The Housing Bubble

1.4 million Americans score $8,000 tax credit
“The IRS reports that taxpayers are cashing in on the tax credit for first-time homebuyers; a push to extend the credit gains steam.”

money DOT cnn DOT com/2009/09/17/real_estate/homebuyer_tax_credit_claims_soaring/index.htm
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“Buyers must close on their homes before Dec.1. But because much of the recent uptick in home sales has been attributed to this tax credit, housing industry advocates worry that the market could quickly turn down again after the credit expires.

“Just like the Cash-for-Clunkers program, there could be a hangover effect,” said Mike Larson, a real estate analyst for Weiss Research.

That’s why housing industry participants are pushing Congress to keep the tax credit in place.

“We’re calling for extending the credit until the end of next year and expanding it to all homebuyers,” said NAR spokesman Walter Molony. “We do think that housing will recover without it but the market will come back faster and stronger with it.””

Oy vey. I love how the title says “taxpayers” are cashing in on the credit. Not this taxpayer. As if that softens the blow for the taxpayers not taking advantage of it.

Yes, let’s subsidize the market back faster to its once and future permanent high plateau.

Housing Agency’s Cash Reserves Will Drop Below Requirement
Washington Post
September 18, 2009

The Federal Housing Administration has been hit so hard by the mortgage crisis that for the first time, the agency’s cash reserves will drop below the minimum level set by Congress, FHA officials said.

The FHA guaranteed about a quarter of all U.S. home loans made this year, and the reserves are meant as a financial cushion to ensure that the agency can cover unexpected losses.

“It’s very serious,” FHA Commissioner David H. Stevens said in an interview. “There’s nothing more serious that we’re addressing right now, outside the housing crisis in general, than this issue.”

Until now, government officials have warned that the agency could be forced to ask Congress for billions of dollars in emergency aid or charge borrowers more for taking out FHA-insured loans if the reserves fell below the required level, equal to 2 percent of all loans guaranteed by the agency.

Both options are politically unpalatable. Congress and the public are weary of bailouts after the government spent hundreds of billions of dollars rescuing banks; insurance companies; automakers; and the mortgage finance giants, Fannie Mae and Freddie Mac. Raising premiums for borrowers could increase the cost of buying a home just as a wounded housing market is showing signs of life.

Stevens said that such drastic actions are not needed. He said he is planning to announce Friday several measures that should help the reserves rebound quickly.

BlackRock’s Fink Says Obama Loan Rules Threaten Mortgage Market

Sept. 18 (Bloomberg) — BlackRock Inc. Chairman Laurence Fink said Obama administration programs to help homeowners stave off foreclosure may hinder the recovery of the mortgage market while benefiting banks that own second loans on the properties.

“I am just very worried,” Fink said yesterday in an interview in New York. “How do we get a vibrant securitization market back when we are doing these things in the short run that are good for the banking system and good for the homeowner but not as good as it should be?”

Fink said policies introduced this year to reduce foreclosures are flawed because they don’t require home-equity loans to be wiped out before the mortgage is modified. Instead, in a break with the intentions of contracts, the second loan’s terms may also be revised, spreading the financial loss among lenders, he said.

At stake is the recovery in the market for securities created from individual loans, including the almost $1.7 trillion in residential-mortgage bonds not backed by the U.S., according to Fink. Federal Reserve Chairman Ben S. Bernanke said in April the securitization market was “until recently” an important source of credit for the U.S. economy.

“This to me is one of the biggest issues facing American capitalism,” Fink said. “There is modification going on protecting our banks, protecting their balance sheets.” With the right types of changes, he added, “the homeowner is better off, America is better off, and you could say the first lien holder is better off.”

Wow Ben, you must be getting up these days before you go to sleep.

Now who would have thought protectionism would rear it’s lovely head.

Protectionism rising despite G-20 vows on trade
Improving economies may ease pressure on world leaders to work together, fight protectionism

WASHINGTON (AP) — Leaders of the world’s 20 top economies vowed to resist protectionism last November and again in April as they charted a joint strategy for confronting the worst global downturn in generations. As they meet again, they’ll get this progress report: Most of their economies are on the mend — and trade tensions and protectionism are on the rise.

A U.S.-China spat over Chinese tires and American chicken exports is just the latest example of how hard it has been to live up to those lofty fair-trade pledges. Nearly all 20 nations whose leaders meet next week in Pittsburgh have violated the no-protectionism pledges made earlier in Washington and London, according to reports from international monitoring groups.

As economies escape the grips of recession, the pressure to work together appears to be lessening.

National self-interest is reasserting itself. That includes a desire to protect battered home industries from overseas competition as governments look toward the day when they can dial back stimulus measures such as extra government spending and low interest rates.

Also, participants are arguing over issues such as proposed limits on bankers’ compensation, how far to go with international financial regulation and alarming recession-fueled budget deficits, especially in the U.S.

Multinationalmonitor Sept 15 (Excerpt)

The Financial Crisis One Year Later: The More Things Change, the More They Stay the Same
One year ago, Lehman Brothers declared bankruptcy, bringing to a head the growing chaos on Wall Street.

Some things have changed dramatically — notably in the real economy — but Wall Street’s political power remains intact. No new rules are in place to prevent a recurrence of the crisis. Major questions remain about whether any such rules commensurate with the scale of the crisis — with the important exception of a new consumer financial protection agency — will be seriously considered.

The poverty rate has worsened dramatically, just based on the available data for 2008 alone. The official poverty rate in 2008 was 13.2 percent, up from 12.5 percent in 2007. There were 39.8 million people in poverty in 2008, 2.5 million people more than the previous year. The 2008 poverty rate — and things have surely gotten worse — was the highest since 1997.

