The Housing Bubble

Fair Game ~ NYT
If Lenders Say ‘The Dog Ate Your Mortgage’
October 24, 2009

FOR decades, when troubled homeowners and banks battled over delinquent mortgages, it wasn’t a contest. Homes went into foreclosure, and lenders took control of the property.

On top of that, courts rubber-stamped the array of foreclosure charges that lenders heaped onto borrowers and took banks at their word when the lenders said they owned the mortgage notes underlying troubled properties.

In other words, with lenders in the driver’s seat, borrowers were run over, more often than not. Of course, errant borrowers hardly deserve sympathy from bankers or anyone else, and banks are well within their rights to try to protect their financial interests.

But if our current financial crisis has taught us anything, it is that many borrowers entered into mortgage agreements without a clear understanding of the debt they were incurring. And banks often lacked a clear understanding of whether all those borrowers could really repay their loans.

Even so, banks and borrowers still do battle over foreclosures on an unlevel playing field that exists in far too many courtrooms. But some judges are starting to scrutinize the rules-don’t-matter methods used by lenders and their lawyers in the recent foreclosure wave. On occasion, lenders are even getting slapped around a bit.

One surprising smackdown occurred on Oct. 9 in federal bankruptcy court in the Southern District of New York. Ruling that a lender, PHH Mortgage, hadn’t proved its claim to a delinquent borrower’s home in White Plains, Judge Robert D. Drain wiped out a $461,263 mortgage debt on the property. That’s right: the mortgage debt disappeared, via a court order.

So the ruling may put a new dynamic in play in the foreclosure mess: If the lender can’t come forward with proof of ownership, and judges don’t look kindly on that, then borrowers may have a stronger hand to play in court and, apparently, may even be able to stay in their homes mortgage-free.

Capmark Financial May File for Bankruptcy
October 24, 2009

The Capmark Financial Group, the big commercial real estate finance company cobbled together from pieces of GMAC, may file for bankruptcy as soon as this weekend, a person briefed on the matter told DealBook on Saturday.

If that happens, the move would be unsurprising: Capmark warned last month that it might seek Chapter 11 protection after it reported a $1.62 billion quarterly loss.

Last month, the company agreed to sell its mortgage loan and servicing business to Warren E. Buffett’s Berkshire Hathaway and Leucadia National for as much as $490 million. That agreement carried a 60-day expiration date, or around Nov. 2 — unless Capmark filed for bankruptcy, which would give it another 60 days to complete the sale.

The company is only the latest to fall victim to continued trouble in the commercial real estate market, which many analysts have said will continue to deteriorate. Many small banks have collapsed this year under the weight of commercial loans.

Kohlberg Kravis Roberts, Goldman Sachs Capital Partners, Five Mile Capital and Dune Capital bought GMAC’s commercial real estate businesses in 2006 for about $1.5 billion, with GMAC retaining a 25 percent stake in the operation. K.K.R. has already written down the value of its Capmark investment to zero.

There was another eviction in my apartment building. It’s clear that whoever lived there just walked out. The notice went up after the building people had already been in the apartment. Judging from the posted notice I could tell that this person was paying slightly less than us (even after our 15% reduction in 2009).

I think that makes our position at our next renewal even stronger. In 2006 landlords could take a, “we don’t care if you renew” attitude because vacancies were so low. Vacancies have risen. Evictions appear to have skyrocketed. In spring I saw 3 eviction notices posted. That was just after we renewed our lease. This was just on the first 3 floors with a total of about 20 apartments. I think I will be going after another 10 - 15 percent deduction next spring or we will move on. The tide has turned and the landlords are now playing defense. Boo-hoo. I guess that rent/own ratio just keeps moving down further and further.

I find myself often thinking about what would have happened if we had bought in 2006. I get a chill up my spine and then a smile on my face. They kept telling me, “it’s different here”. And they were right. Man, were they right.

On my third cup of tea already. Picked up a virus; a mild dry cough, but the aching legs and kidneys are something else. This bug gets a passing score.

Now here is a guy (or perhaps a gal ) whom I would like to see posting on HBB! Apparently I am not the only individual who has questions about whether the Fed, the FDIC and Megabank, Inc are collusively engaged in real estate price fixing.

So far as I am aware, US government officials do not operate in a rarefied layer of the atmosphere above the rule of law, but please correct me if I am wrong (perhaps the fact there is a financial crisis renders illegal activities legal?)…

Ballbuster
October 22, 2009 02:28 AM

John Walsh, DataQuick president: “It’s because they’ve concluded that flooding the market with cheap foreclosures in this economic environment may not be in their best financial interest.” As it has been said many times in this forum, the Big Bankers are withholding hundreds of thousands of foreclosed homes from the market even though these loans are non-performing and upside-down. Under old FDIC rules, before FDIC allowed slippery accounting to replace “mark-to-market,” banks had to unload non-performing real estate asset or else face higher insurance premium. Not today. Instead of writing off foreclosures as losses, banks are holding hundreds of thousands of foreclosed properties in the hope selling them in a seller’s market.

