ago. I lived nearby, and remember the equity coming out of those homes and into pianos, cars, and so on.
I wish the man talking about bankruptcy could have toned it down a little. He sounded like the Grim Reaper with a Deal.
We just wanted to hear the little people play.

Posting late in the day, but wanted to put this up for the weekend-warriors.

I put together a user guide for my Firefox extension. You can access it here.

The main page for the extension is http://home.avvanta.com/~drumminj/joshuatree.html

It’s just a quick pass, so let me know if anything remains unclear.

Thanks.

Today’s DOONESBURY (by Garry Trudeau) manages to skewer the bankers through the lens of religion:

SAM: Reverend Sloan, I’ve been noticing something about the readings in church…

REV SLOAN: What’s that, Sam?

SAM: Well, whenever you read from the old testament, God is always crabby and snarky to everyone…But the new testament isn’t about anger at all — it’s about love. God’s only Son is this total pacifist — he wouldn’t harm a flea. He’s just this humble dude who’s mellow to everyone — even the Romans! He only really snaps once, right?

SAM’S MOM: With who, honey?

SAM: The moneylenders, mom!

SAM’S MOM: Oh, right. What is it about moneylenders?

REV SLOAN: They do seem to set people off, don’t they?

Given they are going to only stay in bankruptcy for a couple of months, is it fair to say the main purpose served by GM bankruptcy will be to screw over certain creditors and corporate owners?

Financial Times
GM to file for Chapter 11 protection

By Bernard Simon in Toronto, John Reed in London and Julie MacIntosh in New York

Published: May 31 2009 16:43 | Last updated: May 31 2009 23:02

General Motors will file for Chapter 11 bankruptcy protection in New York on Monday in a humiliating fall from grace for a symbol of America’s industrial might and the world’s biggest carmaker for much of the 20th century.

Prior to the filing, which will mark the largest bankruptcy of an industrial business in history, President Barack Obama and Fritz Henderson, GM’s chief executive, will seek to reassure workers, suppliers, dealers and car buyers that a leaner, reinvigorated GM will emerge from a court-supervised restructuring.

GM employs 230,000 people globally, building more than 20,000 vehicles a day. More than 1m Americans depend on it for healthcare and retirement benefits.

GM will say that it aims to emerge from Chapter 11 by August 1, shorn of much of its debt, four of its eight brands, and surplus plants and dealers.

Too-big-to-fail has roots that go back over half a century. The most useful purpose served by the GM bankruptcy may be that it sends a powerful signal that too-big-to-fail bailouts may soon recede into the historical dustbin of failed economic policies.

Financial Times
General Motors holds a mirror up to America
By Robert Reich
Published: May 31 2009 21:03 | Last updated: May 31 2009 21:03

As president of General Motors when Eisenhower tapped him to become secretary of defence in 1953, “Engine Charlie” Wilson voiced at his Senate confirmation hearing what was then the conventional view. When asked whether he could make a decision in the interest of the US that was adverse to the interest of GM, he said he could.

Then he reassured them that such a conflict would never arise. “I cannot conceive of one because for years I thought what was good for our country was good for General Motors, and vice versa. Our company is too big. It goes with the welfare of the country.”

We have sure come a long way from the end of the cold war, now that our Treasury Secretary is holding hands and singing Kumbaya with communist leaders.

Financial Times
US and China eye economic co-ordination
By Krishna Guha in Washington and Geoff Dyer
Published: May 31 2009 18:44 | Last updated: May 31 2009 18:44

Tim Geithner, US Treasury secretary, begins two days of top-level economic talks in Beijing on Monday amid a tightening focus on the need for the US and China to co-ordinate their exit strategies from the financial crisis.

With the US and China expected to lead the world out of recession, much rests on their ability to manage financial, trade and currency tensions while laying out mutually consistent frameworks for recovery.