The mortgage crisis continues to worsen. More than 1.5 million foreclosures were filed through the first seven months of this year. By mid-2009, roughly a third of outstanding mortgage borrowers were underwater — meaning they owed more than the value of their home — and the number is growing. Mortgage modifications — almost none of which touch principal — do not come close to keeping pace. Goldman Sachs projects there will be 13 million foreclosures between the end of 2008 and 2014.

The causes of the financial crash continue unabated and in some cases have worsened.

Out-of-control compensation packages, linked to short-term profit performance, drove top Wall Street and big bank executives and traders to take reckless risks. For them, it was a game of heads we win, tails you lose: If their firms registered short-term profits, they received outrageous bonus packages; if there was a longer-term fallout, that would hurt shareholders, but they would have already pocketed their bonuses. Wall Street bonuses are already on track to match or exceed the glutinous pace of 2007.

Perhaps one of the most telling statistics is the number of stand-alone pieces of financial reform legislation passed, one year after the collapse of Lehman Brothers: zero.

“By Stephanie Armour, USA TODAY
WASHINGTON — The Obama administration is engaged in high-level talks about providing financial assistance to homeowners who’ve lost their jobs and can’t afford their mortgage payments.
The Treasury Department held meetings on the subject as recently as Thursday with key stakeholders, according to Laura Armstrong, a spokeswoman for Hope Now, an alliance of non-profits and mortgage servicers, and more discussions are planned.

Proposals include getting servicers to let jobless homeowners skip some monthly payments, according to Faith Schwartz, executive director of Hope Now.

Another possibility that has been discussed includes grants or loans to temporarily cover part of the mortgage costs for homeowners who become unemployed, says Paul Willen, a Federal Reserve Bank of Boston economist.

“Treasury has now brought us all together,” says Jack Shackett, Bank of America’s head of credit-loss prevention, who is involved in the discussions.”

This is really getting ugly now. Just bail out any ole a$$hole for a vote down the road. It’s time to throw the whole lot out into the real world and see how they survive. I’ll be headed to the gym soon to work out my anger.

Gee, renters of the country unite. If you lose your job the government owes it to you to give you a grant to stay in your rental or maybe they can force the landlord to allow you to miss a few payments now and then at their expense.

The Wall Street Journal SEPTEMBER 18, 2009
Uncle Sam Bets the House on Mortgages!

More than half of U.S. residential mortgages are being made by just three large banks.

It is a stunning change, but is it good for the housing market, and to what extent will it boost profits over the long term for this elite trio: Wells Fargo, Bank of America and J.P. Morgan Chase?

Right now, housing remains on government life support. Treasury-backed entities are guaranteeing about 85% of new mortgages, while the Fed buys 80% of the securities into which these taxpayer-backed mortgages are packaged.

The optimistic take is that this support, though large, will shrink when market forces regain confidence. But there is a darker possible outcome: The emergency assistance is entrenching a system in which the taxpayer takes the default risk on most mortgages, while a small number of large banks get a larger share of the fee revenue from originating and servicing mortgages.

That is what is happening now. While big banks are originating lots of mortgages, they are selling nearly all of them to Fannie Mae and Freddie Mac. Indeed, combined single-family mortgages held on the balance sheets at J.P. Morgan, BofA and Wells actually fell 3.5% in the first half. Before the bust, these banks sold large amounts of loans to Fannie or Freddie, but they also held on to products like jumbo mortgages. The volumes for those large loans now have tumbled.

And even as their mortgage holdings fall, these banks are posting big jumps in fee revenue from mortgage banking. Combined, it was $14 billion in the first half, up more than threefold from $4.1 billion in the year-earlier period.

Granted, some of this increase came from marking up mortgage-servicing assets, but fees from writing huge amounts of new loans, fueled by refinancing, caused revenue to soar at BofA and Wells.

And these blowout revenues are partly down to increased market share following big mergers, like BofA’s acquisition of Countrywide.

The three originated 52% of mortgages in the first half, according to Inside Mortgage Finance, just over double these banks’ market share in 2005. In servicing, their share is 49%, compared with 22% in 2005.

Regulators signed off on the mergers that caused this dominance. Even without the urgency for saving weak banks created by the crisis, regulators have never focused primarily on mortgage share. That suggests they won’t worry about increased concentration. What’s more, they may like it that most mortgages go through three banks that they intend to regulate heavily.

America’s Two Trillion Dollar Meltdown
Heesun Wee in Investing,

Prolific author, lawyer and former banker Charles Morris presciently laid out a likely course of write-downs and defaults on assets — a year ago — well before Lehman collapsed in September 2008, followed by the global credit meltdown. But given this year’s stock market bull run, all is OK, no?

Hardly, says Morris. “We may have reached a trough” in the economy, he says, but we’ll likely “bottom bounce” for some time.

Morris notes the subprime crisis and credit meltdown still are unraveling, and American consumers won’t be able to spend their way out of the mess this time. For years, consumer spending has driven about 70 percent of GDP, or U.S. economic activity. “We have to get a different model,” says Morris, author of “The Two Trillion Dollar Meltdown.”

With unemployment approaching 10 percent and many Americans still trying to wean themselves off years of profligate spending, Morris sees a “painful, hard” transition ahead for U.S. workers.

In hindsight, Morris, who wasn’t a fan of the bailout, says government intervention has worked out better than he initially thought. But don’t confuse stop-gap measures with long-term, sustainable growth for America’s economy.

And beware of Fed Chairman Ben Bernanke, a student of the Great Depression and an academic now empowered to prove his theories correct, Morris says.

‘Ol Slobbering Barney never gives up his race based proposals…

COMMUNITY REINVESTMENT ACT, PART II
Neal Boortz September 18, 2009

We all know of the disaster that occurred, thanks in large part to the Community Reinvestment Act of the 1970s. This is the brilliant idea that government would require financial institutions to lend to unqualified borrowers. Long story very short … eventually this policy led to the collapse of Fannie Mae and Freddie Mac and to the economic difficulties we’re facing today.