In the mean time, the Federal Reserve is sustaining the banks with free money courtesy of the taxpayer. Instead of allowing home prices to decline so that home ownership is affordable to more Americans, the Federal Reserve and the FDIC have sabotaged the housing market This government scam is even bigger than the real estate scam of this century. BW readers are curious why the all-knowing, all-clairvoyant Palmeri has not openly addressed this scam.

“Our most dangerous tendency is to expect too much of government.”

~President Warren Harding

It’s time for “The Interesting Story of the Week”. I saw a friend this week and we discussed the financial fallout like we normally do. He was one of the first that I started discussing this mess with back in 2005. He is a smart guy but he thought I was completely insane when I became the local predictor of financial doom. Over the course of the next 4 years his financial fortunes took a huge hit. I know he wishes he would have listened but it’s too late now. At least he’s trying to move forward and not plan for the bubble to come back. He should still be okay.

My friend told me about some friends he has down south. Of this couple the wife was looking at inheriting a substantial fortune from her parents. The parents are now in their 80s and 90s. They had made a lot of money off of bank stock over the years. They fell in love with one bank in particular. The stock of this bank is not publicly traded and is off about 60% from its peak. This is not a publicly traded stock so the market is pretty illiquid. This bank is on the troubled list and will most likely fail. It’s only a matter of time. The stock, in reality, is most likely worthless. Although they say it is down 60% it is more 100% since no market exists. When this bank fails this couple will have lost in the neighborhood of $50 million. I think I dropped my hamburger when he threw out that figure. That is the bulk of their assets.

All the world is cheering the rise of the Dow Jones Industrial Average. It is the sign that things are getting better. As we know it just doesn’t matter for many people. The Dow can go to 30,000 and it won’t matter for this couple. They can never get back what they lost. Their loss is total. How many other couples were completely invested in such stocks as Lehman Brothers, Bear Stearns, GM, Fannie, Freddie, AIG, Countrywide, etc? Some of those stocks still exist (artificially) but they will never come back. It’s just a matter of time until they die. As we hear talk of “green shoots” we have to remember that for some there is no chance to recoup what is lost. Due to hubris they broke the most basic rules of financial management and now they are done.

We came close to joining that crowd. Buying in the NYC area would have put us “all in” to the housing casino. It was a close call. That keeps me humble. Humility seems to be a commodity in short supply lately. But it is worth more than gold or platinum. I’m glad I get smacked down on a regular basis. It does me a world of good. Fifty million dollars? That makes me shake.

I just found out that my yoga instructor is a realtor. Eeeeew!

How I am ever going to get over this? I know I will be in therapy for a long time.

I wore my HBB tee shirt on a shopping trip to Trader Joe’s last night, and two of the store’s employees made the effort to read it. This led to interesting conversations with both of them.

One had bought her SD county home back in the early 1990s, and was happy with the fact that her monthly nut is lower than current rent on comparable housing. She also told me about how her investment adviser helped keep her from losing her shirt during the stock market crash over the past couple of years.

The other lost her home in a fall 2007 fire and is planning to use insurance proceeds to rebuild on the same plot of ground. Both conversations were enjoyable; I will have to wear the t-shirt in public more often, as it appears to be a good conversation starter.

Apparently, not everyone in the Fed’s “family” is in a state of quasi-permanent denial about the housing bubble:

Sunday, Oct. 25, 2009
Former Fed chair sees long slog ahead
Volcker blunt at Shakertown event
By Tom Eblen - Herald-Leader columnist

Paul Volcker, who was chairman of the Federal Reserve under presidents Jimmy Carter and Ronald Reagan and is a top adviser to President Barack Obama, has earned a reputation as one of the rarest of creatures: a straight-talking economist.

Volcker was true to form Thursday, when he came to Kentucky to speak at the Shakertown Roundtable, a gathering of about 60 of the state’s most influential leaders in business, government, education and philanthropy.

The 82-year-old economist was blunt in his assessment of what caused this economic crisis and what’s needed to fix it. And he brought things back into focus when some executives tried to point fingers, shift blame and complain about recovery strategies.

“We spent, as a nation, more than we were producing,” Volcker said. Mix that with a real-estate bubble, reckless financial manipulation and too little government oversight, and it was a recipe for disaster.

“We were leveraging the economy … and then it all unraveled,” he said, adding that the recovery will be a “considerable slog” that could take years.
…

In the past few days I’ve seen a lot of post about the rent versus own equation in Florida. Am I to believe that residential rents are plummeting in Manhattan but holding fast in Florida? That seems a little hard to believe.

You have to see this to believe it:

http://www.dailymotion.com/video/xavq2d_painfully-honest-and-epic-mobile-ho_fun?from=feedblitz_523284_2755156

Dollar’s Doom Puts a Face on New $1 Million Bill - Bloomberg Article.

Who’s face would you put on the $1 Million Bill?

http://tinyurl.com/link-2-bloomberg-com-article-1

http://preview.tinyurl.com/link-2-bloomberg-com-article-1

I’d nominate Greenspan, possibly Reagan.

