The Housing Bubble

Comment by jeff saturday
2009-08-28 03:17:18
Is Joe Biden on the board of directors of FPL?

FPL: Rate increase will save customers money in the long run
By Dara Kam
Palm Beach Post Staff Writer
Wednesday, August 26, 2009

TALLAHASSEE — The CEO of the state’s largest utility wrapped up three days of testimony on a proposed $1.3 billion a year rate hike insisting that residential electricity rates will go down.

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Comment by packman
2009-08-28 06:38:57
Wow - how Orwellian can you get?

(P.S. - I just *love* that word. Somehow it seems so… apropos… these days.)

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Comment by jeff saturday
2009-08-28 17:57:38
FPL
“a proposed $1.3 billion a year rate hike insisting that residential electricity rates will go down.”

Joe Biden
“Well, people when I say that look at me and say, ‘What are you talking about? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, I’m telling you.”

P.S. Both of these statements seem Pinocchian to me.
“( I just *love* that word. Somehow it seems so… apropos… these days.)”

It’s High Time to Ruffle a Few Billion Feathers: William Pesek

Aug. 31 (Bloomberg) — The old adage “you can’t judge a book by its cover” doesn’t apply to Stephen Roach’s “The Next Asia.”

It bears a photo of the interior of the Grand Hyatt Shanghai. For anyone who’s been there, it screams of vertigo. You walk out of your hotel room on say, the 85th floor, and you’re confronted with a circular 33-story atrium that seems as much optical illusion as architectural masterpiece.

It’s an apt metaphor for the dizzying experience that lies ahead for Asia — one fleshed out with great nuance by Roach, Morgan Stanley’s Hong Kong-based Asia chairman.

This column isn’t a book review. Yet Roach is sure to do something we need more of in Asia: Ruffle the feathers of a few billion people. The conventional wisdom that the 21st Century belongs to the fastest-growing region isn’t wrong. Just have no illusions that it’s a given. Asia will need to work hard at it.

For Asia’s billions, inertia is not an option as the fallout from the global crisis spreads. The hope is that China’s 7.9 percent growth will remove the need to retool economies. Or that President Barack Obama’s stimulus efforts will soon put U.S. consumers back in shopping-binge mode. Don’t bet on it.

Asia isn’t doing remotely enough to achieve better economic balance. China is a case in point, and an important one; it may just prove to be a microcosm of what Asia will experience in the years ahead.

Global Crisis

Here, Chinese Premier Wen Jiabao’s “four uns” are worth considering. Two years ago, Wen pointed out that Asia’s second- biggest economy was increasingly “unbalanced, unstable, uncoordinated and unsustainable.” The crisis oozing around the globe was a mere glimmer in the eyes of Asian officials in March 2007 when Wen made that comment.

And yet here we are: The U.S., Japan and Europe are limping along. The developing world didn’t really plan for such a scenario. Its powerful snapback from the 1997 Asian crisis was largely thanks to a U.S. consumer flush from rapid growth and roaring asset values. Asia exported its way to returning growth and never looked back.

No such locomotive exists today. Hence the roughly $2.2 trillion of stimulus governments have poured into the global financial system. It will only go so far, though. The canard that Asia had decoupled from the U.S. is dying a hard death as governments brace for an extended period of U.S. thrift.

Good Luck

By Roach’s calculations, Americans account for about 4.5 percent of the world’s population and its consumers spent about $10 trillion in 2008. China and India, which account for roughly 40 percent of the world’s population, consumed about $2.5 trillion. Good luck living without the U.S.

Auction in CNY:

If the comments following this story w/photos are to be believed this “mansion” which last sold for $822,500 was auctioned off yesterday for $622k. It’s taxes for 2009 were $44,677.48 according to the county’s website. But that includes an unpaid school tax bill of $22230. (The county website makes the posted comment of $51400 inaccurate).

http://www.syracuse.com/news/index.ssf/2009/08/manlius_mansion_auctioned_mond.html

Here’s a local back story on the house. Funny, not many auctions get this much media attention:

http://blog.syracuse.com/east/2009/08/bids_on_manlius_mansion_will_s.html

I know a bit about this stretch of town. Like the defaulting Utah based owner of this particular piece of property many home owners count their CNY home as one of several pieces of propety and often do not spend all that much time in the area. In the past 5 years it had quite a jump in new building compared to the historical norm.

Why not just raise taxes on the rich and big business? Along with increasing the size of gubmint, I thought that’s how you ‘fix’ things. Oh wait that only works for the federal gubmint, of course they get to print money also.

Detroit’s financial crisis comes to a head as city tries to solve the $300 million question.
MLive.com
Sunday August 30, 2009

As the bills stack higher and the revenue stream runs slower, all eyes remain on Mayor Dave Bing as he continues to navigate the city of Detroit through a treacherous financial situation.

Bankruptcy has been the key term floating around. Critics say it’s the only salvation for the city’s crumbled finances, while Bing has maintained that the city of Detroit will not pursue that option unless more drastic changes are put into effect.

