The Housing Bubble

Good morning everyone. Time for coffee and then
let the stress begin!

Got Perfect Credit? You Could Be Charged For It!
Bank Of America, Citigroup First To Try Out Idea, Which Will Undoubtedly Alienate Many Who Follow The Rules
http://wcbstv.com/consumer/credit.card.fees.2.1272124.html

I think this will die quickly.

Home prices rise in most major cities in August
US home prices rise again in August, cementing the beginnings of a housing turnaround
NEW YORK (AP) — U.S. home prices rose for the third straight month in August, data Tuesday showed, a key sign for a broad and sustained housing recovery.
The Standard & Poor’s/Case-Shiller home price index of 20 major cities climbed 1 percent from July to a seasonally adjusted reading of 144.5. While prices are down 11.4 percent from August a year ago, the annual declines have slowed since February.
Prices are at levels not seen since August 2003 and have fallen almost 30 percent from the peak in May 2006.

“I am going to buy a house before its to late”.
“Looks like I will be priced out for ever if I dont act”

A short follow-up to a post from Friday (about bankruptcies).

Many here, like most of the MSM strongly believe the number 66 as percentage of heath related bankruptcies (or something close to it). As I said Friday, I do some computer work for a lawyer that does a lot of them (only Chapter 7 though) in Maryland. What he said is different …

Keep in mind that he is only doing Chapter 7 (low income) in one state but the difference is too big not to put it on someone’s agenda (especially now that they are/were talking so much about health care reform). He said that in the last 20+ years, MAYBE 20% (probably only 10-15) of what he did were because of health related issues (not only bills but also disability that lead to decreased income while the expenses were the same).

I KNOW he doesn’t have any interest in lying to me while MSM has, so … maybe someone else who knows some similar data from another state can chime in with some info …

What is the difference between a Realtor and a catfish?

-one is a slimy, mud-sucking, sh*t-eating, bottom feeder. the other is a fish.

I know there aren’t alot of teevee watchers here but I can’t help not notice how many new ad campaigns by banks very recently. Alluring to the debt-junkies I’m certain but they make me grimmace. The slave masters are back in full force it seems.

“It’s all bad. That’s all we know,” said John Stepek, editor of MoneyWeek. “People ask if we’re going to have inflation or deflation. The bulls think we’re going to have inflation. The bears bet on deflation. But I’m not sure it matters. We’re probably going to have both.

“The point is, whichever we have, it’s going to be the bad sort. Neither inflation nor deflation is necessarily bad. Prices have to adjust. That’s how the market conveys its signals. When prices rise, it tells producers to get busy and increase output. When prices fall, it tells them to lay off. In the natural order of things prices usually fall. Or, they should fall. This is ‘good’ deflation. It just means that producers are becoming more efficient, as they should. There’s good inflation too – when prices rise due to increased real demand. When people earn more money, they can buy more things; prices rise.

“But what we’re going to see is bad. Bad inflation. And bad deflation. It is the result of monetary problems and mismanagement. And it is going to send all the wrong signals and inevitably make things worse. First, the deflation is bad because it is result of a massive de- leveraging accompanied by a write-down of debt and assets. It’s a depression. Or a major recession. Or a ‘great contraction.’ Call it what you will. It’s a deflation in which prices fall…and it’s not going to be any fun.

“Then, there’s most likely going to be bad inflation too – caused by the central banks printing too much money. This is bad inflation because it is just an increase in the quantity of paper money, not an increase in real demand.

“We don’t know exactly what is coming. But whatever it is, it will be bad.”

Excerpt ~ From The Daily Reckoning

A very interesting read(w/pics):

The Lost History Of Hemland
If you look beyond the soldiers, and into the distance, what you are really seeing are the ruins of one of the biggest technological projects the United States has ever undertaken. Its aim was to use science to try and change the course of history and produce a modern utopia in Afghanistan.
By Adam Curtis

October 21, 2009 “BBC” — 13 October 2009 — When you look at footage of the fighting in Helmand today everyone assumes it is being played out against an ancient background of villages and fields built over the centuries.

This is not true. If you look beyond the soldiers, and into the distance, what you are really seeing are the ruins of one of the biggest technological projects the United States has ever undertaken. Its aim was to use science to try and change the course of history and produce a modern utopia in Afghanistan. The city of Lashkar Gah was built by the Americans as a model planned city, and the hundreds of miles of canals that the Taliban now hide in were constructed by the same company that built the San Francisco Bay Bridge and Cape Canaveral.

http://www.informationclearinghouse.info/article23777.htm

Seniors squeezed as doctors shun Medicare
If a proposed 21% cut in payment rates goes through in 2010, it could spark a physician boycott against new enrollees.

NEW YORK (CNNMoney.com) — Medicare has become a scary word to the doctors at the largest private group practice in Kansas City, Mo.

It’s so scary that most physicians at Kansas City Internal Medicine, with 65% of its nearly 70,000 active patients age 65 or older, have stopped accepting walk-in Medicare enrollees, said Dr. David Wilt, an internist at the group.

Wilt and his colleagues say they are shunning the area’s growing senior population because they believe Medicare doesn’t reimburse physicians enough to cover the cost of care.

“And if Medicare further cuts its reimbursement rates, then we’ll be functioning at a loss,” said Wilt.

Wilt — and doctors with lots of senior patients — are especially troubled by a 21% cut in Medicare payments to physicians scheduled to take place in 2010. Last week, the Senate voted against stopping that cut, and more annual cuts over the next decade, from taking place.

“If the [21%] cut happens, that cut in our payments will exceed our profits. The only option to us to stay in business will be to fire employees,” Wilt said.

Physicians say a boycott against Medicare has already begun because they are tired of dealing with the yearly threat of a payment cut.

Roubini Says Carry Trades Fueling ‘Huge’ Asset Bubble (Update1)

Oct. 27 (Bloomberg) — Investors worldwide are borrowing dollars to buy assets including equities and commodities, fueling “huge” bubbles that may spark another financial crisis, said New York University professor Nouriel Roubini.

“We have the mother of all carry trades,” Roubini, who predicted the banking crisis that spurred more than $1.6 trillion of asset writedowns and credit losses at financial companies worldwide since 2007, said via satellite to a conference in Cape Town, South Africa. “Everybody’s playing the same game and this game is becoming dangerous.”

The dollar has dropped 13 percent in the past year against a basket of six major currencies as the Federal Reserve, led by Chairman Ben S. Bernanke, cut interest rates to near zero in an effort to lift the U.S. economy out of its worst recession since the 1930s. Roubini said the dollar will eventually “bottom out” as the Fed raises borrowing costs and withdraws stimulus measures including purchases of government debt. That may force investors to reverse carry trades and “rush to the exit,” he said.