So what is the logic emanating from Washington today? Let’s EXPAND the scope and power of the Community Reinvestment Act.

Yesterday, Barney Frank held a hearing on the “Community Reinvestment Modernization Act of 2009.” The bill’s purpose is “to close the wealth gap in the United States” by increasing “home ownership and small business ownership for low- and moderate-income borrowers and persons of color.” And, according to this column by Byron York, “It would also make CRA more explicitly race-based by requiring CRA standards to be applied to minorities, regardless of income, going beyond earlier requirements that applied solely to low- and moderate-income areas.”

Here we have the man largely responsible for the disasters we’re facing today proposing even more power for his pet agency. Yeah .. that’s going to work out real well for all of us. I wonder if Barney still has some boyfriends working out there who might get a career boost from this proposal.

The acorn does not fall far from the tree!

OKLAHOMA CITY — Only one in four Oklahoma public high school students can name the first President of the United States, according to a survey released today.

The survey was commissioned by the Oklahoma Council of Public Affairs in observance of Constitution Day.
< So, 75 percent of Oklahoma high schoolers can’t name the first president of the United States?

Is that as bad as 99 percent of the U.S. Congress not knowing what the statutory definition of a “dollar” is? Not many bank officials can define it, either.

Ex, Not sure if you saw it, but the Pres. is coming to visit the chip-fab plant area to “tout” the Community college and plant as part of successful economic develop. Not bad for a plant that was never really going to be built. Wonder if he’ll comment on the big yellow turd?

ww.timesunion.com/AspStories/story.asp?storyID=843288

I’m fine with making the first time homebuyers tax credit permanent. As long as this is 100% financed by limiting or eliminating the mortgage interest deduction, and an upfront savings requirement is put in place for the buyer.

Putting this special deal for the better off on the credit card? How much more of this are we going to do?

Every gloomy economic situation has a silver lining.

* WALL STREET JOURNAL
* SEPTEMBER 18, 2009

Beyond the Bubble
As Riches Fade, So Does Finance’s Allure

By LISA BANNON

Gordon Jones, who spent 26 years on Wall Street selling stocks and convertible securities, updated an education degree and now teaches math at Greenwich High School in Connecticut. ‘I’ve been completely energized,’ the 54-year-old says. ‘I’m having the time of my life with these kids.’

Like nearly 30% of Massachusetts Institute of Technology graduates in recent years, Ted Fernandez set his sights on finance. Though he majored in materials science and engineering, he was wowed by tales of excitement from friends who went to Wall Street.

But when he stopped by an investment bank’s booth at a job fair a year ago, it was eerily empty. The booth belonged to Lehman Brothers Holdings Inc., and the date was Sept. 18, three days after the 158-year-old bank filed for bankruptcy. Now Mr. Fernandez, 22 years old, is getting a master’s in engineering at M.I.T. and aiming for a career in solar-power technology.

“Undoubtedly, I would have gone into finance if the financial meltdown hadn’t occurred,” he says. “Now I won’t make as much money, but I can go home at night and feel good about what I do. That’s worth more than any amount of money.”
…

A similar story briefly appeared on MarketWatch’s home page last night, then mysteriously vanished from view.

Experts warn bubble brewing in HK property market
By Channel NewsAsia’s Hong Kong Correspondent Leslie Tang
17 September 2009 1909 hrs

Private residential homes in Hong Kong

HONG KONG : Hong Kong’s residential property prices have rebounded this year by up to 30 per cent, despite continued economic uncertainty.

Consultants said the property market is disconnected from the wider economic reality, while economists warned that a property bubble has formed.

Developers attribute the rise to record-low mortgage costs, near-zero interest rates and tightened supply.

Consultants predict property transactions will be around 20 per cent higher in 2009, compared to the previous year.

But they believe there is a disconnection between what’s happening in the property sector and the real economy.

Some expect prices to plateau towards the end of 2009, and continue into 2010.

“At best, a plateau for 2010, perhaps even a dip. Nothing dramatic, but just an adjustment or correction as reality prevails, if you like… as people realise that the potential could be more job losses, and people feel vulnerable in terms of their employment. These sort of things could affect sentiment in the market,” said Nicholas Brooke, chairman of Professional Property Services Ltd.
…

The recession is over:

“The Aspen city government laid off 12 employees Thursday and eliminated four other positions, shaving $1.36 million off its operating budget.

Sales tax collections continue to be weaker than projected at the beginning of 2009, and city officials don’t anticipate the winter season to bounce back.

Year-to-date city sales tax collections were down 18 percent from last year through July, while lodging taxes were down 27 percent. Building and planning fees were down 46 percent year-to-date through August from last year.”

www dot postindependent dot com

Aspen lodging down 27 percent. Wow. As Aspen goes, so goes the entire Roaring Fork Valley, where a number of small towns serve as bedroom communities to Aspen. Lots of illegal workers, too, not just Mexico, some from E. Europe and Africa.

This area has reveled in the Aspen mystique for years and will crash hard. BTW, Charles Hugh Smith has a good article today on the propaganda and thinkspeak coming from our government, compares it to WWII propaganda (oftwominds dot com).

From WSJ/By JESSICA HOLZER

WASHINGTON — Federal Deposit Insurance Corp. Chairman Sheila Bair said her agency is considering borrowing from the U.S. Treasury to replenish its deposit insurance fund.

“We are carefully considering all options” including borrowing from the Treasury, Ms. Bair said Friday after a speech in Washington.

My Friendly Neighborhood Realtor has a lot to say about governmental policies this month. The upshot? It’s a great time to buy!:

Perfect Timing! Tax Credit Deadline & New FHA Guidelines

Beginning October 1st, 2009 FHA Guidelines will change dramatically, creating a bevy of unique opportunities for Home Buyers. Over the last two years, condo financing has become increasingly difficult due to tightening guidelines, restrictive mortgage insurance policies and loan level price adjustments. Thanks to the new FHA standards and the First Time Home Buyer Tax Credit, purchasers are able to take full advantage of todays Real Estate Market.