The city faces a $300 million deficit, mostly because of a decrease in property and income taxes, plus the cost to run city services and pay city workers.

Last week, the city suffered a blow when Moody’s Investor Services dropped Detroit’s bond rating to below junk status.

“Because our city faces one of the worst financial, educational and social crises of the past century, the time for pseudo-leadership has passed. Gone must be the days of rhetoric without action, style without substance and promises with no potential. Too many elected officials have drastically failed to do so, and now we are forced to deal with the consequences and clean up the mess. Yet, no one wants to admit it, ” Bing wrote in an editorial in Sunday’s Detroit News.

“City Council members refuse to support this administration’s changes to a budget that they approved, but do not reflect today’s financial reality…Union officials have spent more time fueling the fears of their members and citizens than they have at the negotiation table trying to find a solution consistent with the financial realities…More citizens have turned out to oppose proposed bus route changes than they have to decry the violence that holds our community hostage,” Bing continues.

Bing has come under much opposition for his decision to lay off 205 city workers last week and his proposals to cut bus service on Sundays and reduce it on Saturdays. The layoffs are expected to save $10 million, but that’s only a drop in the bucket.

“The mayor has absolutely no control over some of the decisions that were made by his predecessors,” Harris said. “But he doesn’t have time to rethink how the city is run. He’s going to run out of money before he has time to implement any efficiencies.

“I don’t see the city getting out of this financial mess short of a bankruptcy.”

In the War on Savers department, news reports are pointing out a likelihood that the amount you can put into a 401K next year will probably be smaller than this year’s $16,500, since the limit is inflation-adjusted. (Unlike Soc Sec payments, which by law cannot decrease even in the face of deflation.)

OTOH the deflation that brings about this likely result is itself a victory for savers.

Geez, come on boyzn’girlz, get out there and CONSUME, already. Take one for Timmay, so’s he can save face in Beijing. We don’t want a bunch of Chinese students laughing at one of the finest financial minds the US has ever produced?

Cock-a-doodle-DOOOO!!!

Man is my sleep ever messed up these past two nights. I’m going to go with minimal sleep today, then I’ll be nice and tired and crash early tonight to get back into rhythm.

I was just reading ProfessorBear’s, I mean MisoR’s thread from yesterday, particularly the part about noisy roosters, and was reminded of my short-lived ownership of a pet rooster.

Several years ago, a woman I worked with was complaining that one of her roosters, the most beautiful of all of her birds (her selling point in hindsight), was picking on the hens, creating all sorts of disturbances. She needed to find him a new home. So, loving animals as I do, I decided to try him out. Boy was that ever a mistake. The very first morning, I shot out of bed like a rocket, somewhere around 4:00, due to one of the most obnoxious, premature cock-a-doodle-doo’s imaginable. My first thought was “I need to shut this thing up NOW because the neighbors are going to KILL me.” Having not been raised on a farm, I naively thought that one cock-a-doodle-do would suffice. Not a chance. This SOB was going off, one after another, after another. He was like a baritone, too. I was outside in the dark in my underwear under hushed breath- “hey, shut up, quit that!”. I’d turn my back, and out would come another. And another. “You better quit that, I mean it! Here, have some chicken scratch! Knock it off!” Nothing worked. It was awful.

If that wasn’t enough, the next day I decided to try to introduce my dog to him. Boy was I dumb. My dog froze, motionless, his eyes glazed over, hair standing up, then took off after that rooster like he was shot out of a cannon. Lunchtime. “NOOOOOOOO!!!” I screamed. He had the thing cornered in the laurel hedge next door in an awful ruckus. It took me nearly an hour to extract that thing from the hedge. He had gone from a potentially beloved pet to my next meal in record time. I spent the next hour studying how to butcher him. After settling down and a change of heart, I found him a nice home on Vashon Island instead. Good riddance!

More green shoots:

“USA TODAY examined gambling data in seven states and found penny slot revenue soaring everywhere. National numbers are not available.

Las Vegas was slow to pick up on the trend to penny slots, but it has jumped on board, too. In the past two years, Nevada casinos have added more than 7,000 penny slot machines and removed 12,000 machines that require bigger bets.

Revenue from every form of gambling has fallen in Nevada during the recession — except penny slots. Penny slot revenue was up 3% in the year ending June 30. “

Just got back from a family reunion on the outer banks of N.C. A fair number of the Ginormous vaction homes there are for sale. Judging from the flyers the wishing prices are around a million dollars, more or less. For houses that generate ~66k in rental income per annum. On a pile of sand that WANTS to move when there is a major storm. In what crazy world does THAT make any sense?

From last night:

Comment by desertdweller
2009-08-30 21:41:10

eastcoaster, do you go by that handle on fb?

No - I use my name. I’m part of the “Friends of the Housing Bubble Blog” group on FB. You can find me there if you want to (read the few comments posted on the group wall).