Treasury surprises Chrysler Financial owner with news of closing
The Detroit News

Washington — The Treasury Department said Thursday that Chrysler Financial will close its doors by the end of 2011 — a move that could cost hundreds of jobs in Metro Detroit.

“Chrysler Financial is currently following Treasury’s directive to liquidate its business in an orderly fashion,” said Kenneth Feinberg, the Treasury Department’s special master overseeing pay for top executives at the seven firms that received government bailout money including automakers and Farmington Hills-based Chrysler Financial. “Accordingly, Chrysler Financial is currently pursuing a successful wind down of its operations by Dec. 31, 2011.”

Late Thursday, the Treasury didn’t back away from its statement that Chrysler Financial would liquidate within 26 months.

Treasury spokeswoman Meg Reilly said “Treasury recognizes that Chrysler Financial is continuing to operate in the normal course of business while acknowledging that the origination of new retail and wholesale lending for Chrysler Group LLC is being handled primarily by GMAC. Treasury also notes that Chrysler Financial will continue to service its obligations to its existing lenders as required by its outstanding loan agreements.”

Cerberus Capital Management LP officials said they were unaware of any liquidation orders and that closing isn’t part of their business plan.

A Treasury official said on the condition of anonymity that Chrysler Financial “is in the process of liquidating and wants to be fully wound down by 2011. We state it as the current aspiration, not a plan that is set in stone, and we drew that conclusion from the company’s submissions and our discussions.”

Recent Financial Times interview with George Soros Excerpt: Q: When it comes to financial reforms in the United States specifically, what are the most necessary ones? What are the most necessary measures? GS: You do need to regulate the banking system. Basically you’ve now given an implicit guarantee to the banks that are too big to fail and you have to then regulate them in order to ensure that the guarantee is not invoked. That’s the job of the regulators. They fell down on it. They let the banks regulate themselves and the banks ran away with that opportunity and got into trouble, so you can’t let them get away with it, run away with it. You have to reduce the amount of leverage that they allowed to use…And you have to recognise that the whole concept of how financial markets operate was false, namely the idea that they tend towards equilibrium. They don’t. They actually are prone to generate asset bubbles and so the regulators have to accept responsibility about not letting those bubbles become self-reinforcing and create a crash. That responsibility they expressly refused…FT: Are you confident that when things get better, when the economy, when the financial sector are more robust, there will be sufficient political will to impose the sorts of restrictions you’re discussing?

GS: No. No. Because actually banks are very influential politically and now the remaining banks … we’ve got three or four banks that dominate the banking scene in the United States. They have a quasi-oligopolistic position and they want to use that clout to protect that position. So you will have a big political struggle to get the right kind of regulation through.
Read the whole thing.

I’m getting ready to go out for the day in a little bit. That means I have some time to hang out at the HBB and mess around on the Internet. I decided to look at some Craigslist listings for Manhattan. I haven’t done that in a while. I’m looking at a neighborhood that is close to work and very desirable for us.

I can’t believe what I am seeing. I literally have drool on my keyboard right now. I am seeing places for $1,800 or $1,900 that would have been $2,500 or more two years ago. If my lease was up for renewal right now I would be squeezing our landlords like you wouldn’t believe. I see no reason why these deals won’t be there in February or March when we haggle with the landlords. I will have no problem moving if the situation is the same. I would say these rent prices pre-date our 2005 arrival. I hope all of the “owners” are happy that they aren’t throwing their money away on rent. Bwahahahaha.

Are these estimates of incipient US bank failures plausible? They are far worse than any other numbers I have seen thus far…

Finance and Economics

American banks
The pyramid principle

Oct 22nd 2009
From The Economist print edition
America’s big banks are getting healthier. The small fry are not
…
In the second quarter of this year America’s banking system overall slipped into the red as bad-debt provisions mounted. There is likely to have been more pain in the third quarter. CreditSights, a research firm, reckons 600 to 1,100 of America’s 8,200 banks may need help from, or winding down by, the Federal Deposit Insurance Corporation, compared with the 118 that have failed since the beginning of 2008.

Right now America’s banking system resembles a pyramid. At the top, two or three firms are doing well. But beneath them are a handful of giant conglomerates that are struggling towards profits, a tier of middling banks with overexposure to risky assets, and a vast base of small banks in deep, deep trouble.

Phew….It’s over!!!! and all of you non-believers that didn’t think the gubmint could fix “it” in short order, are screwed once again. Shoulda bought a house or three, to be ready for the next moon shot.

Big gain in GDP would show end of deep recession
3.5% annualized increase would be first growth in a year.

WASHINGTON (MarketWatch) — The U.S. economy probably grew at a healthy pace in the third quarter of the year, the first economic growth in a year and a strong sign that the worst recession in the postwar era is over, economists say.

Helped by massive government stimulus that supported consumer spending and residential investments, U.S. gross national product probably rose at a an annual rate of 3.5% in the third quarter after plunging by 3.8% in the past year, according to the median forecasts of economists surveyed by MarketWatch.