“The risk is that we are planting the seeds of the next financial crisis,” said Roubini, chairman of New York-based research and advisory service Roubini Global Economics. “This asset bubble is totally inconsistent with a weaker recovery of economic and financial fundamentals.”

The MSCI All-Country World Index of global equities has surged 69 percent from this year’s low on March 9, while the Reuters/Jefferies CRB Index of 19 commodities has jumped 32 percent.

‘Wall of Liquidity’

An asset “bust” may not occur for another year or two as a “wall of liquidity” pushes prices higher, he said. In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets.

I just got finished reading “This Time is Different,” an overview of past financial crises recommended by my wife (Carmen Reinhart and Kenneth Rogoff). They see what we say — the run up of unsustainable debt and the housing bubble was a clear run up to disaster, based on historical precedent.

The history of post crisis trends is sobering. In the typical such crisis:

a] Asset market collapses are deep and prolonged, on average 35% over six years for housing and 56% over 3 1/2 years for stocks.

b] The unemployment rate rises an average of 7% over four years, and output falls an average of 9% over two years, before leveling off.

c] Real central government debt nearly doubles, with direct bailouts accounting for a small part of it, and collapses in tax revenues and the expenditures needed to prevent social disaster accounting for more of it.

Currency crises and high inflation often follow financial crises. So do sovereign defaults, which are very, very common according to the book. Direct default is less common for advanced economies that have “graduated.” But default via inflation or currency declines do happen in such economies. There is also the possibility (thought the book doesn’t mention it) of state and local defaults. New York State is run a lot like Argentina at its worst.

Our crisis started in summer 2007 according to this reckoning, so on average where would be another 2 1/2 years to go. But it is worse than average, and unlike many it is global, meaning we can’t export our way out of it (although, I would argue, that if the dollar falls enough we may be able to import substitute our way out of it at the cost of a fall in the standard of living).

The SSM - State Sponsored Media - is unwilling and/or unable to connect the dots these days, so maybe we can help them out. Two stories or interest this morning - housing prices rise again; and consumer confidence is dropping:

CHICAGO (AP) — “Consumers’ confidence about the U.S. economy fell unexpectedly in October as job prospects remained bleak, a private research group said Tuesday, fueling speculation that an already gloomy holiday shopping forecast could worsen.
The Consumer Confidence Index, released by The Conference Board, sank unexpectedly to 47.7 in October — its second-lowest recording since May.

Wall Street analysts predicted a reading of 53.1.

A reading above 90 means the U.S. economy is on solid footing. Above 100 signals strong growth.

The index has seesawed since reaching a historic low of 25.3 in February and climbed to 53.4 in September.

Shoppers have a grim outlook for the future, The Conference Board said, expecting a worsening business climate, fewer jobs and lower salaries. That’s particularly bad news for retailers who depend on the holiday shopping season for a hefty share of their annual revenue.”

At the same time:

NEW YORK (AP) –”U.S. home prices rose for the third straight month in August, data Tuesday showed, a key sign for a broad and sustained housing recovery.

The Standard & Poor’s/Case-Shiller home price index of 20 major cities climbed 1 percent from July to a seasonally adjusted reading of 144.5. While prices are down 11.4 percent from August a year ago, the annual declines have slowed since February.

Prices are at levels not seen since August 2003 and have fallen almost 30 percent from the peak in May 2006.

The latest index shows a widespread turnaround with prices rising month-over-month in 15 metro areas since June.”

The SSM wants you to believe that housing becoming more unaffordable right now is somehow a “good” thing. Perhaps if you are a politician who is used to getting $500,000 a year from developers, you might think higher prices for housing is just what the country needs. It would seem the SSM puts the interests of the elite few above the interests of the majority.

Most HBB’ers can surmise that a paltry and unsustainable increase in housing prices at the cost of trillions of deficit $$$ and the complete corruption of the financial system is hardly cause for celebration. Couple it with the fact that most consumers already reject the “green shoots” BS, and once again, the Feds have managed to create the very worst possible scenario out of thin air.

“Mission Accomplished” for the hope and change crowd?

Do writers who are this bright seriously believe the first-time buyer tax credit is a temporary measure?

The home-buyer tax credit: Throwing good money after bad
By Simon Johnson and James Kwak
Tuesday, October 27, 2009; 12:20 AM

…the tax credit stabilizes the housing market, people say. What does this mean? It means that the credit keeps housing prices artificially high. But housing is something that all people need. Why do we want it to be expensive? Would we want government policies that artificially push up the price of food? (Wait, we have some of those already . . . but that’s a matter for another column.)

As of July, the real price of housing, according to the Case-Shiller Composite 10 Index (adjusted using the consumer price index), was still 20 percent higher than in January 2000 and more than 30 percent higher than its average for the entire 1990s. Now, there is a risk that a weak economy can cause housing prices to fall well below their long-run average. However, housing prices appear to have stabilized, at least for now, and at too high a level. That is in part due to the tax credit, in part due to the partial economic recovery we are witnessing.

What happens when you artificially prop up housing prices? Imagine the credit were expanded to all home buyers and made permanent. This would simply boost housing prices at the low end of the market by close to $8,000, since all buyers would be willing to pay $8,000 more. (Prices would rise by a little less than $8,000 because at higher prices, more people would be willing to sell.) Whom does this benefit? Not first-time home buyers. It benefits people who already own houses (and their real estate agents) because it’s a one-time boost in housing values. This would be just the latest chapter in a long history of government policies to boost housing prices — the mortgage interest tax deduction, the capital gains exclusion on houses, the extension of the mortgage interest tax deduction to second houses, etc. Each of these policies pushes up prices just once; if you want to keep pushing up housing prices, you have to keep adding sweeteners.

A temporary tax credit has a similar effect, but for a shorter period of time. It boosts the price of a transaction that would have happened anyway. It may create additional transactions, but is that a good thing? If someone could not have afforded a house without the tax credit, then what is he or she going to do when the tax credit goes away and the price of the house falls? In effect, the tax credit is a way of making houses temporarily affordable that would not otherwise be affordable, and we know where that leads.
…

Since US housing has found a bottom, there is apparently no longer any need for the first-time buyer $8K $15K tax credit stimulus or any other housing price support measures from Uncle Sam.

BTW, a one-month price increase of 1.2% translates into an annualized increase rate of (1.012^12-1)*100 = 15.3 percent. Buy yourself ten houses now, or miss the next real estate investment boom!

Economic Report

Oct. 27, 2009, 10:28 a.m. EDT

U.S. home prices rise in August, Case-Shiller says
Prices down 11.3% in the past year in 20 major cities

By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) — The market value of U.S. homes in 20 major cities rose by 1.2% in August compared with July, the fourth monthly increase in a row, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s.

In August, prices rose in 17 of 20 cities. Only Charlotte, Cleveland and Las Vegas recorded month-to-month declines.