I want to go back to the discussion about Charles Hugh Smith’s chart this morning. Assuming values do drop back to 1994 levels, my assumption is that would mean 1994 levels adjusted for normal inflation (3% ?). So, assuming a house sold for $100,000 in 1994 it could be reasonable to expect to see it sell for $180,000 20 years later in 2014. I mean we’re not talking about seeing the value drop back to $100,000, right? I’m not sure what the expectations are since palmetto was saying his insurance agent is saying places he’s interested in will likely be $30,000 - $50,000.

Had the pleasure of attending an opening house yesterday with Mrs. Chile, Mini-Chile, and my parents. They were in town from the Southwest visiting the grandkid and they wanted to see what a $430k house (last sale was $440k in 2005) in the Boston metro area got you.

I think they were shocked at how critical Mrs. Chile and I were about the faults of the house. It was in move-in condition for the most part. But our faults were deal killers, and my parents, haven consumed the Kool-aide, couldn’t figure out why we were balking at spending $430k on a 120 year old house. We summarized it this way: $269 a squre foot is a bunch of money for an energy monster decaying house in a decaying New England town.

MOM always said “There was never a blade of grass in my yard since you and Gary and the rest of you played and played”. Yep, we did that.

Weights, pool, ping-pong, baseball, baseball, baseball ! basketball, football, boxing, motorcycle racing, go-karts, mini-bikes, getting drunk, rebuilding, (or destroying), car/motorcycle engines, chasing girls, listening to Dark Side of the Moon for the FIRST time, (imagine, if you will), on his, (and my) only time doing acid ever (it was blotter), and being best friends.

Cathy, a lovely lady friend of mine called to say Gary passed around midnite.

Those who know the story, thank you from the bottom of my heart for your kind words. It meant more to me than you will know.

Sincerely,

Greg

Aug. 31 (Bloomberg) — Just as global trade starts to recover, the shipping market is crashing for the second time in a year as China reduces raw-material imports and record numbers of new vessels set sail.

The rate for leasing capesize ships, boats three times the size of the Statue of Liberty, will drop about 50 percent from the current price of $37,865 a day to as low as $18,000 before the end of the year, according to the median in a Bloomberg survey of six analysts and fund managers.

Here’s an interesting story about local attitudes towards having to take pay cuts to get back into the workforce. The findings beg the question - what role do house prices/mortgage payments play in forming people’s attitudes towards their compensation?

Looking for a salary to fit a lifestyle, rather than fitting a lifestyle to a salary?

Linky:

http://www.chicagobusiness.com/cgi-bin/news.pl?id=35292

“ “Lower-income households can’t borrow, and higher-income households no longer feel wealthy. There’s still a lot of debt out there. It throws a pall over the potential for a strong recovery. The economy is going to struggle.” ~Mark Zandi

Who moved my decoupling?

NY Times
U.S. Follows Shanghai Lower
By MARK McDONALD and JACK HEALY
Published: August 31, 2009

Losses in China’s main stock-market index sparked a sell-off in markets from Asia to Europe to Wall Street on Monday, as traders worried that a worldwide rally in stocks this summer had flown too high, too fast.

The Dow Jones industrial average fell about 95 points or 1 percent in early trading, and the broader Standard & Poor’s 500-stock index slid 1.2 percent. The Nasdaq was off about 1.4 percent.

Financial, energy and industrial companies, which have surged in the last five months as the recession lost force, were leading the markets lower.
…

Last fall, Wall Street’s crash generated the big tsunami waves that rippled through the global economy. Is it China’s turn to generate the impulse now?

China Stocks ‘In Deep Bubble,’ May Drop 25%, Xie Says (Update2)
By Erik Schatzker and Allen Wan

Aug. 31 (Bloomberg) — China’s economy isn’t “sustainable” and the benchmark Shanghai Composite Index may fall another 25 percent, former Morgan Stanley Asian economist Andy Xie said in an interview.

“The market is in deep bubble territory,” Xie, who correctly predicted in April 2007 that China’s equities would tumble, told Bloomberg Television.

The Shanghai index plunged 6.7 percent to 2,667.75 today, the most since June 2008 and entering a bear market, on concern a slowdown in lending growth may derail a recovery in the world’s third-largest economy. Xie said the index “should be 2000 or less.”

The Shanghai gauge slumped 22 percent this month, the worst performer among 89 benchmark indexes tracked by Bloomberg, as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. The decline stopped a rally that had sent the measure up 103 percent from a November low on prospects the government’s 4 trillion yuan ($586 billion) stimulus program and a record amount of new credit would ensure the economy grows at least 8 percent this year.

“The local market bears are convinced that tightening is already underway,” said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Only “a very strong set of macro numbers in August” or “stronger statements from central authorities” would change this trend, Wang said.

Global Tumble

The tumble in China stocks send the MSCI World Index of 23 developed nations down 1 percent at 10:17 a.m. New York time. The Bank of New York Mellon China ADR Index, tracking American depositary receipts, lost 2.6 percent, led by commodity producers.
…

The law of unintended consequences…
I wonder how much of this “blackballing” has to do with certain companies bail outs through BK?, and the inherent change in how those 2 bankrupcies were handled, by changing the way that the creditors were paid?
http://money.cnn.com/2009/08/31/smallbusiness/auto_dealers_sba_loans.smb/index.htm?postversion=2009083104

Small business losing billions in federal work
Dallas Business Journal

In the next 90 days, the Obama administration hopes to cure a problem that has festered for years: the failure of federal agencies to award small businesses their fair share of government contracts.