The GDP numbers will be released on Thursday. GDP will be the top headline in a fairly busy week for economic data.

The economy has contracted in five of the past six quarters. The losing string was broken only in the second quarter of 2008, when the government briefly stimulated the economy with tax-rebate checks.

“Third-quarter growth is expected to not only turn positive, but to do decisively,” wrote Nigel Gault and Brian Bethune, economists for IHS Global Insight. “The deepest and longest recession since the 1930s is over.”

A warning label ahead for cell phones?

A 10-year survey of 12,800 people in 13 countries, overseen by the World Health Organization, finds that long-term mobile phone users could face a higher risk of developing cancer in later life. Preliminary results of the inquiry, which is looking at whether mobile phone exposure is linked to three types of brain tumor and a tumor of the salivary gland, have been sent to a scientific journal. The findings are expected to put pressure on the Government – which has insisted that mobile phones are safe – to issue stronger warnings to users.

Avid cell phone users will dismiss this report, as they do all studies like this - - but is it not possible that a radio signal powerful enough to pass through your cranium to a receiving tower a mile or more away might joggle some tissue whic

So I went and checked out a new place today, and it was swarmed with brown widows! I showed the landlord the sacks and with a stick scared one out, (which was much larger than the ones around my place).Deal breaker… off to the hospital, discharge around 1pm.

The Housing Crisis: Where are the Foreclosure Lawyers?
By Tim Padgett / Miami Saturday, Oct. 24, 2009

A foreclosure sign stands in front of a home in Miami Beach, Florida.

Home foreclosure isn’t a legal abstraction for Yolanda Paschal, a recent graduate of the University of Miami School of Law. Her parents are facing foreclosure on the Miami house she grew up in. They’re luckier than others, since they have another home to fall back on, but the experience has convinced Paschal how acute the crisis is in Florida, which now has the nation’s highest mortgage foreclosure rate, at 17%. “I’m part of this community,” says Pascal, 25. “I can’t escape how deeply this is affecting not just my neighbors, but me as well.”
…

FACT CHECK: Health insurer profits not so fat
Oct 25, 8:37 AM (ET)

WASHINGTON (AP) - Quick quiz: What do these enterprises have in common? Farm and construction machinery, Tupperware, the railroads, Hershey sweets, Yum food brands and Yahoo? Answer: They’re all more profitable than the health insurance industry. In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making “immoral” and “obscene” returns while “the bodies pile up.”

Ledgers tell a different reality. Health insurance profit margins typically run about 6 percent, give or take a point or two. That’s anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones.

Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans.

Insurers are an expedient target for leaders who want a government-run plan in the marketplace. Such a public option would force private insurers to trim profits and restrain premiums to compete, the argument goes. This would “keep insurance companies honest,” says President Barack Obama.

The debate is loaded with intimations that insurers are less than straight, when they are not flatly accused of malfeasance.

They may not have helped their case by commissioning a report that looked primarily at the elements of health care legislation that might drive consumer costs up while ignoring elements aimed at bringing costs down. Few in the debate seem interested in a true balance sheet.

http://apnews.myway.com/article/20091025/D9BI4D6O1.html

Editor’s 2 Cents ~ Health care: Cheap at any price (hint… $900 billion)

Last week, we had the cheery news from Madame Speaker Pelosi that the cost of the House’s health-care reform bill was going to come in under $900 billion.

Phew, I’m glad to know we can afford it after all. The Treasury should be able to print that new money within a couple of weeks. Kind of reminds me of the good old days in the last Bush administration when there was no war or bailout we could not afford.

Ahem.

Now for the serious business.

There seem to be two driving assumptions behind health-care reform:

1) That people have a right to health-care.

2) That somebody else should pay for it.

I get the reason why people assume they have a right to health care: It is frankly better than the alternative - you know, dropping dead from swine flu in the parking lot outside the local hospital while nurses mix martinis and greedy docs play golf with insurance execs. But my question for any and all is just where did this right to health care come from?

Was it granted by God, like the rights to life, liberty and the pursuit of happiness we cherish in America? If so, why are we not born with a personal-care provider attached? It’s darned inconvenient having to drive my car to the doctor’s office when I want health care. At the very least, you would think that an inalienable right would come with curbside service. How about providing an ambulance for me so that I can exercise my right whenever I want to? For that matter, why do doctors’ offices shut down at night? If I have a right to health care, shouldn’t that come with a 24/7 access guarantee?

But that is mere flippant philosophy. Much more important is the nagging question of who is going to pay for my health care. Since I have a right to it, my ability to pay is irrelevant.

http://www.dailyinterlake.com/opinion/columns/frank/article_1adfb008-c101-11de-85a6-001cc4c002e0.html

We need mo money, it’s for the chidrens…

Michigan Gov. Granholm: Schools will be forced to make layoffs if K-12 funding cuts aren’t restored.

Gov. Jennifer Granholm said cuts to Michigan’s school aid budget could force districts to make painful spending adjustments, including layoffs, unless lawmakers work to restore funding within 30 days.