“U.S. home prices have apparently bottomed,” wrote Harm Bandholz, an economist for UniCredit Markets.
…

Given that the housing market has bottomed out and the stock market is hanging in there around DJIA = 10,000, I am surprised consumers are “less confident than expected.”

market pulse

Oct. 27, 2009, 10:00 a.m. EDT

Oct. consumer confidence falls for second month
By Greg Robb

WASHINGTON (MarketWatch) — U.S. consumers became more cautious in October, the Conference Board said Tuesday. The consumer confidence index fell to 47.7 in October from an upwardly revised 53.4 in September. Economists expected the index to hold steady at around 53.2. The September confidence index was revised up from the initial estimate of 53.1. The present situation index fell to 20.7 from 23.0, its lowest level in 26 years. The expectations index fell to 65.7 from 73.7 in September. Consumers were more pessimistic about the labor market, with those claiming jobs are “hard to get” rising to 49.6% from 47.0% in the prior month.
…

Gee, this is a green shoot….

NEW YORK, Oct. 27 /PRNewswire/ — The Conference Board Consumer Confidence Index®, which had declined in September, deteriorated further in October. The Index now stands at 47.7 (1985=100), down from 53.4 in September. The Present Situation Index decreased to 20.7 from 23.0 last month. The Expectations Index declined to 65.7 from 73.7 in September.

The kicker….

In fact, the Present Situation Index is now at its lowest reading in 26 years (Index 17.5, Feb. 1983). The short-term outlook has also grown more negative, as a greater proportion of consumers anticipate business and labor market conditions will worsen in the months ahead. Consumers also remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays.”

Let me guess - Citibank’s decision to jack rates to 29.9% didn’t have anything to do with that?

Neither does the gross and outrageous under-reporting of jobless rates by the government?

Neither does the incessant attempts to jack up taxes by state and local governments (instead of cutting spending back to, for example, year 2000 levels)?

Neither does the fact that the very banks who managed to play the “end of the world” card just one year ago, effectively stealing government guarantees and handouts worth some twelve trillion dollars, are now paying record-level bonuses?

Neither does the fact that Bwarney Frank and Chris Dodder are “furious” about the credit card companies rate-jacking people, but they in fact wrote the bill to allow it to happen?

Neither does the Federal Government’s outrageous and insane refusal to acknowledge that we have too much debt, including at the federal level, and you can’t fix a drunk’s problem by giving him a bottle of whiskey?

Many people consider The American People to be “sheep.”

It appears that The Sheep have watched a cadre of a dozen foxes (the billions of “campaign contributions”) and five sheep holding a vote on what’s for dinner, and realized that in such a rigged game the best choice is not to play, kneecapping the foxes’ ability to feast.

Beware if your thesis of “economic recovery” requires consumers to “go out and shop”, for it is damn hard to do when you have no job, your credit card interest rate was just jacked to 30%, you were laid off yesterday afternoon and you just got a foreclosure notice in the afternoon mail.
(Credit to K. Denninger)

Not that I’m advocating voilence or anything, but NAR members beware?

http://www.latimes.com/news/local/la-me-loan-beating27-2009oct27,0,2378916.story

How many years have elapsed since the posters here first noted the negative correlation between the dollar and the US stock prices before the MarketWatch people finally mentioned it?

I hope the Fed relishes the “the luxury of imposing its monetary policy on the global markets” while it lasts, because my sense is that other nations’ top economic policy makers are FED UP.

Market Snapshot

Oct. 27, 2009, 11:27 a.m. EDT
U.S. stock market tracking moves of dollar

By Kate Gibson, MarketWatch

NEW YORK (MarketWatch) — The U.S. stock market is paying more attention than usual to the movements of the U.S. dollar, with the greenback’s newfound status as a funding currency leaving its moves highly correlated to equities and other riskier assets.

The greenback’s status as both the world’s reserve and funding currency means the Federal Reserve “still has the luxury of imposing its monetary policy on the global markets,” said Dean Curnutt, president of Macro Risk Advisors LLC.
…

Bulls are fond of saying “the stock market climbs a wall of worry.” Does it appear to anyone besides this poster that the US stock market is currently crawling down a slope of hope?

just an FYI i noticed on zillow.

person buys a 2 acre parcel for 500K…subdivides it into two 1 acre parcels and puts an asking price of 350K each.

zillow shows a “last sold” price for both parcels of 500K. makes you think you are getting a “deal” when you aint.

i know most folks on this board would figure it out on their own but just thought i would point it out anyway.

Retirement Readiness Falls on Housing, Insurer Says (Update1)

Oct. 27 (Bloomberg) — Fewer U.S. households are prepared for retirement after the value of their homes and investment portfolios declined in the recession, Nationwide Mutual Insurance Co. said.

Fifty-one percent of Americans would be unable to maintain their standard of living if they retired at age 65, compared with 44 percent in 2007, the insurer said today in a statement, citing the National Retirement Risk Index it developed with the Center for Retirement Research at Boston College. The estimate is “conservative” because it doesn’t include medical costs or long-term care, the insurer said.

“The real problem behind this is that so many households were dependant on their home values,” Paul Ballew, a senior vice president of customer insights and analytics at Nationwide, said in an interview. “Once home prices came back down to normal levels, we wake up one day and realize we don’t have adequate savings.”

Americans are facing a decline in the value of their homes and other assets at the same time the U.S. government is pushing back the age that retirees qualify for full Social Security benefits. The average 401(k) retirement savings account fell by almost one-third in 2008, and people aren’t saving enough to make up the difference, Ballew said.

The U.S. median price of existing homes was $174,900 in September, 24 percent less than its peak in July 2006, according to the National Association of Realtors. The average balance of 401(k) accounts at the end of 2008 was $45,519, compared with $65,454 a year earlier, reflecting market losses, according to data collected by the Employee Benefit Research Institute, based in Washington.

Tax refugees staging escape from New York
October 27, 2009

New Yorkers are fleeing the state and city in alarming numbers — and costing a fortune in lost tax dollars, a new study shows. More than 1.5 million state residents left for other parts of the United States from 2000 to 2008, according to the report from the Empire Center for New York State Policy. It was the biggest out-of-state migration in the country.

The vast majority of the migrants, 1.1 million, were former residents of New York City — meaning one out of seven city taxpayers moved out.

“The Empire State is being drained of an invaluable resource — people,” the report said.

What’s worse is that the families fleeing New York are being replaced by lower-income newcomers, who consequently pay less in taxes.

Overall, the ex-New Yorkers earn about 13 percent more than those who moved into the state, the study found.

And it should be no surprise that the city — and Manhattan in particular — suffered the biggest loss in terms of taxable income.

The average Manhattan taxpayer who left the state earned $93,264 a year. The average newcomer to Manhattan earned only $72,726.

That’s a difference of $20,538, the highest for any county in the state. Staten Island was second, with a $20,066 difference.