In fiscal 2008, only 21.5% of federal prime contracting dollars went to small businesses — well below the government’s 23% goal. Failing to hit this goal cost small businesses more than $6.5 billion in federal contracts.

The U.S. Small Business Administration’s definition of small business varies by industry, but in most cases covers companies with no more than $7 million in annual revenue.

As of Aug. 21, only 21.4% of contracts funded through this year’s American Recovery and Reinvestment Act had gone to small businesses.

Helping small businesses win more of these economic stimulus contracts is the immediate focus of the Obama administration’s 90-day push, but officials hope it also will have a lasting impact on other types of contracts.

Government agencies will host events around the country to provide information on contracting opportunities. Employees at the SBA and the Minority Business Development Agency will meet with procurement officials as well as small businesses in hopes of matching agency needs with the products and services provided by small companies.

The effort is designed to ensure that the government meets its 23% small-business procurement goal, with a special emphasis on increasing contracting to businesses owned by minorities, women and service-disabled veterans, said Joe Jordan, the SBA’s associate administrator for government contracting and business development.

“From the president on down, this is a top priority,” Jordan said.
Is Obama’s push just PR?

Small-business advocates welcome the Obama administration’s focus on improving the contracting numbers. But some fear the 90-day initiative is just a public relations campaign.

“The issue is not outreach,” said Raul Espinosa, who runs the FitNet Purchasing Alliance in Jacksonville, Fla., and heads the Fairness in Procurement Alliance. “The issue actually deals with changing the culture that exists.”

Many procurement officials prefer dealing with large government contractors instead of small companies. There are few consequences for missing small-business goals other than a bad grade for an agency on the SBA’s annual procurement scorecard.

“The SBA is not listened to,” Espinosa said.

Enforcement of contracting goals — not expanded outreach to small businesses — is what’s needed, said Kenneth Weckstein, a partner in Brown Rudnick’s government contracts and litigation group in Washington, D.C.

“The thing that is going to help most is if procurement officials are hit over the head with a bat and made aware that they need to make greater efforts to contract with small businesses,” he said.

Early estimates suggest the TARP bailout was highly profitable. So far as I can discern, there is one very big item missing from this accounting: THE TROUBLED ASSETS.

I guess “out-of-sight, out-of-mind” accounting rules are still in force?

The New York Times
As Big Banks Repay Bailout Money, U.S. Sees a Profit
By ZACHERY KOUWE
Published: August 30, 2009

Nearly a year after the federal rescue of the nation’s biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again.
…
As Congress debated the bailout bill last September that would authorize the Treasury Department to spend up to $700 billion to stem the financial crisis, Representative Mac Thornberry, Republican of Texas, said: “Seven hundred billion dollars of taxpayer money should not be used as a hopeful experiment.”

So far, that experiment is more than paying off. The government has taken profits of about $1.4 billion on its investment in Goldman Sachs, $1.3 billion on Morgan Stanley and $414 million on American Express. The five other banks that repaid the government — Northern Trust, Bank of New York Mellon, State Street, U.S. Bancorp and BB&T — each brought in $100 million to $334 million in profit.

The figure does not include the roughly $35 million the government has earned from 14 smaller banks that have paid back their loans. The government bought shares in these and many other financial companies last fall, when sinking confidence among investors pushed down many bank stocks to just a few dollars a share. As the banks strengthened and became profitable, the government authorized them to pay back the preferred stock, which had been paying quarterly dividends since October.

But the real profit came as banks were permitted to buy back the so-called warrants, whose low fixed price provided a windfall for the government as the shares of the companies soared.
…
American taxpayers could still collect additional profits on their investments in two other big banks that have repaid their preferred stock but not their warrants: JPMorgan Chase and Capital One. They are expected to yield over $3.1 billion in gains for the Treasury in the next month or so, although the full tally will depend on how much they will pay to buy back their warrants.

And the government is owed about $6.2 billion in interest payments from banks that have not yet repaid their federal money.

But all the profits taxpayers have won could still be wiped out by two deeply troubled institutions. Both Citigroup and Bank of America are still holding mortgages and other loans that were once worth billions of dollars but whose revised values are uncertain. If they prove “toxic” because they cannot attract buyers, they could leave large holes in the banks’ balance sheets.

Neither bank is ready to repay its bailout money anytime soon, even though the banks’ stock prices have surged in the last month, leaving the government sitting on paper profits of about $18 billion between them.

MarketWatch First Take

Aug 31, 2009, 10:40 a.m. EST
Behind the Fed ‘profit’

Commentary: Even when taxpayers make a little dough, it’s bad, some say

The Fed’s bailout profit is up for debate

By MarketWatch

NEW YORK (MarketWatch) — At first, the Federal Reserve’s bailout profit looks like a tricky problem for critics who argue that government intervention is a waste of taxpayer money.