While conventional loans usually require a 10% down payment, FHA loans offer buyers competitive rates, some as low as a 3.5% down payment. The trouble with FHA loans in the past were their pre-approval restrictions, making it difficult to receive FHA approval on a number of desirable condominiums. With the new and improved guidelines going into effect on October 1st, home buyers will gain increased access to some of our city’s most desirable properties.

For those with unique financial situations, FHA loans can also serve as an alternative to conventional loans, thanks to smaller down payments, manual underwriting abilities and expert advice from direct endorsement lenders involved in FHA financing. Pair this with the $8000 First Time Home Buyer Tax Credit, and you are looking at a once in a lifetime opportunity.

Here’s an interesting chart listing the average square footage wishing price in the San Diego area versus what the square footage is actually selling for. There’s also a graph for the number of price reductions in relation the length of time the property was on the market.

From the chart it appears San Diego is on the cusp of starting the next leg down.

http://www.redfin.com/city/16904/CA/San-Diego

‘Cash for Clunkers’ a Great Success! GM, Chrysler Primed for Profits, MI Congressman Says.

Posted Sep 18, 2009 09:00am EDT by Aaron Task

U.S. car sales are a “disaster” in September, according to Fiat-Chrysler CEO Sergio Marchionne. But that doesn’t mean the “cash for clunkers” program was a failure — quite the contrary, according to Michigan Congressman Gary Peters.
The program was “very important for Michigan - it was great economic stimulus” and provided “immediate jobs” as automakers ramped up production, says Rep. Peters, a Democrat. “The whole idea of ‘cash for clunkers’ was to act as priming the pump and get people back into showrooms. It was very successful at that.”

Reminds me of a little story from Russia some years ago.

During one of their many famines a Russian university professor was assigned the experiment of determining the minimum amount of feed a horse could get and still function as a farm animal. The professor was shipped out to Siberia and ordered to send his experimental results back each month via telegraph. He understood the political importance of good results and that failure would mean permanent exile in Siberia.

Month one - He wired back -”Good success, comrades! We have substituted sawdust for food one day per week, and the horses don’t mind!”

Month two - “Even better success, comrades! We have substituted sawdust for food two days per week, and the horses don’t mind!”

Month three - “Fantastic success, comrades! We have substituted sawdust for food six days per week, and the horses don’t mind! Please send more horses, the ones we had were defective.”

In other countries, bankers actually some times serve jail time for wrongdoing. Here they just get slightly-smaller bonuses.

Sept. 18, 2009, 7:45 a.m. EDT

Ex-Morgan Stanley banker sentenced to jail in Hong Kong

By MarketWatch

HONG KONG (MarketWatch) — A Hong Kong court handed down its stiffest-ever term for a case involving insider dealing Friday, sentencing 40-year-old former Morgan Stanley banker Du Jun to seven years in prison and a fine of HK$23.3 million ($3 million).

The sentence, the maximum that can be imposed under Hong Kong’s District Court, was handed down Friday following Du’s conviction on nine counts of insider dealing last week.

“I can’t think of another reason other than being driven by sheer greed for his action,” Judge Andrew Chan reportedly said during court Friday.
…

As long as Megabank, Inc stands ready to provide plunge protection services as needed, I expect the builder stocks will do very well going forward.

The Ratings Game

Sept. 18, 2009, 10:14 a.m. EDT
J.P. Morgan turns positive on home-builder sector
Toll, KB Home lifted to overweight; M.D.C. Holdings downgraded

By John Spence, MarketWatch

BOSTON (MarketWatch) — J.P. Morgan analyst Michael Rehaut on Friday lifted his view on the home-builder sector to positive from negative, saying the housing market has made it through the worst of the correction.

“While fundamentals will likely not demonstrate an uninterrupted solid rate of improvement over the next six to 12 months, we believe that not only is housing solidly past its trough, but over the next 24 months will continue to recover and drive further upside to the current rally in the home-builder stocks,” he wrote in a research note.
…

Wonder if these guys are hiring?

USA Tent City
We serve people in the United States who reside in tent cities across America. Additionally we act as a clearing house for those with resources who wish to serve the homeless in our country. We also have information for people who are in danger of becoming homeless.

We do NOT accept monies, fees etc. and we have NONE to distribute! See “State by State Discussions and Resources” for available third party programs and services.

http://usatentcity.us

A Plunge Protection Team for Junk Bonds Needed, Stat!

NEW YORK (Reuters) - About 40 percent of all U.S. junk bonds outstanding in late 2008 will likely default by 2013 as government aid measures end and a wall of corporate debt comes due, Bank of America Merrill Lynch said on Thursday.
By contrast, the cumulative five-year default rate was about 30 percent in the last two default cycles, Bank of America said in a report.

The worst recession since the 1930s has already pushed defaults to double-digit rates. According to Standard & Poor’s, the default rate rose to 10.4 percent in August from less than 1 percent in 2007 as the recession and credit crunch left companies unable to pay off debt.

Deleveraging by consumers and financial institutions and fiscal problems at federal and state governments will slow the economic recovery, keeping defaults high, Bank of America said. Failure of the “shadow banking system” to reinvent itself will also contribute to high defaults, it said, referring to hedge funds and other non-bank institutions that fueled the last credit boom.

Defaults will also be triggered by hundreds of billions of dollars of debt coming due, especially in 2013 and 2014, Bank of America said. About $361 billion of high-yield loans come due in those two years alone, or 72 percent of the total outstanding, the bank estimated in an earlier report.

The United States federal government: broke

Bernanke’s printing press: working overtime

If you threw 500K into the stock market today, would you turn your back on it and hope for the best or would you monitor it daily?

If you’re going to speculate, get real time data. A lot of housing speculators didn’t have access to timely market moving information. As a result, they didn’t sell when the market turned. Big Sis had access to real time MLS data but ignored it.