It all adds up to staggering loss in taxable income. During 2006-2007, the “migration flow” out of New York to other states amounted to a loss of $4.3 billion.

Semi-off topic: The launch of the Ares 1-X was scrubbed today for weather reasons. I pray this rocket works, else America will probably sadly end up bowing out of space travel in the future; after all, creating economic scams is far more important than technological advancements.

What really angers me about all this is how they are talking about basically gutting the space program since it is “unaffordable.” Now, I admit that there have been cost overruns, but to claim that the program is “unaffordable” when it doesn’t even cost $100 billion is insane when compared to handing out trillions of dollars to bankers that produce absolutely nothing of value for the nation: no new technology, no high-paying jobs, no future… heck, not even a sense of national pride - nothing.

I guess it is clear where Amerika’s priorities lie - the bankers ARE the nation now.

minor activity in the market in this small mountain town. we still have a thirty year supply of houses, but anything under $200,000 is selling. it isn’t about square footage, it is about price. recently an 800 sq foot old house went for $175k and a 2000 sq. foot house went for $215k. similar condition. a 15yr old house at 1000 sq. feet sold for $165k. a vacant lot sold for $50k, less than half the price of everything else on the market.

everything else continues to sit. prices slowly being dragged down.

huge shadow inventory. local realtors say they are turning away most interested sellers.

Wages and housing (asset) prices in the US can go down or stay flat (deflation), while the price of everything imported and energy rises (inflation). Much of this will be driven by the value of the dollar.

The overall downside to the economy is probably less dramatic than we think. We’ll drive smaller cars and buy less junk. I can think of many legitimate services I could use in the US if they were cheaper.

Problem is most people spend much of the little money they have on things we don’t make here as much as we used to, so even if the government succeeds in getting more money into circulation, it will only change hands a few times before it is spent on something imported and thus the stimulative effect is fleeting.

In the meantime, if you’re young and flexible and want to get ahead, go work abroad. Learn a language or two.

Goldman WINS again!———————

How the Fed Bungled AIG’s Rescue, Enriched Bankers and Screwed TaxpayersPosted Oct 27, 2009 11:58am EDT

It is by now well known that the banks on the other side of credit default swaps sold by AIG got paid out at par when the government bailed out the insurance giant.

But what isn’t as well known is that by deciding to pay AIG’s counter-party in full, the Federal Reserve was reversing months of work AIG executives had done to convince the banks to take a haircut on their positions.

In the months leading up to the bailout of AIG, the chief financial officer for AIG’s financial products unit worked day and night and through the weekends to work out a deal with the banks that had purchased $61 billion of credit default swaps from AIG. AIG was trying to get the banks to accept as little as 40 cents on the dollar to retire the swaps.

Typically, a counter-party to a firm rapidly running out of cash might expect somewhere between 50 to 70 cents on the dollar to close out the obligations. Citigroup agreed last year to accept about 60 cents on the dollar from New York-based bond insurer Ambac Financial Group Inc. to retire protection on a $1.4 billion CDO.

But when the New York Fed stepped in on September 16, 2008,with an $85 billion credit line for the company, those negotiations ground to a halt. Beginning early in November, a team lead by Tim Geithner at the New York Fed took over negotiations with the banks. Geithner’s team offered the banks 100 cents on the dollar.

Bloomberg reports that the documents were similar to those drafted by AIG, except for one crucial detail.

Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the haircut the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public.

The New York Fed’s decision to pay the banks in full cost AIG — and thus American taxpayers — at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.

According to a quarterly New York Fed report, the value of those $29.6 billion in securities declined in value by about $7 billion as of June 30.

So why did the Fed pay out so handsomely even though a better deal for taxpayers was already in the works? We’d guess it was financial panic. In the wake of the collapse of Lehman Brothers, the government was worried that the financial system was on the verge of collapse. It fearred making banks take a haircut on the AIG swaps would leave them with insufficient capital. In short, it was a covert bailout of the banks.

The biggest winners here include Goldman Sachs, which got $14 billion, as well as Societe Generale and Deutsche Bank.

No doubt regulators would say that paying full price was necessary. But it was not.

A far better move would have been to transparently bailout firms that needed the additional capital instead of doing it in an under-handed way. Even better would have been to have forced those firms with too much exposure to AIG to seek out new capital in the markets, possibly converting debt to equity and wiping out existing shareholders. Goldman Sachs claims that it didn’t need the AIG bailout bucks to survive–a claim whose truth we’ll never actually know because of the bungled operation of the bailout.

Husband blames Lloyds for wife’s suicide after bank pulls family firm’s overdraft
Daily Mail Reporter 27th October 2009

A husband has claimed Lloyds bank was partly to blame for his wife’s suicide after it suddenly pulled their overdraft.

Mark Davis said the bank’s actions helped drive his wife Victoria to throw herself in front of a train earlier this year.

An inquest into her death heard her money worries came to a head when a £16,000 tax demand was hand-delivered to the family home on the morning of her suicide.

The hearing was told Mrs Davis had battled to juggle her job as company secretary for the family firm and coping with its debts with being a mother to two young children.
Mark and Victoria Davis

‘Blissfully happy’: Mark and Victoria Davis. He claims Lloyds bank was partially to blame for her suicide because it pulled their overdraft

Her husband, from whom she kept secret the extent of the family’s chauffeur business’s financial woes, insisted Lloyds TSB was partly to blame.

After the inquest, he told how they had been with the bank for years and had always had the overdraft renewed on a yearly basis.

This was suddenly changed to monthly renewals and then finally withdrawn, cutting adrift the family chauffeur car business which then went bust, he claimed.

‘We did everything they asked us to do and then they moved the goal posts and kept moving them. I am extremely bitter about it,’ Mr Davis said.

‘Lloyds bank holds some of the responsibility for her death. We banked with Lloyds for many years and had a very successful business.

‘We had an extremely large overdraft of £30,000 which was secured on our house and other guarantees. Previously it had been renewed annually but suddenly it was only renewed monthly and then it was pulled completely.

‘How can we run a business on that basis? I had a letter from the bank yesterday saying they were still holding a personal guarantee of mine and they wanted it paid.

‘But my company has now gone into liquidation and as far as I can, I shall make sure that Lloyds don’t get a penny.’

Mrs Davis committed suicide on railway tracks near the couple’s home in Chalford, near Stroud in Gloucestershire in May.

After her death, some 4,000 letters she had hidden away were found. Ironically, many contained payments from customers that would have eased their financial problems.

What’s this!? Property taxes going up despite falling house prices (and lower assessments).

The money quote from a Chicago Tribune story this morning:

“Figures provided by Houlihan illustrate how the upward march of property tax bills appears to have largely defied the housing-market crash as well as the steepest economic swoon since the Great Depression.”

The suburbs are really getting hammered this year. Just remember kids, it don’t mean thing if you ain’t got that tax base!