“Teachers and support personnel will be laid off,” Granholm said in her weekly radio address Friday. “Class sizes will increase, and the many programs that make our schools rich and rewarding experiences for our children will be lost. We cannot afford to let that happen, and we won’t.”

Granholm on Thursday issued an executive order requiring a $127 per-pupil cut in K-12 funding, and earlier in the week made $54 million in line-item vetoes.

In her address, she said the cuts were required under state law and likened the school aid budget that lawmakers sent to her to a “bad check that bounced almost as soon as it was written.”

Part one: Reckless Strategies Doomed WaMu

http://seattletimes.nwsource.com/html/businesstechnology/2010131911_wamu25.html

forced to make layoffs if K-12 funding cuts aren’t restored ??

Did you see the Volker link above ?? The Govener of Kentucky quote;

“Per year we spend $9,000 on every student in K-12…We spend $6,000. on each Student in College…We spend $19,000. for each person in prison”

Unless he or she utterly fails on all other criteria, I plan to back the first 2012 presidential candidate who campaigns on busting the “too-big-to-fail” trusts. I remain resolute in my conviction that Megabank, Inc is subject to the Sherman Antitrust Act.

Too Big to Fail: Why The Big Banks Should Be Broken Up, But Why The White House and Congress Don’t Want To

Robert Reich | Oct 25, 2009

And now there are five — five Wall Street behemoths, bigger than they were before the Great Meltdown, paying fatter salaries and bonuses to retain their so-called”talent,” and raking in huge profits. The biggest difference between now and last October is these biggies didn’t know then that they were too big to fail and the government would bail them out if they got into trouble. Now they do. And like a giant, gawking adolescent who’s just discovered he can crash the Lexus convertible his rich dad gave him and the next morning have a new one waiting in his driveway courtesy of a dad who can’t say no, the biggies will drive even faster now, taking even bigger risks.

What to do? Two ideas are floating around Washington, but only one is supported by the Treasury and the White House. Unfortunately, it’s the wrong one.

The right idea is to break up the giant banks. I don’t often agree with Alan Greenspan but he was right when he said last week that “[i]f they’re too big to fail, they’re too big.” Greenspan noted that the government broke up Standard Oil in 1911, and what happened? “The individual parts became more valuable than the whole. Maybe that’s what we need to do.” (Historic footnote: Had Greenspan not supported in 1999 Congress’s repeal of the Glass Stagall Act, which separated investment from commercial banking, we wouldn’t be in the soup we’re in to begin with.)

Former Fed Chair Paul Volcker, whose only problem is he’s much too tall, last week told the New York Times he’d like to see the restoration of the Glass-Steagall Act provisions that would separate the financial giants’ deposit-taking activities from their investment and trading businesses. If this separation went into effect, JPMorgan Chase would have to give up the trading operations acquired from Bear Stearns. Bank of America and Merrill Lynch would go back to being separate companies. And Goldman Sachs could no longer be a bank holding company.

But the Obama Administration doesn’t agree with either Greenspan or Volcker. While it says it doesn’t want another bank bailout, its solution to the “too big to fail” problem doesn’t go nearly far enough. In fact, it doesn’t really go anywhere. The Administration would wait until a giant bank was in danger of failing and then put it into a process akin to bankruptcy. The bank’s assets would be sold off to pay its creditors, and its shareholders would likely walk off with nothing. The Treasury would determine when such a “resolution” process was needed, and appoint a receiver, such as the FDIC, to wind down the bank’s operations.
…

There is no evidence of survivor’s guilt in this crowd.

Too Big To Fail
Simon Buxton, 10.21.09, 06:00 AM EDT
After a year in the abyss, Wall Street toasts an eagerly awaited book of its near demise.

Almost a year after Wall Street tottered on the brink of financial collapse, titans of the banking world and beyond gathered Tuesday evening to celebrate one of the most eagerly-awaited accounts of last year’s financial convulsions.
…
One notable no-show was Dick Fuld, former CEO of Lehman Brothers, who presided over his bank’s implosion just over a year ago.

Fuld, who placed No. 9 on a CNN list entitled “Ten Most Wanted: Culprits of Collapse,” emerges from the story a tarred titan, as Sorkin elucidates his refusal to sell Lehman as a whole or in parts before its collapse, despite numerous opportunities and pressure from former Treasury Secretary Hank Paulson to do so.

Where Sorkin succeeds is in translating a highly complex–and for many, uninteresting–series of events into a gripping and intelligible read. Through months of interviews and behind-the-scenes access, he renders normally stony-faced executives and politicians in three dimensions, affording the reader a rare sense of their real personalities and private conflicts so absent from the public eye.

Much of his ability to engage the reader also lies in the book’s minute details, which could only be gleaned from an unprecedented intimacy with the subject. In one attempt to illuminate the unrelenting stress of the debacle, Sorkin recounts aides hearing a nauseous, sleep-deprived Paulson vomiting in his office amidst the crisis.

The blow-by-blow introspection into the political wrangling, financial turmoil and ego management may have roused last night’s guests into celebration, but consider that only a year ago these well-wishers were themselves in dire straits, grappling with the genuine possibility of their industry and careers at an end.