If you are going to speculate using borrowed money in any market, you have to make sure the thing you are speculating in is increasing in price beyond your costs, particularly interest payment costs. The delusional speculators of yesteryear, however, were funding interest expenses with equity lines and so on, without the knowledge prices were crashing. Wash, rinse, and repeat a million times.

One of the problems during the housing bubble was a lot of speculators were using unsupervised borrowed money. As a result, no one called them on their failing bets. Until recently, for example, my BIL was still talking, spending, and acting like a RE mogul. This is after the market had tanked 30 pct here in FL. Ignorance is bliss.

If you are going to speculate, pay attention. Don’t assign critical responsibilities like monitoring price movements and profit & loss statements to someone else and later absolve yourself when things go wrong. It’s your responsibility to monitor your bets.

Lastly, don’t delude yourselves with labels like investor and long-term buy and holder. When you buy something with the hope and intention of selling it later at a higher price, you are speculating.

Hedge Funds’ ATM Moves From Tokyo to Washington: William Pesek

Sept. 18 (Bloomberg) — China is getting all worked up about the wrong thing when it comes to the U.S.

Forget these nascent trade wars over tires, cars and chickens. China’s real problem is how quickly the dollars they hold in great quantity are getting all the respect of pesos these days. Sound like hyperbole? Not when you consider what may be the hottest investment of 2010: the dollar-carry trade.

Move over Japan. Investors spent a decade borrowing in zero-interest-rate yen and putting the funds in higher-yielding assets overseas. It’s the U.S.’s turn to flood the world with cheap funding and the risks of this going wrong are huge.

The carry trade has never been a proud part of Japan’s post-bubble years. Officials in Tokyo rarely talk about the yen’s role in funding risky or highly leveraged bets on markets from Zimbabwe to New Zealand. Japan never set out to become a giant automated teller machine for speculators. It was a side effect of policies aimed at ending deflation.

The perils of the carry trade were seen in October 1998. Russia’s debt default and the implosion of Long-Term Capital Management LP devastated global markets. It was a decidedly panicky and messy period culminating in the yen, which had been weakening for years, surging 20 percent in less than two months.

Now imagine what might happen if the world’s reserve currency became its most shorted. Carry trades are, after all, bets that the funding currency will weaken further or stay down for an extended period of time. It’s also a wager that a central bank is trapped into keeping borrowing costs low indefinitely.

Cheapest Currency

“The dollar is the cheapest funding currency bar none and only challenged by the U.K. in terms of the risks from money printing and escalating deficits,” says Simon Grose-Hodge, a strategist at LGT Group in Singapore.

Three-month London interbank offered rates, or Libor, for dollar loans are at a record low and fell below those for the yen on Aug. 24 for the first time in 16 years.

The Treasury, responding to the growing pain in the commercial real-estate industry, released new tax rules that make it easier for distressed property owners to restructure loans that were packaged by Wall Street firms and sold as securities.

Most in the real-estate industry, which lobbied intensely for the move, applauded the action. But some warned it has opened a Pandora’s box, especially for servicers of the securities who will likely come under new pressure from borrowers and competing classes of investors.

The move is the first round of “additional guidance” the Treasury is weighing to stave off what many fear will be a commercial real-estate crisis, according to people familiar with the matter.

But some investors holding CMBS bonds are watching nervously because loan modifications, known as “mods,” mightn’t always be in their best interest. CMBS have junior and senior pieces, and the senior holders may be in a better position, when a borrower defaults, to foreclose and liquidate the property rather than modify the loan. Junior holders, on the other hand, might benefit from a mod because they mightn’t get their money back in a forced sale.

“The biggest concern is that the guidance could open the floodgate for everyone to try to get some sort of loan modifications,” said Aaron Bryson, a CMBS analyst at Barclays Capital. “There is a tremendous burden on the servicers to uphold their end of the bargain.”

The move by the Treasury reflects the deep concern in government and industry circles over the problems looming in the $6.5 trillion market for commercial real estate. Just as the U.S. economy is struggling to regain its footing, defaults are mounting because of credit-market turmoil, along with declining property cash flows and plunging property values.

Is it desirable for the labor market to be stabilizing at a record-high level of unemployment?

California, Nevada Reach Record Unemployment Levels (Update2)

By Timothy R. Homan

Sept. 18 (Bloomberg) — Unemployment rose in 27 U.S. states in August, with California and Nevada reaching record levels of joblessness.

Rhode Island rounded out the list of states with the highest level of unemployment since data began in 1976, the Labor Department reported today in Washington. California’s unemployment rate reached 12.2 percent and Nevada’s climbed to 13.2 percent.

The job market is showing signs of stabilizing as reports indicate economic growth is resuming this quarter. Economists surveyed by Bloomberg News this month said the unemployment rate nationally will reach 10 percent this year, a reminder that consumers are unlikely to lead the recovery.

“There’s still a fair amount of weakness in some of the larger states,” said Steven Cochrane, director of regional economics at Moody’s Economy dot com in West Chester, Pennsylvania. “State finances are probably going to be among the last of all the various components of the broad economy to turn around.”
…

Derivatives update:

At the (previous) height of the CDO, CDS, MBS, Financial Weaapons of Mass Dextruction environment, the Derivatives Market was estimated at 600 Trillion Dollars. After the crash it shrunk down to somewhere around 400 Trillion Dollars.

This time instead of Mortgages we have Derivatives leverage in Corporate Bonds. The yields are way down on Corporate Bonds, the face values are waaaaay up, in the midst of the Great Recession no less.

Looks like useing Corporate Bonds to create CDS is the new rage. Wall Street Bonus’s should be good for Christmas.

The Derivatives market is now estimated at ONE THOUSAND TRILLION DOLLARS.