Just the other day I was driving through Marysville, CA, and passed by the Bank of America, which has been in the same building for years. There is a sign saying that B of A is not moving. But now you can find a Curves at the local B of A, and they have a big sign advertising that they have more space to rent. I have a picture of this if anyone is interested.

I was just wondering if anyone has seen this elsewhere? Is this some desperate strategy for B of A to make extra money –by scaling back and renting out space withing their banks? Maybe this is where the future of banking is going. For years now we’ve been able to do our banking at the grocery store. Maybe in a few years from now we’ll all be able to go to the bank, and get a work out while you’re there. And maybe you can go to yoga class and get a frozen yogurt at the bank?

http://www.boston.com/business/articles/2009/10/27/renters_get_little_relief_as_demand_rises_incomes_fall/?p1=Well_MostPop_Emailed4

Boston area rents going up! As the banks sit on their shadow inventory it looks like any new renters coming into the area will pay. For some it is too much and homelessness is increasing.

I thought that the Fed was pretty close to done with buying Treasuries…

Treasurys hold gains after $44 billion auction
By Ben Rooney, CNNMoney.com staff reporter
On 1:14 pm EDT, Tuesday October 27, 2009

Treasury prices rose Tuesday after a surprise drop in consumer confidence raised questions about the economic recovery, prompting investors to seek safety in government-backed debt.

Investors were also responding to strong results from a $44 billion auction of 2-year notes, which is part of this week’s record $123 billion offering of U.S. debt.

The government received bids totaling $159.3 billion for the $44 billion worth of 2-year notes sold Tuesday. The bid-to-cover ratio, which gauges demand, was 3.63. That compares with 3.23 at the previous 2-year sale in September and a 2009 average of 2.84.

The Census Bureau will be counting American noses in 2010 and many citizens will be asked to divulge all kinds of personal information. Think twice before you report on the number of bathrooms in your house or how far you drive to work in the morning. The Constitution doesn’t give Congress any right to nose around that far into your personal affairs via a census.

“The Constitution simply authorizes an enumeration, a counting of heads. Not an enumeration by race, Hispanic ethnicity, personal relationships, or by the manner in which a person occupies his/her home (”tenure” in census-speak). Not an enumeration by one’s labor force status, by health insurance coverage, by disability status, by level of education. Not an enumeration of the number of bedrooms, kitchens, cars, distances/times traveled to work, school. Not an enumeration of the amount of income made, or by the answers to numerous other nosy questions found in the American Community Survey. Just a simple counting of the number of people. Madison’s extensive notes on the 1787 Convention contain not one word about the delegates spending any of their valuable time discussing the issues of race, Hispanic origins, personal relationships, or plumbing.” ~Paul Galvin

The census has evolved into a marketing research tool. But that’s not what it is designed to be. Tell your Congressman that if he wants to pry into your personal affairs don’t do it hiding behind a census taker.

Legalize It: Insider Trading Is a Victimless Crime, Says James Altucher
Oct 27, 2009

If James Altucher had his way, it would still be business as usual at Galleon Group. Instead, the hedge fund is embroiled in one of the largest insider trading scandals in history; the company’s head, billionaire Raj Rajaratnam, has posted $100 million bail and the firm is essentially ruined.

So why does Altucher, managing director at Formula Capital, think the Feds should lay off Rajaratnam? Simply put, he thinks insider trading should be legal.

Altucher says it’s a matter of pragmatism, suggesting insider trading is:

1. A victimless crime
2. Almost impossible to prosecute
3. A big waste of taxpayer money

If insider trading were legal, Altucher says, the SEC would spend their money on tracking down fraud and uncovering “the next Madoff or Enron.”

He also believes there’s an actual market benefit to insider trading. “If insiders, the ones with privileged information, are throwing that information into the stock price everyone benefits with a more accurate price.”

But of course, there’s a reason why it’s not legal. Allowing insider trading would annihilate the concept of a level playing field in the market. Altucher says hogwash. That’s just an illusion. “There’s already no level playing field,” he says. This problem of insider trading is “so widespread” retail investors are already at a disadvantage.

Interesting arguments, but I doubt they’d make it very far on Capitol Hill.

Obama adds public option to World Series.
Scott Ott ~ Examiner Columnist ~ October 27, 2009
News fairly unbalanced. We report. You decipher.

President Obama today announced his plan to add “choice and competition” to the World Series of Major League Baseball by adding a ‘public team’ to the traditional end-of-season championship duel.

The president said the public option was needed because the American League champion New York Yankees and National League victors, the Philadelphia Phillies, were “motivated by greed to put their own interests ahead of the interests of the American people.”

“Without a public option,” said Obama, “you would just see two teams trying to run up the score, without any consideration of the price a ticket to the ballpark, which is out-of-reach for so many Americans.”

According to White House officials, the public option team will step in and replace any team that begins to lead its rival by more than two runs during any particular game in the series.

If a previously losing team should begin to run up the score on the public team, then it, too, shall be replaced by players on the public squad so fans can enjoy “reliable, accessible baseball.”

“The problem with baseball,” Obama said, “is the irrational exuberance spawned by the inherent instability. My plan removes the element of uncertainty, thus reducing the cost of a ticket to the ballpark to a price anyone could afford.”

Players on the public team must meet a stringent set of regulations, outlined in a 2,700-page codebook, that ensures the public will get the highest quality of baseball available within the limited resources of the federal government.

If ticket sales should drop off, Obama said, it would trigger a “mandatory attendance provision” which would impose fines on local employers who fail to buy tickets for their employees.

News U.K.
Global warmer: cattle emit methane
Climate guru: Stop eating meat…cows harm the planet
27.10.09

Eating meat could become as socially unacceptable within a generation as drink-driving, a senior government climate change adviser said today.

Lord Stern believes dietary shifts are crucial to halve damaging greenhouse gases caused by methane-producing livestock, such as cows and pigs, within 20 years.

He told The Times: “Meat is a wasteful use of water and creates a lot of greenhouse gases. A vegetarian diet is better.”

The peer undertook the 2006 Stern Review, commissioned by the Government to assess economic challenges of climate change. He said: “I am 61 now and attitudes towards drinking and driving have changed radically since I was a student. People change their notion of what is responsible. They will increasingly ask about the carbon content of food.”

Lord Stern said greenhouse gases must be halved by 2030. He believes a consensus on tackling global warming at this December’s UN Climate Change Conference in Copenhagen could lead to soaring meat prices.

Jonathan Scurlock, of the National Farmers Union, said: “Going vegetarian is not a worldwide solution. We don’t have a methane-free cow or pig available to us.”

One of the things my local school district is doing is trying to get another “Parcel Tax” passed. They got one passed last year–even though it takes a 2/3 vote–and are trying for a bigger one this year.