But don’t underestimate the critics.
…
Naysayers point out that the bulk of cash from the government has yet to be repaid; the eight big banks that repaid the cash probably didn’t need it in the first place.

One analysis suggests the government overpaid for its stakes and that private investors could have done better. See full story.

The Fed also has exposure to the Maiden Lane portfolios — bad assets the government financed as part of the bailouts of American International Group Inc. (AIG 46.22, -4.01, -7.98%) and Bear Stearns Cos. That could cost taxpayers up to $30 billion, according to some estimates.

Then there are other investments that face tougher and more complicated prospects: Fannie Mae (FNM 1.98, -0.06, -2.94%) , Freddie Mac (FRE 2.31, -0.09, -3.75%) and General Motors Co.

No wonder we don’t like Mondays.

– David Weidner

Hey, everybody! Just got back from a week of visiting family in northern Vermont. Here’s my report:

My family lives near Stowe, VT, which is an upscale, touristy kind of place. While my aunt and I were out driving around, I didn’t see a single hotel, motel, or bed and breakfast that had a “No Vacancy” sign out.

Aunt Jean said it was because the kids were already back in school, but I didn’t think that accounted for such a dip in tourism. After all, there are plenty of empty nesters, singles, and couples without children who also travel. However, it was obvious that they weren’t traveling to northern VT.

My cousin Tom (Jean’s oldest son) is a building contractor. Unlike many of his competitors, he’s still quite busy. I took a close look at his work, and, yes, I know he’s a relative, but I have to say that he’s good. Quite a few of Aunt Jean’s friends and neighbors expressed the same sentiment. The takeaway: Even in this economy, it pays to be good at what you do.

On my last day with Jean, we drove up to Quebec for a look-see. I was quite shocked at how prosperous the area looked. By comparison, northern VT looked like a rundown dump. It’s obvious that Canada hasn’t been as beaten up by the recession.

On both sides of the border, I saw quite a bit of land and houses for sale. I didn’t check any prices, but I imagine that they were on the high side.

Beware of self-fulfilling prophesies driven by superstitious and flighty bovines and the chattering financial journalists who enjoy spooking the herd, just for the pleasure of seeing it race towards the nearest cliff.

Aug 31, 2009, 11:06 a.m. EST
Investors brace for September correction

By John Spence, MarketWatch

BOSTON (MarketWatch) — After a powerful rally in stocks from their March lows, nervous investors are positioning for a September sell-off — something that many say is overdue.

Investors are wondering whether September “will live up to its reputation as the month in which the S&P 500 posts its worst price performance and frequency of decline,” said Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research, on Monday.

He said investors “may have a reason to fear” just such a setback, considering the month’s dismal historical performance.

“We don’t know whether concerns over the upcoming [third-quarter] earnings reporting season will trigger this anticipated digestion of gains, or if further nervousness emanating from the Chinese stock market over the prospects of a slower-than-expected growth in GDP will cause U.S. equities to trim some of its recent advances, but September is as good a month as any in which to suffer a setback,” Stovall said.

“And while past performance is no guarantee of future results, history hints that September certainly has the reputation,” he added.
…

this is pretty good:

http://www.youtube.com/watch?v=CS9rIu1ix9M&feature=related

The smoke from the California wildfires is really irritating my sinuses today.

I wish you folks would quit lighting fire to your state every year.

It’s getting a bit tedious.

Cerberus to Raise New Funds After Investors Pull $4.77 Billion

Aug. 31 (Bloomberg) — Cerberus Capital Management LP plans to raise money in the fourth quarter to buy distressed companies and securities after losses on investments such as Chrysler LLC and GMAC LLC led to $4.77 billion in client redemptions.

The withdrawal requests, representing 60 percent of the $7.9 billion in its Cerberus Partners LP and Cerberus Institutional LP funds, came mostly from other managers who need to pay off investors, according to Mark Neporent, the New York- based firm’s chief operating officer and general counsel. Institutions and wealthy individuals are still looking to invest with Cerberus, which oversees $24.3 billion, including a $1 billion fund raised last month, he said.

“These redemptions are not a reflection of a lack of confidence, but a reflection of demands of liquidity” from the funds of funds that had placed clients’ cash with Cerberus, Neporent said in an Aug. 29 interview.

Cerberus, founded in 1992 by former Drexel Burnham Lambert Inc. banker Stephen Feinberg, stayed out of the limelight as it focused on buying troubled companies, debt and real estate. It stumbled with its two highest-profile deals: leading separate groups that invested almost $15 billion combined for controlling stakes in automaker Chrysler and GMAC, the former finance arm of General Motors Co.

The firm wrote off the majority of its Chrysler stake as the Auburn Hills, Michigan-based company headed into a U.S. government-orchestrated bankruptcy. Its stake in GMAC was diluted when the Detroit-based lender was bailed out by the U.S. and converted into a bank holding company. They were rare mistakes for Feinberg, 49, whose firm has generated average annual returns of about 20 percent since its inception, according to Neporent.