On Tuesday night, perhaps for the sake of closure, they toasted not only Sorkin’s success but also their own remarkably documented escapes.

Capital
Lessons Not Learned About Too Big To Fail
Thomas F. Cooley, 10.14.09, 12:01 AM EDT
We should know by now that we have to address this problem.

As the worst phase of the Great Recession eases and some confidence returns about the future of economy and the banking system, we seem to have forgotten what caused our economic woes in the first place. While Washington is paying appropriate lip service to the need for regulatory reform and the dangers of having financial institutions that are “too big to fail,” progress has been glacial. And the government still doesn’t know what to do about systemically risky firms.

It is easy to postpone the unpleasant task of confronting the lessons of past failures. We know this all too well: The first time “too big to fail” surfaced as a big dangerous issue was not during Lehman’s meltdown, but during the near collapse of Continental Illinois Bank in 1984.
…

Intelligent Investing Panel
Buying ‘Too Big To Fail’
Alexandra Zendrian, 09.30.09, 06:00 AM EDT
The large banks will continue to have too-big-to-fail safeguards. Buy Goldman, Barclays and Deutsche Bank.

Surprising no one, the Obama administration has decided many banks must remain “too big to fail.” And while this designation remains troubling and distasteful to some, there is also almost certainly money to be made investing in banks backstopped by Uncle Sam.

“The ‘too big to fail’ policy made sense because there was too much systematic risk should they fail,” says Marc Lowlicht, head of the wealth management division of Further Lane Asset Management. But now that the economic recovery is accelerating, the banks will survive and have stronger balance sheets, he adds.
…

I have occasionally raised the question here about when too-big-to-fail became the standard modus operandi of US banking policy. This article suggests it started in April 1980.

The fact that the Fed chairman as of April 1980 seems to be having second thoughts gives me great encouragement that my prediction will soon come to pass. The die is cast.

Posted on Sun, Oct. 25, 2009

How to change too-big-to-fail ethic?

By Harold Brubaker

Inquirer Staff Writer

Thirty years ago, the biggest bank in Philadelphia was in deep trouble because of a bad bet on interest rates.

First Pennsylvania, then the oldest bank in the nation, had invested heavily in long-term government securities paying fixed rates of interest. When Paul Volcker, then the chairman of the Federal Reserve, raised interest rates in 1978 to fight inflation, the bank was crushed; it had to pay more to borrow than it earned on the bonds.

Investors and large depositors fled, and in April 1980 the Federal Deposit Insurance Corp. - at the urging of the Federal Reserve and the U.S. Department of Treasury - coordinated a $1.5 billion rescue involving federal and private loans for the bank, which had $8.5 billion in assets.

The bailout was the first large-scale government intervention to protect a bank from failure because it was deemed “too big to fail,” said William Isaac, who as an FDIC director in 1980 reluctantly went along with the First Pennsylvania rescue plan, according to news reports at the time.

“Essentially, nobody paid much of a price. The government rescued the bank from its mistakes and established a very bad precedent,” Isaac, who was chairman of the FDIC during the tumultuous period in banking from 1981 to 1985, said in an interview last week.

The die was cast
…

I popped into a bank owned open house in the neighborhood just now—3/2, living room, family room, a couple of small “bonus” rooms of marginal utility, no pool, small back yard, etc. It had new carpet, paint, granite, all the earmarks of a failed flip, and of course it’s overpriced by at least 20% (MLS #4249370 for the curious). The surprising thing about all of this is that it wasn’t an individual who fixed it up to flip, it was the BANK that did the paint/carpet/granite job. According to the agent (and yes, I was the only one there, and quite possibly the only one today), a local contractor who specializes in this sort of thing has been getting a lot of business from banks trying to fix up their REO properties. I wasn’t aware banks were into the fix ‘n flip game. Is anybody seeing this kind of thing anywhere else? This thing has little chance of selling anywhere near the asking price, which has already been reduced by $10,000 since the initial listing.

“A person with a new idea is a crank until the idea succeeds.”

~Mark Twain

Cool, I’ll be adding one of these to my arsenal…

Taser X3

On Friday, Taser International held a demo day at the Alameda Sheriff’s Office Regional Training Center in Dublin, Calif., to show off some of the latest in electronic control devices.

The Taser X3, the newest device with multishot technology, goes beyond the single-shot capabilities of first-generation tasers and provides the ability to deploy a second and third cartridge immediately. Also, it can simultaneously zap three bad guys at once.

The US as Failed State
The Super Rich are Laughing
Paul Craig Roberts
Oct 26, 2009

The US has every characteristic of a failed state.

The US government’s current operating budget is dependent on foreign financing and money creation.

Too politically weak to be able to advance its interests through diplomacy, the US relies on terrorism and military aggression.