Fed = toxic mortgage debt bagholder of last resort

Wall Street Journal

* CREDIT MARKETS
* JUNE 1, 2009

Fed Mortgage Efforts Prove Costly

Securities Purchases ‘Under Water,’ Seem to Have Transitory Effect on Rates

By LIZ RAPPAPORT

The U.S. Federal Reserve’s program to keep mortgage rates low by buying securities and Treasury bonds so far has been costly and seems to be having a fleeting impact.

An analysis of the timing of the Fed’s purchases of mortgage-backed securities by J.P. Morgan Chase & Co. shows the Fed is “under water” on its portfolio by about 10%, and it would have to take about $5 billion in losses if it were to mark its portfolio to the market.

Since last autumn, the Fed has purchased more than $480 billion, out of an allowance of $1.25 trillion, in mortgage-backed securities and more than $130 billion, of $300 billion, in Treasury bonds to help keep mortgage rates low. Keeping rates low lets people refinance their mortgages to reduce payments and stay in their homes. It also encourages them to consider snapping up bargains in the still-ailing housing market. Many analysts believe the Fed plans to hold these securities until they mature in 10 years or so, with no plans to sell them into the market, so the losses will probably never be realized.

The central bank owns the majority of securities sold in 2009, with interest payments of 4%, 4.5% and 5%, according to J.P. Morgan’s research. As interest rates rise, the value of these securities falls because new bonds are backed with higher-interest mortgage loans and thus pay higher coupons.

The Fed has spent about $2,500 per borrower, by J.P. Morgan’s analysis — more than it costs a typical mortgage borrower to refinance their debt. Higher fees and adjustments based on a borrower’s credit score or home’s value have been an impediment to borrowers looking to refinance a mortgage, damping the refinancing wave the Fed hoped for, analysts say.

The Fed’s purchases have enabled about two million borrowers to refinance who otherwise wouldn’t have been able to, J.P. Morgan estimates.

In addition to spending at a rapid clip, the Fed is confronting stronger resistance in the bond markets that set consumer rates as investors worry about inflation, the U.S. budget deficit and the practice of buying debt to stimulate the economy and keep interest rates down, called quantitative easing.

“The Fed’s purchases have had only a transitory impact,” said Thomas Atteberry, a partner and portfolio manager at First Pacific Advisors LLC.

Wall Street Journal
* FOREIGN EXCHANGE
* JUNE 1, 2009

Dollar’s Weakness Likely to Continue

By DAN MOLINSKI and RIVA FROYMOVICH

After three months of losses for the U.S. dollar against the euro, what’s one more week?

Traders say the dollar, which fell to its lowest level this year on Friday, is likely to continue to trend lower this week as investors sift through a number of key data reports, as well as news from the European Central Bank policy meeting, and react to another round of Federal Reserve Treasury purchases.

The bond purchases may be the key to the dollar’s performance in the first part of the week, as they could drive down yields, particularly as the Treasury won’t have any note sales this week.

With market rates falling, inflation fears will come to the fore again.

Not that the dollar’s chances for a bounce are nil.

“The dollar-positive scenario comes if the Fed allows a bond market selloff to undermine housing,” said John Normand, a foreign-exchange analyst at J.P. Morgan Chase. “But officials are unlikely to take this gamble so early in the recovery,” Mr. Normand said.

Ultimately, the most vulnerable currency in the near term is the one that is most exposed to quantitative easing.

Given the Fed’s commitments on asset purchases, the dollar fits the bill, which will give the euro room to advance after hitting $1.4168 Friday, a level unseen since December.

Analysts say the euro could trade between $1.38 and $1.43 this week.

Further updates on the status of our new place:

Neighbor down the street introduced himself today. Typical older guy who is just a little bit nosy (in the “well, those are public records” kind of sense.) Former owners of the house were upside down to the tune of $300-$400K… which is interesting, given that they bought it for about $280K. Neighbor confirmed that they refi’d several times. Then he said, “You got a good price.”