‘Embarrassed and Disappointed’

“We are embarrassed and disappointed by our 2008 performance, and we feel a huge obligation to you to turn this around,” Feinberg wrote in July 3 letter to clients.

Cerberus manages $19.6 billion in distressed funds that generally buy the same assets, including corporate bonds, bank loans and private companies, according to Neporent, 52.

It also runs real estate and lending funds.

Today’s San Jose Mercury regarding commercial RE: The valley’s 20.5 percent office vacancy rate is the highest since 2003, according to CB Richard Ellis, and has hit 53.4 percent in Sunnyvale. An 18.9 percent vacancy rate for research and development space — the largest commercial real estate category in the valley — is the highest since early 2006.

Did hbber’s discuss the report already?

http://news.cnet.com/8301-13578_3-10320096-38.html

“Internet companies and civil liberties groups were alarmed this spring when a U.S. Senate bill proposed handing the White House the power to disconnect private-sector computers from the Internet.

They’re not much happier about a revised version that aides to Sen. Jay Rockefeller, a West Virginia Democrat, have spent months drafting behind closed doors. CNET News has obtained a copy of the 55-page draft of S.773 (excerpt), which still appears to permit the president to seize temporary control of private-sector networks during a so-called cybersecurity emergency.

The new version would allow the president to “declare a cybersecurity emergency” relating to “non-governmental” computer networks and do what’s necessary to respond to the threat. Other sections of the proposal include a federal certification program for “cybersecurity professionals,” and a requirement that certain computer systems and networks in the private sector be managed by people who have been awarded that license.”

The Fed
Aug 31, 2009, 2:00 p.m. EST
Talk of quick exit from strategy premature: NY Fed chief
By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) — It is too early to contemplate an end to the Federal Reserve’s unconventional easing strategy, said William Dudley, president of the New York Federal Reserve Bank, in a television interview Monday.

“My own personal view is, I think it’s a little premature to be so confident that you want to pull all these things back right now,” Dudley said in a CNBC interview.

The Fed has a plan to buy $1.25 billion in mortgage-backed securities and $200 billion of debt issued by mortgage giants Fannie Mae and Freddie Mac.

The central bank is about half-way through the purchases. The plans are designed to boost the economy because buying the mortgage debt has made it less expensive for consumers to buy homes.

Last week, two regional Fed presidents - Jeffrey Lacker, president of the Richmond Federal Reserve Bank, and James Bullard, president of the St. Louis Fed, said in separate speeches that the Fed may not have to buy all these securities because the economy is leveling out.
…

Banks Hiding Tsunami of Foreclosures
NewsMax
U.S. banks face a tsunami of home foreclosures soon, says David Karsbol, chief economist at Saxo Bank.

Homeowners may be faced with no choice and will just stop paying their mortgages, he warns.

“I believe we are about to see a tsunami of foreclosures in the U.S. A lot of homes have been held back because if the banks are foreclosing on them they will have to do a writedown on the mortgages they have on their balance (sheets),” Karsbol told CNBC.

“That’s why they have been reluctant to do so.”

Soon homeowners may be looking around their neighborhoods and realizing that their neighbors have opted to stop paying their mortgages and are living scot free, he said.

“The fact that many homeowners are allowed to stay in their houses without paying on their mortgages begs the question: Why should you pay on your mortgage when your neighbor doesn’t?” Karsbol said.

Rising unemployment in the United States is the main cause behind foreclosures, economists and bankers told the Washington Post. Subprime mortgages are becoming less of a culprit.

“It’s a much harder nut to crack, unemployment,” says Mark A. Calabria, director of financial regulation studies at the Cato Institute.

“It’s much easier to bash lenders than to create jobs.”

In 2009, the first three months reported the largest share of foreclosures moved to prime loans from subprime loans, according to the Mortgage Bankers Association.

“Rising unemployment, for the sake of this downturn, has magnified things considerably,” notes John Snyder, manager of foreclosure programs for NeighborWorks, a large housing counseling group.

“It’s less about the payment adjustment.”

There was a very good segment on 60 Minutes on CBS last night on derivitives and credit default swaps. Worth watching if you missed it.

Here’s a link.

http://www.cbsnews.com/video/watch/?id=5269424n&tag=mg;60minutes

The FDIC - part of the solution or part of the problem?:

Welcome to the FDIC’s version of “let’s screw the consumer” (again):

To encourage banks to pick through the wreckage of their collapsed competitors, the Federal Deposit Insurance Corp. has agreed to assume most of the risk on $80 billion in loans and other assets. The agency expects it will eventually have to cover $14 billion in future losses on deals cut so far. The initiative amounts to a subsidy for dozens of hand-picked banks.

Uh huh. And how are these “hand-picked” banks picked?

Oh, that will never be disclosed, right? There will never be an open process on that, will there?

The big issue here is that the so-called “loss projections” are, in my opinion, hopelessly optimistic.