Why do people vote to raise their taxes, especially a tax where they can take away your home if you don’t pay? Because it’s rigged so most people don’t pay it!

- Renters don’t pay it. The tax is per-parcel, so even if the landlord sees it, it’s divided among the _n_ units on the property so it’s not a huge increase per tennant.

- People with kids take more out than they put in. It’s unbelievable to see the sports equipment, weight room, athletic field, pool, computers, AV equipment these kids have in school. We had none of that, (and I came out just fine! )

- Seniors are EXEMPTED! So these old biddies can feel good about “helping the schools” while they themselves don’t pay it.

The school district has been illegally campaigning for this on the tax-payer supported web site. (I called them on it, and sent them a letter suggested from the folks at the Howard Jarvis foundation; they removed the information but the damage is done.)

Anyway, I was driving home this morning from my Thai Massage (this *is* northern CA after all) and I heard busybodies on the radio talking about getting public funding to–get this–”Suicide Proof” our communities! That’s right: because some disturbed kids committed suicide (there were 3 suicides in one high school this past year), they want EVERYONE to pay and be inconvenienced. The particular suicide method they want to stop is “throwing oneself in front of a train”.

My theory: if they didn’t make HEROES out of the kids who killed themselves, fewer other kids would decide it’s a good idea. They have memorial services, grief sessions, public memorials, etc. So some kid who feels unimportant may decide to kill herself to become a “hero.”

Anyway, you should hear these proposals from the community–ranging from building bridges over grade crossings, to having the trains drive at “non-lethal speeds” (this is preposterous! A train moving at 1 MPH would do a great job squishing you flat.)

This story is so bizarre I couldn’t resist throwing it into today’s bits. Who remembers the notorious Drew Peterson saga from last year? He’s another one of the clowns from the Land of Lincoln to make last year’s media circus.

“Drew Peterson, accused of killing his third wife, sued JP Morgan Chase in federal court late Monday, accusing the bank of illegally cutting off a sizable home equity credit line.”

Linky:
http://www.suntimes.com/news/metro/1848923,drew-peterson-lawsuit-chase-102709.article

Visa Swings to Profit as Consumers Abandon Cash, Embrace Cards.

Oct. 27 (Bloomberg) — Visa Inc., the world’s biggest payments network, swung to a profit in the fiscal fourth quarter as it raised processing fees and logged more transactions. The shares fell 4.5 percent in late New York trading as the company said 2010 revenue growth may be at the low end of its forecast.

Net income for the three months ended in September was $514 million, or 69 cents a share, compared with a year-earlier loss of $356 million, or 45 cents, that stemmed from the settlement of an antitrust lawsuit, the San Francisco-based company said today in a statement. Adjusted income, which excludes one-time items, was $552 million, or 74 cents, compared with the 72-cent average estimate of 26 analysts surveyed by Bloomberg.

The shift toward a cashless society, fueled by consumers’ growing preference for debit cards, helped Visa and No. 2 payment processor MasterCard Inc. weather the recession even as the U.S. unemployment rate neared 10 percent. They’ve fared better than banks that issue their cards because networks don’t make loans, insulating them from record defaults.

“Visa’s revenue and earnings should rise steadily as a result of the continued migration of consumer spending from cash and checks to electronic payments,” Buckingham Research Group analyst David Hochstim said yesterday in a note to investors.

Visa rose $1.12, or 1.5 percent, to $73.90 at 4 p.m. in New York Stock Exchange composite trading. The shares gained 41 percent this year.

Some snake oil salesman was just on CNBC offering “equity protection” for homeowners. For 1% of the home’s value, they’ll facilitate a sale in the event that the loanowner is upside down when they need to unload the overpriced sh!tbox. Is it by mere coincidence that they waited for the lions share of price declines before offering up such a transparent scam? Whoever pays for this garbage deserves to be fleeced. Of course, according to the representative, they’re doing it for the benefit of the housing market.

What a surprise!

WASHINGTON (Reuters) - Top Democrats in the Senate have reached an agreement to extend the soon-to-expire $8,000 tax credit for first-time homebuyers, Senate Banking Committee Chairman Christopher Dodd said on Tuesday.

“We have that. Done,” Dodd told reporters. He declined to specify the details of the agreement.

But a Republican who has worked with Dodd cautioned that they were still negotiating on the measure, which could come up for a vote on Tuesday evening as part of a package that would extend unemployment benefits.

“We’re close, we’re close but I can’t get into any details until it’s a done deal,” said Republican Senator Johnny Isakson.

The popular tax credit, which has helped lift the housing market out of its worst slump since the Great Depression, is set to expire on November 30.

Dodd and Isakson want to extend the credit through June of next year and broaden it to anyone buying a primary residence, not just first-time buyers.

Senate Majority Leader Harry Reid had backed a narrower version which would extend the full credit through March and gradually phase it out through the end of 2010.

Dodd said that the deal would merge the two proposals.

It looks like there might be a bunch of thieving bastards at the NYFed. We can’t know for sure, of course, because they won’t disclose any information. So much for transparency.

What’s more, Q1 bank earnings was probably the result of backdoor transfers. Oh, and on top of all of that, a NYFed board member might have been involved in insider trading. No wonder people are losing confidence. The game is rigged.

In addition, the banking bureaucrats continue to claim they don’t have a system to allow TBTF banks to fail. Maybe they don’t, maybe they’ve imagined or concocted a special system for themselves, but the rest of us, we live in a capitalist system.

An anecdote from Ireland

An acquaintance of mine is a builder. His accountant told him this story.
The accountant had €250,000 in the bank. He went to the bank to take it out. Was told there was a problem. they could not give him his money. His bank manager collected him at his house, and took him for a little spin. Took him to see a housing estate, and in iieu of giving him his money, offered him five houses in the estate instead.
Five houses. These had been going in the range of €300,000 - €350,000 before the boom.
He took the deal, and is now in the course of taking possession of the houses. A silly move, IMO, but this is what he is doing.
Wondered for a while where to put this. No proof sadly, so couldn’t put it in the price drop section. , but it seems that it certainly is a Sign of the Recession.

This is from http://www.thepropertypin.com (Irish equivalent of HBB)

http://www.breitbart.com/article.php?id=D9BJIANG0&show_article=1

This made my day - Representative Grayson of Florida, an outspoken freshman member of Congress, called a K Street whore at the Fed what she is - a K Street whore. Of course the Republican “leadership” have their panties in a twist about Grayson’s lack of decorum, but it’s incredibly refreshing to hear someone with the cojones to call out these manipulators for what they are.

The funny thing is, Grayson is called a liberal Democrat, but he’s allied with Ron Paul in demanding an audit for the Fed and otherwise instilling accountability in high places. That’s my kind of liberal.

Frick, I am so tempted to pick up some SRS tomorrow morning …

Ben, why no comments on the shirt post? Are you tired of pectoralis compliments?