Hate to be a Negative Nattering Neigh Bob BUT, what if Corporations go broke, say because the resession does not end and the Green Shoots turn Brown.

Joshua Tree’s the size of Redwoods.

DOW JONES NEWSWIRES

Four more companies were downgraded to junk territory in the past month, pushing the total for 2009 to 66, Standard & Poor’s Ratings Services said Wednesday.
Those entities have $223.06 billion in debt, just shy of the debt held by the 55 companies that were junked last year.
The latest round of downgrades helped pushed the number of potential fallen angels - entities at the lowest investment-grade level with a negative outlook or on watch for downgrade - down one to 75. But new additions to the list include printer maker Lexmark International Inc. (LXK) and Deutsche Lufthansa AG (DLAKY).
Financial companies continue to constitute the biggest number of companies which became fallen angels this year with 12, followed by banks at nine and utilities at eight. Banks lead the way for potential fallen angels with 15, followed by consumer products at nine.
Commercial lender CIT Group Inc. (CIT), with $38.19 billion in rated debt, remains the largest fallen angel this year and Hungary remains the largest potential fallen angel this month, with $58.27 billion in rated debt.

$1 quadrillion. Better get used to the term

becuz things are gettin better right?

Now, you realize the Russians know a broken economic system when they see one:

SOCHI, Russia (AP) — Russia’s Prime Minister Vladimir Putin on Friday said other currencies besides the dollar should be used as global reserves to reduce the risks posed by swelling U.S. debt.

Putin, who spoke at an international investment forum in the Black Sea resort of Sochi, chided the United States for “an uncontrolled issue of dollars” and said the American currency’s dominance had been “one of the triggers” of the global crisis.

Putin renewed Russia’s call on the U.S. administration and global community to give the green light to alternative reserve currencies: “If there are several reserve currencies, this will not harm the U.S. economy in any way.”

President Dmitry Medvedev’s economic advisor, Arkady Dvorkovich, said Thursday that Russia would at next week’s G-20 summit in Pittsburgh press for more follow-through on measures to confront the global downturn and to change Western-dominated international financial institutions.

Russia and China have pushed for alternative reserve currencies, but being the world’s largest holders of U.S. dollar assets — such as Treasuries — they are unlikely to abandon it. Dvorkovich stressed on Thursday that Russia is not out to replace the dollar, but only diversify.

Putin, meanwhile, also promised to encourage foreign investment in Russia by removing bureaucratic hurdles.

It’s Happening……

Many times on this blog I’ve discussed how equity bandits(putting it nicely) from NYC/NJ/CT/PA have bought/built architectural abominations in VT/upstate NY border counties during the 1980’s only to dump them at a loss in the 1990’s to go back where they came from for various reasons. I insisted it would occur again but only on a scale to match the magnitude of the 2000-2007 bubble.

My 80something parents befriended a retired NJ couple who paid $500k for a newly constructed dump back in early 2003 in essex county, ny. Mom just called and said they put their shack on the market in August because “she” didn’t want to die alone in the north pole(her words), they want to *return to NJ.*

Now I’ve stated over the years on the blog that one primary reason these equity bandits leave is a desire to return home, wherever that may be. Tens of thousands, maybe hundreds of thousands thought it was a good idea at the time(2000-2007) to venture to a place entirely foreign to them and convince themselves to stay…… until they face reality and concede that it was a bad plan…..

By the way…. the asking price on the $550k shack??

$350k….. with no interested buyers.

African Condom Shortage Said to Worsen Climate Impact

Sept. 17 (Bloomberg) — Unwanted pregnancies in poor countries have led to higher demand for land and water, resources already taxed by climate change, according to research to be published by the World Health Organization.

Runaway population growth in countries such as Ethiopia and Rwanda where contraceptives are in short supply is exacerbating drought and straining fresh water supplies, said Leo Bryant, lead author of the study. Of 40 nations reviewed, 37 said rapid population growth worsened environmental damage.

Climate change has been blamed by scientists for increasing droughts, pushing up sea levels and causing floods from heavy rainfall in countries across the globe. The impact can be worse in developing nations where food and water already are in short supply and there is little funding to help communities adapt.

“It’s time to start looking at the environmental relevance of family planning,” Bryant, an advocacy manager for the London-based reproductive health-care provider Marie Stopes International, said yesterday in a telephone interview. “Reproductive health services ought to be integrated into the climate adaptation strategy.”

Bryant analyzed national plans to adapt to climate change submitted to the United Nations by 40 poorer countries. Most said demographic trends were “interacting” with climate change to speed the degradation of natural resources and raise the risk of extreme weather events. He said the findings are set to be published in November by the Geneva-based World Health Organization, which coordinates UN health policy.

New Government Policy Imposes Strict Standards on Garage Sales Nationwide.

Americans who slap $1 pricetags on their used possessions at garage sales or bazaar events risk being slapped with fines of up to $15 million, thanks to a new government campaign.

The “Resale Round-up,” launched by the Consumer Product Safety Commission, enforces new limits on lead in children’s products and makes it illegal to sell any items that don’t meet those limits or have been recalled for any other reason.

The strict standards were set in the 2008 Consumer Product Safety Improvement Act after a series of high-profile recalls of Chinese-made toys.

The standards were originally interpreted to apply only to new products, but now the CPSC says they apply to used items as well.

“Those who resell recalled children’s products are not only breaking the law, they are putting children’s lives at risk,” said CPSC Chairman Inez Tenenbaum. “Resale stores should make safety their business and check for recalled products and hazards to children.”

In order to comply, stores, flea markets, charities and individuals selling used goods — in person or online — are expected to consult the commission’s 24-page Handbook for Resale Stores and Product Resellers (pdf) and its Web site for a breakdown of what they can’t sell.

Violators caught selling anything on the enormous list face fines of up to $100,000 per infraction and up to $15 million for a related series of infractions.