Take Colonial. BB&T thinks the real valuation is somewhere around 37% off “face”. The FDIC’s assumption of 14 billion in loss against 80 billion in guarantees is 17% of face. Someone’s wrong, and I’m willing to bet its not BB&T - after all, there has never been a penalty for making unrealistic projections of loss (or cost) in Washington DC, but when you do it in private enterprise you tend to get punished severely in the capital markets.

Never mind that BB&T has to love that deal. They can lose $500 million while the FDIC can lose fourteen and a half billion, should the entire portfolio prove worthless. That’s a hell of a deal - for BB&T.

The FDIC claims that this is “cheaper” than assuming and selling off the assets itself. But is this true? Perhaps, under current conditions.

But those conditions - banks lying about asset values - are part and parcel of the FDIC’s own making! Remember that John Dugan is on the FDIC’s board (and is Comptroller) while John Bowman is the acting director of the OTS - both organizations directly responsible for banking regulation.

So where has that regulation been? Missing, that’s where. Mark-to-fantasy has not only become a calling cry from the Congress, it has become a permitted action under the OTS and Comptroller - even though both, as regulators of the banks and thrifts, are empowered to stop it.

Now, having been derelict in their duty of supervision, the FDIC (which claims not to be a “regulator” per-se) comes in and offers what amounts to a government backstop on losses which should have never developed in the first place.

(From K. Denninger)

Hello ProfessorBear,

Found an odd article that Krugman had linked to…

krugman.blogs.nytimes.com/2009/08/30/getting-stucco/

Ah… olde times Stucco.

Also can read up on Mish’s page about Krugman reversing himself about debt, because he is a liberal hack. Of course, I’m probably a conservative hack. Anyhow, I haven’t had to reverse myself all day.

globaleconomicanalysis.blogspot.com/2009/08/paul-krugman-deficits-saved-world.html

~James

The demand for transparency seems to be on the increase:

Aug 31, 2009, 4:41 p.m. EST
Two Republican lawmakers seek audit of AIG trust
Reps. Issa and Bachus raise concerns about holding AIG Trustees accountable

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) - Two key Republican lawmakers on Monday said they are seeking an audit of the trust that manages the government’s controlling stake in American International Group Inc.

“While the trustees have the discretion to exercise full control over AIG, the trustees cannot be fired if their decisions conflict with the preferences of government officials,” said House Oversight Committee ranking member, Darrell Issa, R-Calif., and Rep. Spencer Bachus, R-Ala., House Financial Services ranking member. “This raises a troubling and urgent question: Who can the American taxpayers hold accountable if the trustees make a decision that is not in their best interest?”

Issa and Bachus sent letters to Treasury Secretary Timothy Geithner and Neil Barofsky, the congressionally appointed inspector general for the government’s $700 billion bailout program, seeking to have either the agency or the IG audit the AIG (AIG 45.04, -0.29, -0.64%) Trust.

AIG has received over $180 billion in taxpayer-funded bailout dollars to keep it afloat, in part, because of concern by Treasury officials that the super-sized insurance corporation’s collapse would have caused too much collateral damage to the financial markets.
…

Mortgage data could help catch tax cheats.

WASHINGTON (Reuters) - U.S. tax authorities may be forgoing $1.4 billion of revenue annually because they fail to thoroughly compare mortgage interest statements submitted by banks against individual tax returns, according to a government report released on Monday.

The Internal Revenue Service uses mortgage interest statements, known as 1098 Forms, to catch tax cheats. But a review of 200 samples for 2005 estimated that the agency may be missing tens of thousands of taxpayers who are not reporting or underreporting their income, the Treasury inspector general for tax administration said in a report.

“A large number of individuals are paying a significant amount of mortgage interest and either are not filing tax returns or are filing tax returns indicating their income is not sufficient to cover their mortgage obligations and basic living expenses,” said the report, dated August 6.

“The considerable difference between expenditures and income raises very serious questions about whether these taxpayers have additional sources of income that should have been reported on their tax returns,” it continued.

The IRS, in a response included in the report, said it agreed with the recommendation that it make greater use of mortgage interest data to track tax evaders. The report did find that the IRS collected $276 million from delinquent taxpayers based on mortgage data from 2005 returns.

The office of the inspector general looked at two samples of 100 taxpayers with $20,000 or more of mortgage interest. Using a statistical sample to extrapolate to the broader population, it estimated that about 137,000 taxpayers may be not reporting or may be underreporting their income.

Texas loses more than 32,000 oil and gas jobs
San Antonio Business Journal

The Texas oil and gas industry is continuing to trim jobs at a rapid pace, according to the latest Texas Petro Index (TPI), which measures employment levels in the oil and gas industry.

So far this year, the state’s oil and gas sector has shed more than 32,000 jobs through July 2009. And thousands of more jobs are expected to be lost before the year is up.

Volatile commodity prices for crude oil and natural gas are blamed for the job losses. Texas crude oil prices are currently averaging $60.91 per barrel. This is down from an average price of $130.91 a barrel back in July 2008. Natural gas prices in Texas are currently averaging $3.62 per thousand cubic. This is down from $12.33 per thousand cubic feet in July 2008.