Are today’s savvy under-30-somethings as savvy as the crowd who knowed real estate always goes up when they were buying investment houses in droves circa 2005?

Cash in: Tricks for buying a home at the bottom
Barbara Corcoran shares insider tips to help home buyers in this market

Hulk Hogan: Why I almost killed myself

Oct. 27: In an emotional interview with TODAY’s Meredith Vieira, legendary professional wrestler Hulk Hogan talks about how a painful divorce and his son’s accident helped bring him to the brink of suicide.

Shark nearly bites another in half

Missing coed’s parents: our ‘worst nightmare’

Owen Migel’s submission

Huge pythons found in Everglades

By Barbara Corcoran

TODAY
updated 4:35 p.m. PT, Tues., Oct . 27, 2009

While others argue over whether this really is the bottom, savvy buyers are taking advantage of the best market in years to buy a home. If you’re an aspiring homeowner, here’s the know-how you need to snatch up a bargain — where to look, what to watch out for, and how to get financing that will make your home-ownership dreams come true.
…

The too-big-to-fail era at Megabank, Inc is toast. There are simply too many smart, financially savvy individuals weighing in on the international banking situation who are not willing to allow the scam to continue. They know that we know that he knows that she knows that too-big-to-fail has failed.

READ THE HANDWRITING ON THE WALL (I assume most central bankers are familiar with the tale of Belshazzar’s Feast? )

The Financial Times
‘Too big to fail’ is too dumb an idea to keep
By John Kay

Published: October 27 2009 21:36 | Last updated: October 27 2009 21:36

In the 2007-08 crisis, many different kinds of financial institution failed or were saved only by state intervention. Large financial conglomerates – Citigroup and Royal Bank of Scotland. Investment banks – Bear Stearns and Lehman. Smaller retail banks without investment banking arms (but with active treasuries) – Northern Rock and Sachsen Landesbank. Diversified banks, such as Fortis, and specialist lenders, such as Hypo RE. Public agencies, such as Fannie Mae and Freddie Mac. America’s largest insurer, AIG. Taxpayers will be footing the bills for a generation.

All these businesses exemplified management hubris and, in almost all, the failure was the result of losses in activities that were peripheral to their core business. Otherwise they had little in common. The variety of institutions is matched by the variety of regulators. The list of public agencies supervising failed businesses is much longer than the list of institutions.

There are people who believe that, in future, better regulation, co-ordinated both domestically and internationally, will prevent such failures. The interests of consumers and the needs of the financial economy will be protected by such co-ordinated intervention, and there will never again be major calls on the public purse. There are also people who believe that pigs might fly. Mervyn King, governor of the Bank of England has made enemies by pointing out that they will not.

It is impossible for regulators to prevent business failure, and undesirable to pursue that objective. The essential dynamic of the market economy is that good businesses succeed and bad ones do not. There is a sense in which the bankruptcy of Lehman was a triumph of capitalism, not a failure. It was badly run, it employed greedy and overpaid individuals, and the services it provided were of marginal social value at best. It took risks that did not come off and went bust. That is how the market economy works.

The problem now is how to have greater stability while extricating ourselves from the “too big to fail” commitment, and taking a realistic view of the limits of regulation. “Too big to fail” exposes taxpayers to unlimited, uncontrolled liabilities. The moral hazard problem is not just that risk-taking within institutions that are too big to fail is encouraged but that private risk-monitoring of those institutions is discouraged.
…
EDITOR’S CHOICE
Editorial comment: Competition rules - Oct-27
Economists’ Forum - Oct-27
Blog: Money Supply - Oct-07
In depth: Future of Finance - Oct-27
Fed chief warns banks on capital - Oct-23
US regulators struggle with reform push - Oct-27

Thank you, George Shultz. I frankly never imagined myself agreeing so fully with a Ronald Raygun cabinet member. History will smile on him for weighing in on the right side of this issue.

* The Wall Street Journal
* CAPITAL
* OCTOBER 28, 2009

Three Theories on Solving the ‘Too Big to Fail’ Problem

* By DAVID WESSEL

The biggest financial crisis in 70 years has bequeathed a to-do list of overwhelming length for bankers, regulators and politicians. Somewhere near the top is the “too big to fail” (TBTF) problem: The existence of financial institutions so large, so interconnected, so leveraged or so complex that the government dare not let them fail for fear of endangering the whole economy.

Investors who lend to or trade with these firms, for good reason, believe taxpayers will stand behind the debt of TBTF firms if things go bad. So, these firms can borrow more cheaply than too-small-to-save firms. That taxpayer subsidy — and that’s what it is — means these institutions can make riskier bets, collecting rewards if they win and sticking taxpayers with the tab if they don’t.

This is an old problem. But the rescues of Bear Stearns and American International Group and the uproar over the Lehman Brothers bankruptcy have expanded it beyond ordinary big banks. The past year has established a pattern: Executives of TBTF firms may be fired and their shareholders squeezed, but bondholders and trading counterparties will be protected. The already big institutions that survived the panic are now even bigger, and the obligations the government implicitly backs has broadened from bank deposits to bonds, derivative deals, even shares of money-market funds.

No one defends this. Promising not to do it again won’t work. Everyone knows what the government will do next time. The solutions fall into three strains.

The Mervyn King-George Shultz view: Bust them up.

Mr. Shultz, a former Treasury secretary, says that if banks are too big to fail, they are too big. Mr. King, governor of the Bank of England, is sympathetic. Noting with disapproval that the U.K. now has only four big banks, he said recently, “It is in our collective interest to reduce the dependence of so many households and businesses on so few institutions that engage in so many risky activities.”
…

The posters on this blog were pretty darned efficient in figuring out how overvalued real estate had become. I can recall being shocked when we had a gloom fest around fall 2006, making dire predictions for how far real estate would crash, then being shocked again when the more dire of the crash scenarios came to fruition.

* The Wall Street Journal
* OPINION
* OCTOBER 27, 2009, 10:13 P.M. ET

Efficient Market Theory and the Crisis

Neither the rating agencies’ mistakes nor the overleveraging by financial firms was the fault of an academic hypothesis.

By JEREMY J. SIEGEL

Financial journalist and best-selling author Roger Lowenstein didn’t mince words in a piece for the Washington Post this summer: “The upside of the current Great Recession is that it could drive a stake through the heart of the academic nostrum known as the efficient-market hypothesis.” In a similar vein, the highly respected money manager and financial analyst Jeremy Grantham wrote in his quarterly letter last January: “The incredibly inaccurate efficient market theory [caused] a lethally dangerous combination of asset bubbles, lax controls, pernicious incentives and wickedly complicated instruments [that] led to our current plight.”