Costs are out of control, and priorities are skewed in the interests of rich organized interest groups at the expense of the vast majority of citizens. For example, war at all cost, which enriches the armaments industry, the officer corps and the financial firms that handle the war’s financing, takes precedence over the needs of American citizens. There is no money to provide the uninsured with health care, but Pentagon officials have told the Defense Appropriations Subcommittee in the House that every gallon of gasoline delivered to US troops in Afghanistan costs American taxpayers $400.

“It is a number that we were not aware of and it is worrisome,” said Rep. John Murtha, chairman of the subcommittee.

According to reports, the US Marines in Afghanistan use 800,000 gallons of gasoline per day. At $400 per gallon, that comes to a $320,000,000 daily fuel bill for the Marines alone. Only a country totally out of control would squander resources in this way.

While the US government squanders $400 per gallon of gasoline in order to kill women and children in Afghanistan, many millions of Americans have lost their jobs and their homes and are experiencing the kind of misery that is the daily life of poor third world peoples. Americans are living in their cars and in public parks. America’s cities, towns, and states are suffering from the costs of economic dislocations and the reduction in tax revenues from the economy’s decline. Yet, Obama has sent more troops to Afghanistan, a country half way around the world that is not a threat to America.

It costs $750,000 per year for each soldier we have in Afghanistan. The soldiers, who are at risk of life and limb, are paid a pittance, but all of the privatized services to the military are rolling in excess profits. One of the great frauds perpetuated on the American people was the privatization of services that the US military traditionally performed for itself. “Our” elected leaders could not resist any opportunity to create at taxpayers’ expense private wealth that could be recycled to politicians in campaign contributions.

Republicans and Democrats on the take from the private insurance companies maintain that the US cannot afford to provide Americans with health care and that cuts must be made even in Social Security and Medicare. So how can the US afford bankrupting wars, much less totally pointless wars that serve no American interest?

The enormous scale of foreign borrowing and money creation necessary to finance Washington’s wars are sending the dollar to historic lows. The dollar has even experienced large declines relative to currencies of third world countries such as Botswana and Brazil. The decline in the dollar’s value reduces the purchasing power of Americans’ already declining incomes.

Despite the lowest level of housing starts in 64 years, the US housing market is flooded with unsold homes, and financial institutions have a huge and rising inventory of foreclosed homes not yet on the market.

http://www.321gold.com/editorials/roberts/roberts102609.html

Oylgal — this one’s for you

Developers’ bust proves a boon for land trusts
Peter Fimrite, Chronicle Staff Writer

Monday, October 19, 2009

(10-19) 04:00 PDT Smartsville, Yuba County — The frog eluded the grasp of Erik Vink, who scrambled after it along the rocky shore of the Yuba River where chinook salmon were thrashing around in the riffles.

It was a joyous day for the boyish Vink, the project manager for the San Francisco-based Trust for Public Land, as he recently toured the 595 acres of oak woodlands and 2 miles of river in the Sierra foothills that he and his colleagues had just agreed to purchase and forever preserve.

The chaparral-covered land 15 miles outside of Marysville had been slated to be bulldozed for homes. But the bottom dropped out of the economy and the plan to build homes was yanked, allowing the trust to swoop in with a $4 million offer that was quickly accepted.

It seems like a rare opportunity, but all over California, tough economic times are forcing investors and developers to abandon housing projects and real estate deals that would have made them a fortune just a few years ago. Conservation organizations and trusts are moving in to buy the land, often at bargain basement prices.

“To have property with this combination of oak woodlands bordered by river is extraordinary,” Vink said. “There aren’t many properties like this out there, especially in this low foothills belt.”
…

Editorial: The problem with “too big to fail”

The MetroWest Daily News
Posted Oct 25, 2009 @ 12:56 AM
…
The lesson here is that when a private institution is too big, the consequences of its failure is just one of many dangers it presents. The solution doesn’t lie in devising bigger nets for them to fall into, or new rules to guide their behavior. The goal of policymakers should be to make the institutions that are too big to fail, too small to present a systemic threat to the economy.

Washington should start by breaking up those companies in which the government owns a controlling stake, like AIG, into smaller units. Then we can move toward cutting the other giants down to size, through legislation, international agreements and antitrust enforcement. America and the world can no longer afford to carry private companies that are “too big to fail.”

I would argue the too-big-to-fail firms should be broken up by law. That is the purpose of the Sherman Antitrust Act, and it is about time to start enforcing it.

Business
Sunday, October 25, 2009
What to do with those who are ‘too big to fail’

KNOWLEDGE@WHARTON • October 25, 2009
…
“There are two issues with too-big-to-fail,” says Wharton finance professor Richard C. Marston. “First, there are institutions which are not banks that have proven capable of wrecking our financial system. This includes Bear and AIG. We need a serious regulator to watch over them. … Second, we need to figure out what to do with both the big banks and the big ‘others’ to control future risks.”

The main concern Wharton finance professor Marshall E. Blume has about big institutions “is that if the investors in those institutions perceive the government is going to remove risks [with a bailout], then you’re going to have major distortions of the market.”