Because commodity prices have been volatile, oil and gas producers have curtailed drilling activity. As of July 2009, there were 342 drilling rig in production, according to the Baker Hughes count of active rigs. This was down from a peak of 958 rigs at the end of August 2008.

“Producers and oil-field service contractors are shedding jobs to shrink the industry’s workforce to the level required to operate 300 to 350 rigs in Texas,” says petroleum economist Karr Ingham, who created the TPI for the Texas Alliance of Energy Producers. “That adjustment is not complete, so it appears that thousands more Texans will be sent packing before this cycle hits bottom.”

Ingham estimates that one of every 10 Texans employed by the oil and gas industry have already lost their jobs as of July.

It’s different across the pond.\

The Financial Times
Brown pledges bonus clampdown
By Lionel Barber and Philip Stephens

Published: August 31 2009 23:35 | Last updated: August 31 2009 23:35

Gordon Brown has pledged tough action to clamp down on excessive remuneration for bankers as part of an international effort to rectify the systemic weakness that led to the global financial crisis.

The prime minister said in an interview with the Financial Times that pay and bonuses should be based on long-term success not short-term speculative gains; banks should “claw back” bankers’ rewards if their performance suffered in subsequent years; and regulators should be able to impose higher capital requirements on financial institutions.

“We have to move faster,” Mr Brown said.
…
…………………………………………………………..
EDITOR’S CHOICE
Three-part prescription to take to G20 - Aug-31
Hard choices loom but ‘cuts’ not in lexicon - Aug-31
Transcript: Gordon Brown interview - Aug-31
Berlin bids to halt ‘too big to fail’ banking - Aug-31
Philip Stephens: Cut the banks (and bonuses) down to size - Aug-31

Going long T-bonds right now is a gamble that the Fed will hold the lid on yields forever. Stein’s Law may be relevant here (”Anything that cannot go on forever will stop” — a generalization of Keynes’ observation that “In the long run, we are all dead.”).

Brett Arends’ ROI

Aug 31, 2009, 12:01 a.m. EST
Yes, there’s even a risk in Treasuries
Commentary: Bonds may not keep up with inflation, lose ground
By Brett Arends, WSJ.com

BOSTON (MarketWatch) — If you or a member of your family has a lot of money invested in bond funds, you should hear what Thomas Atteberry has to say.

He’s a partner at fund group First Pacific Advisors and co-manager of the successful New Income /quotes/comstock/10r!fpnix (FPNIX 11.05, +0.01, +0.09%) bond fund.

His warning? Investors in long-term Treasury bonds and high-grade corporates run a serious risk of losing money in real, inflation-adjusted terms, over the next few years. They may lose money even before you count inflation.

Why?

The yields on these bonds are ominously low. If they reverted to long-term averages, the prices would tumble. You may end up losing more on the falling price than you could earn from the coupons.

This is a Main Street danger. Many ordinary Americans who have fled the stock market have moved their money into the supposed “safe haven” of bonds instead.

According to the Investment Company Institute, investors this year have so far poured a remarkable $142 billion net into taxable bond mutual funds. By contrast, the amount of new money invested in stock funds has barely matched the amount withdrawn.

Investors seem indifferent to the risks. Right now, 10-year Treasurys yield an anemic 3.47%. Their median over the past 50 years was far higher: 6.21%.

The yield on investment-grade corporate bonds is better. According to the Federal Reserve, the average yield across two benchmarks of these bonds is now about 6%. But even that’s well below the average since the late 1950s, which was about 7.75%.

Bonds are like a seesaw: If the yield rises, the price falls. Rising worries about inflation, rising interest rates, or both could cause that to happen.

Atteberry has run the numbers on a few scenarios, and they aren’t pretty. If the 10-year Treasury reverts to more typical levels over the next five years, investors will end up making just 1.1% a year over that time. That’s before inflation.

A faster move would be even worse. If the bonds reverted to average yields within a year, he says, investors will lose nearly 16%.

Ouch.
…

Financial Times
Insurers investigate spike in fire claims
By Michael Peel, Legal Correspondent
Published: August 31 2009 22:31 | Last updated: August 31 2009 22:31

The insurance industry is investigating a spike in property fire damage claims, amid fears that struggling businesses and homeowners are turning to arson to solve problems brought on by the financial crisis.

The Association of British Insurers said it was investigating a “suspicious” jump of more than a fifth in pay-outs demanded from its members over the past two years, including a sharp rise in £500,000-plus claims stemming from commercial building blazes.

The insurers’ focus on fire is part of a broader effort to prevent fraud connected to the credit crunch. The ABI said its probe was triggered by reports from its 400 corporate members of increasing fire damage pay-outs, particularly over large demands by companies.

The association said: “We do know that there are some crimes that are linked to the underlying economic climate – fraud being one of them and fraudulent arson in particular.”
…
EDITOR’S CHOICE
Wedding scams and car fires keep insurers busy - Aug-31