But is the Efficient Market Hypothesis (EMH) really responsible for the current crisis? The answer is no. The EMH, originally put forth by Eugene Fama of the University of Chicago in the 1960s, states that the prices of securities reflect all known information that impacts their value. The hypothesis does not claim that the market price is always right. On the contrary, it implies that the prices in the market are mostly wrong, but at any given moment it is not at all easy to say whether they are too high or too low. The fact that the best and brightest on Wall Street made so many mistakes shows how hard it is to beat the market.

This does not mean the EMH can be used as an excuse by the CEOs of the failed financial firms or by the regulators who did not see the risks that subprime mortgage-backed securities posed to the financial stability of the economy. Regulators wrongly believed that financial firms were offsetting their credit risks, while the banks and credit rating agencies were fooled by faulty models that underestimated the risk in real estate.
…

I thought GMAC was a home mortgage lender?

* The Wall Street Journal
* U.S. NEWS
* OCTOBER 28, 2009

GMAC Asks for Fresh Lifeline

Lender in Advanced Talks for Third Slug of Taxpayer Cash — at Least $2.8 Billion More

By DAN FITZPATRICK and DAMIAN PALETTA

In a stark reminder of how some battered financial firms remain dependent on government lifelines, GMAC Financial Services Inc. and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money, people familiar with the matter said.

The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008, these people said. The latest infusion would come in the form of preferred stock. The government’s 35.4% stake in the company could increase if existing shares eventually are converted into common equity.

The willingness by Treasury officials to deepen taxpayer exposure to GMAC reflects the troubled company’s importance to the revival of the auto industry. Founded in 1919, GMAC has $181 billion in assets and is a major financier for 15 million borrowers and thousands of General Motors and Chrysler car dealerships in the U.S.
[Helping Hand]

The new capital would help firm up GMAC’s balance sheet and solidify its auto-loan business. GMAC provides the vast majority of wholesale financing for GM dealerships across the country, meaning scores of local distributors would be unable to bring new vehicles onto their lots if GMAC were to collapse.
…

I’m not the only one who suspects price fixing measures are underway to prop up assets held by members of the Ownership Society (especially banks and their owners).

* The Wall Street Journal
* OPINION: BUSINESS WORLD
* OCTOBER 27, 2009, 7:03 P.M. ET

Washington’s Suicide Mission

The real problem is Washington’s riverboat gamble on saving the economy with free money.

* By HOLMAN W. JENKINS, JR.

Members of the Obama administration have taken turns deploring the billions of dollars in year-end bonuses the finance industry is getting ready to hand out. Never mentioned is what they think firms should do with the money. Give it back to their customers? Spend it on office decorations?

Firms can’t just wish away revenue sitting on their books. That’s an accounting crime. More to the point, aren’t surging banker bonuses amid a general downturn the proximate and necessary outcome of Washington’s recovery Heimlich, which involves doling out free money to banks and artificially goosing asset prices?

Er, wasn’t this the plan?

After all, whatever sloppy incentives are introduced into the mix, Ken Feinberg is on hand to fix them by fine-tuning banker pay. Voilà, Washington has figured out how to stoke a credit bubble with one hand while making sure with the other that it feeds only good and sound “long-term” purposes.

Of course, Mr. Feinberg’s clever calibration of carrots only works with the seven bailed-out firms under his direct control. As he grandly told PBS, “The private marketplace should be able to have the flexibility to adopt these programs on their own.”

Unpack the ironies and contradictions in that sentence.

Mr. Feinberg is no dummy. Everyone knows the folderol about bonuses is a substitute for tackling the political challenge of “too big to fail.” His every explanation has consisted of pleading political necessity over good judgment.

Yet the urgent problem now isn’t TBTF, or even banker bonuses. These are distractions. The urgent problem is the giant riverboat gamble that Washington can save the economy by doing what comes naturally—spending money carelessly, creating massive new entitlements without funding them, dishing out cheap credit to politically favored sectors, telling business people where and how to invest.
…

I’m glad the central bankers have gone public with their debate on TBTF. After all, it was apparently behind closed doors that Megabank, Inc’s “heads-we-win, tails-you-lose” financial engineering strategy was hatched. The bright light of public discourse promotes economic justice.

Real Time Economics
Economic insight and analysis from The Wall Street Journal.

* October 23, 2009, 9:41 AM ET

Bernanke: Smaller Banks Not Necessarily the Answer for ‘Too Big to Fail’ Dilemma

By David Wessel

Mervyn King, governor of the Bank of England, says the solution to banks that are “too big to fail” is to have smaller banks. But Ben Bernanke, chairman of the U.S. Federal Reserve, says he isn’t convinced that’s the best answer.

Mr. Bernanke, speaking at a Federal Reserve Bank of Boston meeting Friday on Cape Cod, said he would prefer “a more subtle approach without losing the economic benefit of multi-function, international (financial) firms.”

His comments came in response to a question from former Bank of England Deputy Governor John Gieve.

Mr. Bernanke suggested alternatives such as higher capital requirements against bank trading books, higher capital for “systemically important” institutions and a congressionally created process for coping with failing big financial firms in ways other than bankruptcy or bail out.

He also expressed interest in what have been dubbed “living wills” — plans that big banks would have to maintain for winding down their operations.
…

Lots of good reading material here regarding the current housing market & general economic pictures…

Since many economists are offering the helpful insight that without the $8K credit, recent US housing price gains are not sustainable, I guess it has become incumbent on Congress to renew the credit, in order to sustain housing price increases. Whatever became of the “affordable housing” goal? Or is affordability somehow compatible with higher prices?

Real Time Economics
Economic insight and analysis from The Wall Street Journal.

* Secondary Sources: Dollar Death, Home Buyer Tax Credit, U.K. Recession

* John Reed on Glass Steagall: Then & Now

* October 27, 2009, 10:12 AM ET

A Look at Case-Shiller, by Metro Area (October Update)

By Phil Izzo

The S&P/Case-Shiller 20-city home-price index, a closely watched gauge of U.S. home prices, rose 1.2% in August from July in the fourth straight monthly increase, but prices remain below year-earlier levels.

For the 17th straight month, no area in the 20-city index posted a year-over-year price gain. That put nationwide prices at levels seen in 2003.

The index isn’t seasonally adjusted, and home prices are benefiting from the traditional increase seen in the spring and summer months. But even taking the usual bump into account, the numbers indicate some stability in the market. “The activity in this spring is far greater than what we’ve seen in recent years,” said Dan Greenhaus of Miller Tabak & Co.

Some economists aren’t convinced the gains are sustainable. “While many are interpreting the most recent results from this index as indicative of a bottom in home prices, we do not believe this to be the case,” said Joshua Shapiro of MFR, Inc. “Rather, this is probably a correction after unsustainable 2%-3% per month declines recorded over the autumn and winter months when the overall economy was in free-fall. Demand stimulated by the $8000 first-time homebuyer tax credit has also likely played an important role.”
…