Though the CPSC says it won’t be sending enforcers to garage sales or yard sales, FOX News Legal Analyst Bob Massi says the law makes no distinction for families and small resellers.

Citigroup CEO says $100 million annual pay is too much

NEW YORK (Reuters) - Citigroup (C.N) Chief Executive Vikram Pandit said on Thursday that $100 million is too much for an employee to earn given the bank’s circumstances.

In an interview before an audience in New York, when asked if $100 million was too much money for a Citigroup employee to earn given the government support the bank has received, Pandit said, “Yes.”

Andrew Hall, a trader at a Citigroup unit, is contractually entitled to a 2009 pay package that could be worth $100 million. Prior Citigroup management signed the agreement that compels the bank to pay Hall so much, Pandit said.

Hall’s massive pay package is a serious challenge for Kenneth Feinberg, the man U.S. President Barack Obama appointed to review executive pay at banks that accepted government bailouts. If the “pay czar” is seen as soft on Hall’s pay, the public outcry could be strong. Hall’s potential $100 million payday is equal to about 2,000 times median household income in the United States in 2008.

But it is not clear if Feinberg has authority to limit Hall’s pay, given that the trader’s contract was put in place well before February 11, 2009, the cut-off date for the pay czar’s authority over compensation agreements.

Hall works at Citigroup energy trading unit Phibro, a business that Pandit said he is working to turn into an asset manager that invests money from outside investors, instead of a unit that trades Citigroup’s money.

Bank Closure day! Another hour so until they start getting announced. I predict 5 today.

Silicon Valley warning: Detroit still doesn’t get it.

SAN FRANCISCO (Reuters) - From Detroit’s union halls to its boardrooms, the consensus belief is that billions of dollars in federal investment and loans kept the American auto industry from collapse.

But drive up Silicon Valley, and you hear a sharply different — and far darker view — from some of the world’s most prominent venture investors.

The U.S. auto industry, they warn, remains too wedded to a dying business model and too out of touch with the sources of innovation to become competitive again.

Instead, they look for a new group of upstart companies to shoot to prominence and profitability, eclipsing the automakers once known as the “Big Three” just as Google Inc came from nowhere a decade ago to eclipse established technology companies.

“I do not believe that the U.S. auto business can be competitive,” said Ray Lane, Managing Partner, Kleiner Perkins Caufield & Byers. “I don’t see any of these new car companies based in Detroit.”

Lane, who is backing plug-in hybrid carmaker Fisker Automotive that is planning to launch a $39,000 model, said Detroit has lost its entrepreneurial spirit.

“For years they have been led by accountants and lawyers, not engineers and entrepreneurs,” Lane said. “That’s OK if the industry isn’t changing.”

So, what do the three U.S. automakers need to do to get back their once-dominant position in the marketplace?

Team Barry, need to have their azz kicked for even thinking about giving the fed more power and control. This is one huge mistake, the fed is a huge mistake! It’s all about power and control though, so grab’um and bend over.

Volcker Criticizes Obama Plan to Make Fed Systemic Regulator

Sept. 18 (Bloomberg) — Paul Volcker, a former Federal Reserve chairman and now an economic adviser to President Barack Obama, criticized his boss’s plan to give the Fed authority to supervise “systemically important” financial firms.

“I don’t know what systemically important institutions are,” Volcker said. “But I’m sure that if you picked them out, people will assume they’re going to be saved, that they’re too big to fail.”

Volcker’s remarks appeared in the form of a “conversation” with Gary Stern, the recently retired president of the Fed Bank of Minneapolis, and published in “The Region,” the bank’s quarterly publication. Volcker, 81, is chairman of the Economic Recovery Advisory Board, a body created by Obama in February to recommend responses to the crisis.

Obama’s plan to give the Fed powers to monitor risks to the financial system is aimed at avoiding a repeat of the financial meltdown that led to $1.6 trillion of bank losses and writedowns and triggered a global recession. The Obama plan would label banks including Bank of America Corp. and Citigroup Inc. as “systemically important” and subject them to capital and liquidity requirements and stricter oversight.

The plan has drawn criticism from lawmakers including Senate Banking Committee Chairman Christopher Dodd, who has said the central bank failed to use its existing supervisory powers to curb some of the lending practices that contributed to the crisis. Congressional leaders are leaning toward vesting authority over capital, liquidity and risk-management practices of big banks in a council of regulators.

The administration also wants the power to seize financial institutions if they run into trouble. And Obama’s regulatory framework would make it mandatory for large hedge funds, private-equity firms and venture-capital funds to register with the Securities and Exchange Commission.

42 US states lose jobs in August, up from July

WASHINGTON – Forty-two states lost jobs last month, up from 29 in July, with the biggest net payroll cuts coming in Texas, Michigan, Georgia and Ohio.

http://news.yahoo.com/s/ap/20090918/ap_on_bi_ge/us_state_unemployment

UPDATE 1-Thelen law firm files Chapter 7 after Citi cutoff.

* Firm once had more than 600 lawyers

* Says Citigroup will no longer advance funds (Recasts third paragraph, adds Citigroup declining comment)

NEW YORK, Sept 18 (Reuters) - Thelen LLP, a U.S. law firm that once had more than 600 lawyers, said it filed for Chapter 7 bankruptcy liquidation after Citigroup Inc (C.N), a large creditor, cut off needed funding.

The 85-year-old firm said Citigroup “is no longer willing to advance funds for the cost of collection and (to) wind down operations,” or to fund the costs of a Chapter 11 proceeding, according to a filing on Thursday with the U.S. bankruptcy court in Manhattan.”

Thelen also said its estimated assets “will be insufficient to result in any meaningful payment” to unsecured creditors, in light of Citigroup’s $7.2 million secured loan.

A Citigroup spokeswoman declined to comment.

According to its bankruptcy petition, also filed on Thursday, Thelen has between $10 million and $50 million of assets, and between $50 million and $100 million of liabilities.