While few argue that these firms should be broken up by law, as AT&T was a generation ago, many believe there should be a better mechanism to dismantle failing financial firms in an orderly way. Many say that to impose discipline on these firms, and thus discourage excessive risk taking, such a process should assure that debt holders, not just shareholders, suffer big losses when the government is forced to step in.
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Police: Madoff associate Jeffry Picower dies at 67:

Found dead at the bottom of his pool Sunday.

(hmm…very suspicious) - Alleged to have extracted over $7 billion from the Madoff scams.

http://tinyurl.com/yjbjn5m

History will owe Paul Volcker and Mervyn King a deep debt of gratitude for saying what needed to be said when it needed to be said.

King Steps Up Call to Tackle Banks ‘Too Important to Fail’

By Jennifer Ryan

Oct. 21 (Bloomberg) — Bank of England Governor Mervyn King stepped up his call for governments to tackle the dangers posed by banks that are “too important to fail,” saying new capital rules won’t shield taxpayers from funding any future bailouts.

“The massive support extended to the banking sector around the world, while necessary to avert economic disaster, has created possibly the biggest moral hazard in history,” he said in a speech in Edinburgh late yesterday. He indicated that one solution could be to split up banks and separate riskier activities from more stable businesses such as taking deposits.
…

Has anyone noticed REOs disappearing from their MLS? Weird — like some sorta conspiracy.

I am thinking of getting in SRS for a day or so this week. Gotta cover wife’s maternity leave.

Go away! Tradin’!

Arianna Discusses Public’s Bailout Anger On BBC’s Newsnight

Read More: Bailout, Barack Obama, Chase, Economy, Glass-Steagall Act, Goldman Saks, Hank Paulson, Henry Paulson, JP Morgan Chase, Larry Summers, Obama, Recession, Reform, Regulation, White House, Home

Arianna recently appeared on BBC’s Newsnight to discuss the economic crisis, the lack of reform, and the effects of the bailout on American society and politics.

Other Newsnight guests included economist Liaquat Ahmed, author Andrew Ross Sorkin, and historian Simon Schama. BBC’s Kristy Wark hosted.

To explain the public’s anger at bailed out banks, Arianna pointed to the lack of lending from institutions that were rescued with taxpayer money. “The bailout originally was defended by Henry Paulson on the grounds that it would allow the banks to lend, to jumpstart the real economy and the huge problem now is this disconnect between Wall Street and the real economy and there is nothing being done right now to change that, and that and that’s where the anger is being unleashed… It’s really about the bailout and the unfairness and the loss of faith. It’s not really capitalism.”

Part of the allure of the TARP was the notion that it would generate a positive profit to the US taxpayer. Now they are claiming that when the books on the TARP are closed, “only” $159 bn will have vanished.

Why do I suspect the ultimate loss to the taxpayer will prove much larger than $159 bn?

Special Report The Rescue
Bailout’s hidden costs

TARP Neil Barofsky, overseer of the $700 billion TARP program, says the cost to taxpayers will be a lot greater than the government is letting on.

By David Goldman, CNNMoney dot com staff writer
October 21, 2009: 3:44 AM ET

NEW YORK (CNNMoney dot com) — The $700 billion bailout will ultimately cost taxpayers billions of dollars, but the government stands to lose much more than the money it’s pouring into companies.

Neil Barofsky, special inspector general for Treasury’s financial sector rescue, wrote in a report released Wednesday that the bailout has several hidden costs.

One is the hard cost of borrowing money to fund the rescues of banks and other companies. The others are, according to Barofsky, less tangible but no less important: The danger that comes with rewarding companies that took excessive risk, and the loss of the government’s credibility with taxpayers.

“You can’t just think of this program in terms of dollars and cents,” Barofsky told CNNMoney. “We try to bring attention to these other costs, which have the potential to dwarf the monetary loss in dollars.”

To be sure, the monetary loss will likely be substantial: Barofsky cites the Congressional Budget Office estimates that the Troubled Asset Relief Program will ultimately cost taxpayers $159 billion.

But Barofsky focuses his report, a quarterly update to Congress and the public, on what he identifies as the unseen costs and risks of TARP.
…

Is KKR still playing the same game of loading the balance sheet of formerly healthy companies with debt and sucking out all the blood? Or do they operate under a different business model now than they did 30 years ago?

Capmark Financial files for bankruptcy

Commercial real estate company was weighed on by declines in the sector and a heavy debt load related to its leveraged buyout.

NEW YORK (Reuters) — Commercial real estate company Capmark Financial filed for bankruptcy protection on Sunday, wiping out the investment of several private equity firms including Kohlberg Kravis Roberts & Co.

Capmark, which was created in March of 2006 through a leveraged buyout of the commercial real estate assets of General Motors’ finance arm GMAC, had said earlier this year that it might file for bankruptcy.

The company said in a statement the move was due to conditions in the financial and commercial real estate markets and a lack of available capital.
…

The Map of Bailout Recipients

Each marker represents the headquarters of a financial institution that expects or has already received money from the Treasury Department under the TARP (Troubled Asset Relief Program). The size of each marker represents the amount of bailout money given to each institution. Click on the markers to see the institution’s name and amount it’s receiving.