Turns out they publish home sales in the newspaper. I never bothered with the real estate section enough to find that out.

Also spoke with a former (rental) neighbor who is purchasing in our neighborhood. The house he’s buying is the very first one we saw, and rejected because it had too much work to do. But his description didn’t match… turns out there was an interim owner, a contractor, who cleaned up the place, re-floored, re-did the kitchen, etc. But given the price, that contractor didn’t make a cent, and probably lost money on the deal.

Anyway, we’re finally moved. We’ll get internet later this week (posting from work computer.) Tech week is this week; I’m in Ruddigore. Ditzy bridesmaid in the first act; tenor in the second. Second act has one of the best pieces of Gilbert & Sullivan ever, at least when played by a real orchestra instead of rehearsal piano. Yeah.

Looks like tomorrow’s the day for GM.

Funny how “bankruptcy” has become so meaningless lately. I remember as a kid it was pretty much synonymous with “out of business”. Now it’s just another fun financial tool for extracting money from investors.

Capitalism go bye-bye.

Sugar will return to Cuba, some day, for better or worse.

Here is a good reference to check out whenever you find the time. Regarding his ‘topic,’ it seems as though we already have an overwhelming consensus opinion on the answer by now. Circumstances have drowned out the Fed leaderships’ attempts to articulate their own positions. (Of course, Poole is long gone by now…)

Market Bailouts and the “Fed Put”
William Poole

This article was originally presented as a speech at the Cato Institute, Washington, D.C., November 30, 2007.

Federal Reserve Bank of St. Louis Review, March/April 2008, 90(2), pp. 65-73.

Federal Reserve policy actions starting this past August to temper strains in financial markets have generated considerable
commentary, some of which reflect concerns that policy action in such circumstances creates moral hazard. The issue is extremely important, and, given that it is so current, this is a good time to reflect in general
on the Fed’s reactions to financial market developments. The concern over moral hazard is that monetary policy action to alleviate financial
distress may complicate policy in the future, by encouraging risky investing in the securities markets. There are so few instances of market turmoil similar to the current situation that I’ll broaden
the analysis to include significant stock market declines. Doing so gives us a substantial sample to discuss. Thus, my topic is whether Federal
Reserve policy responses to financial market developments should be regarded as “bailing out” market participants and creating moral hazard
by doing so.
…

William Poole is president of the Federal Reserve Bank of St. Louis. The author appreciates comments provided by his colleagues at the
Federal Reserve Bank of St. Louis. The views expressed are the author’s and do not necessarily reflect official positions of the Federal
Reserve System.

Please, no, not another new era!

New Era in Autos as GM Set for Bankruptcy
GM will file for Chapter 11 bankruptcy early Monday, marking the humbling of an American icon that once dominated the industry and setting up a high-stakes gamble for taxpayers.

Wall Street Journal

* JUNE 1, 2009

Black Swan Fund Makes a Big Bet on Inflation

By SCOTT PATTERSON

A hedge fund firm that reaped huge rewards betting against the market last year is about to open a fund premised on another wager: that the massive stimulus efforts of global governments will lead to hyperinflation.

The firm, Universa Investments L.P., is known for its ties to gloomy investor Nassim Nicholas Taleb, author of the 2007 bestseller “The Black Swan,” which describes the impact of extreme events on the world and financial markets.

Funds run by Universa, which is managed and owned by Mr. Taleb’s long-time collaborator Mark Spitznagel, last year gained more than 100% thanks to its bearish bets. Universa now runs about $6 billion, up from the $300 million it began with in January 2007. Earlier this year, Mr. Spitznagel closed several funds to new investors.

Unlike last year’s sudden market implosion, inflation isn’t an unimaginable event that few currently anticipate. In fact, many fear inflation right now amid government efforts to goose the economy. Universa’s bet, however, is that inflation will reach levels few expect.