Thelen shut down in late 2008 after the recession hurt revenue, many partners departed, and efforts to merge with another firm fell apart.

The San Francisco-based firm had reached its maximum size following a 2006 merger with New York’s Brown Raysman Millstein Felder & Steiner LLP. Thelen said its largest remaining creditors are in New York.

WASHINGTON (AFP) – The International Monetary Fund said its executive board approved Friday the sale of 403.3 tonnes of gold, mainly aimed at boosting the institution’s capacity to lend to poor countries.

The IMF said in a statement the sales would be “in a volume strictly limited to 403.3 metric tonnes, with these sales to be conducted under modalities that safeguard against disruption of the gold market.”

The IMF said the decision was a central element of a new income model for the institution that had been approved by the executive board in April 2008.

The sale of gold “will also increase the fund’s resources for lending to low-income countries,” a strategy that won board backing in July.

“The sale of gold “will also increase the fund’s resources for lending to low-income countries,” a strategy that won board backing in July”

Ok, now China, it’s your turn. Step up to the plate and buy gold with your spare US dollars so that they can be loaned to some third world country and the game can continue to buy us time til the US consumer starts consuming once anew. Oh, they’re unemployed? Don’t worry, we got plan B. What’s plan B? It’s a banking secret, we can’t tell you yet!

Question:

Since I’ve been rigorously and religiously attending Slacker University and haven’t made enough money to pay taxes for a number of years, just wondering how the 8k tax credit would apply to someone who doesn’t have a job or pay taxes. Assuming one paid cash for the house, of course, cause you’d never get a loan.

Also, what if you got the house using the credit and then lost your job and didn’t pay taxes that following year?

And what if the house cost 8k? How would that work?

Just wondering how the credit thing works, I guess, in case I get a job and lose my mind and buy a house… none very likely, except maybe the mind part…

In other news, expect a chilly winter in Wallace Pond, Vermont if you’re not yet thinking about taking down the screens and putting up the storm windows. On average, the coolest month is January. The lowest recorded temperature was minus 42°F in 1962.

Funny postcard from a UHS today, outlining how she was a shortsale specialist, and her polar bear stamp and a picture of her kisssing a baby made her message a little funnier. She is a short sale specialist, BTW. I do not endorse her for those who think I too am morally corrupt, but she may be:
FALSE HOPE: Loan Mod
less than 20% qualify
wait 3…6 months to find out
Temporary short term fix
Stay upside down and stuck in your house 5….10 years or longer
Missed payments, late fees and back interest is often added to your balance
Get rejected and your short selling window may have closed

(other side of card promoting her SS biz)VS A WAY OUT
Sell for less than you owe
Escape your $$ burden
The bank EATS the difference
Lender covers closing costs
Your credit can start repairing immediately
Potentially buy again in 2 years

(But the other side said you could be stuck upside down for 5 or 10 or more years, why promote the ability to buy in 2 years??)
SO STICK IT TO that EVIL BANK, cuz they are immoral, I guess.
I almost bought into this reasoning a bit ago. Until I remembered what mom told me. Two wrongs don’t make a right!

This postcard message brought to you from the “Real-a-tor with the banking background”!!

The New York Times
The Bill Comes Due, Vexing Housing and Banking Agencies
By DAVID STREITFELD
Published: September 18, 2009

A year ago, as the financial system was threatening to collapse, federal regulators offered all sorts of assistance to ward off catastrophe. The strategy worked, at least so far, but the bill is starting to come due.

The Federal Housing Administration, which is supporting the housing market by insuring loans for millions of struggling buyers, said Friday that its cash reserves had fallen below 2 percent for the first time. Raising its insurance premiums would replenish the reserves, but could also hamper the housing recovery. Another unpleasant option: asking for a federal bailout.

The Federal Deposit Insurance Corporation, meanwhile, is running out of money to pay back the depositors of failed banks. Its chairwoman said Friday the agency might for the first time decide to borrow from the Treasury.

Taken together, the two developments indicate “the limits of the government’s ability to make all the bad stuff go away,” said the investment strategist Ed Yardeni.

During the housing boom, borrowers spurned the F.H.A. because it required them to fill out a few forms and come up with a down payment of 3 percent. Subprime lenders, by contrast, asked for neither money nor documentation. The F.H.A. became a wallflower, its share of the market dwindling nearly to nothing.

Now the subprime lenders are gone, and traditional banks are so reluctant to issue mortgages they demand large down payments. But the F.H.A., which works with thousands of lenders to guarantee repayment of mortgages loans, only requires a down payment of 3.5 percent.
…
The reason banks are so reluctant to loan is that they correctly perceive that housing is still generally overvalued, and they don’t want to catch falling knife collateral. Apparently govt lenders with taxpayer guarantees don’t think housing is overvalued? Either that, or they don’t mind putting other peoples’ money at risk…

Sheila Bair is standing up in favor of rational economic policy.

The Financial Times
FDIC considers tapping Treasury credit line
By Joanna Chung in New York

Published: September 18 2009 19:31 | Last updated: September 18 2009 19:31
…
Ms Bair … warned that the financial system would be more fragile following the crisis unless there was a “credible method” for closing down too-big-to-fail companies that ran into trouble, saying that the financial markets were even more interconnected than before the crisis.

“Unfortunately, measures taken during the past year, while necessary, have only reinforced the idea that some financial firms are simply too big to fail,” she said. “Unless we adopt needed reforms, our system will be more, not less, fragile after this crisis.”

Ms Bair has long been a proponent of a system for resolving such troubled companies. The FDIC has a system for seizing deposit-taking institutions for a short time, before winding them down or selling them, to protect depositors.

But the biggest banks are organised into holding companies, which stand outside the current powers.

“This too-big-to-fail doctrine creates a vicious cycle that needs to be broken,” she said. “We need a credible method for closing large financial companies without inflicting collateral damage on the economy.”