By opening the inflation fund, Universa is trying to capitalize on a wave of investor demand for its products, which when they’re right can protect investors from extreme market moves.

Wall Street Journal
* ROI
* MAY 31, 2009, 7:35 P.M. ET

Low Mortgage Rates Are Going, Going…

Looking to refinance? If you haven’t locked in, you may already be too late.

By BRETT ARENDS

If you’re looking for a new 30-year mortgage, last week’s events from the financial markets carry a very simple message: Get ‘em cheap while you still can.

Rates on conforming 30-year loans jumped dramatically in just a few days, ending the week at an average of 5.27% according to Bankrate.com. That’s still OK by historic standards, but it’s a jump from the levels seen just a few weeks ago, when you could get loans at 4.75% or below.

The underlying cause isn’t hard to find. Rising government debts, and burgeoning hopes of an economic recovery, are pushing up long-term interest rates on government debt. The yield on the 10-Year Treasury, which was barely 2% near the end of last year, surged to 3.67% late last week before settling back slightly. And that, in turn, pushes up rates on other long-term loans.

What does this mean for you?

This surge in mortgage rates, if it continues, is ominous news all around. It’s bad for those trying to refinance an existing mortgage, those looking to buy a new home, and those looking to sell their home. It may also be bad for the stock market, and maybe even for the dollar, too. More on that later.

Those green shoots are a fading memory on the eve of GM’s bankruptcy filing.

Nation’s new-car love affair cooling
Recession reshapes market of the future
By Micheline Maynard
NEW YORK TIMES NEWS SERVICE
2:00 a.m. May 31, 2009

DETROIT – For all the drastic cuts and financial overhauls that are meant to secure a future for General Motors and Chrysler, their prospects in coming years will be determined more by the answer to a simple question: Can American drivers live without that new-car smell?

In recent years, Americans appeared to be hooked on it and took advantage of home-equity loans, easy credit and cheap, short-term lease deals to send new-car sales to levels of more than 17 million a year.

Now the market has collapsed by 46 percent to below 10 million, as people are making do with the cars they have, leaving the industry to debate – and worry – about what the new normal will be once the recession ends.

Some say the downturn is temporary and that sales will spring back in a few years. Others believe Americans will rethink whether they need so many cars, particularly new ones.

The answer will be important to the Obama administration as it prepares to put GM into bankruptcy tomorrow. After the company emerges from bankruptcy, the federal government will own about 70 percent of it, in return for $50 billion in taxpayer aid. GM has already received about $20 billion in federal help.

The Treasury Department’s advisers, who initially expected auto sales to pick up late next year, now foresee no jump in demand this year or in 2010. And even five years out, they expect annual sales to be about 15 million, still well below the peaks of this decade.

Making predictions is tricky in this economy. The market has grown more bleak, and worst-case scenarios drafted only months ago are becoming reality.

If sales don’t recover, the Treasury will have to provide more financial support for GM and for Chrysler, which has received about $10 billion in federal aid, before they can stand on their own and the government can divest its shares.

Mel Gibson is going to do a reprise of his famous role; this time, it will be called *Mad RE/Max*:

Hordes of deranged Realtors rove the scarred landscape of cookie-cutter, identical McMansions, looking for unsuspecting buyers to kidnap and sign-up for their next “REO Speedwagon” RE tour. Mad RE/Max valiantly tries to counter the Realtors by expounding on the virtues of saving and renting until the Price/Income ratio regresses to the mean but the buyers hurl insults at him and willingly join the deranged Realtors in their search for Golconda*. Mad RE/Max retreats to his [rented] bunker muttering Schadenfreude-like things and passes the time by reading the HBB.

For some unfathomable reason, my screenplay has not generated much interest. Go figure.

* Golconda was a mythical city where everyone who passed through got rich [sound familiar? The REIC probably based their ad campaigns on this]. Got this from a [John Brooks?] book called *Once in A Golconda*.

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