The Housing Bubble

America’s Newest Land Baron: FDIC
The Wall Street Journal

ATLANTA — In the waning days of the Great Recession, the federal government is still jumpstarting the economy and propping up financial markets.

It is also trying to sell Dresden Heights, a failed condo development on a noisy freeway ramp next to a Motel 6, a Waffle House and a Do-It-Yourself Pest Control.

For more than a year, the Federal Deposit Insurance Corp. has been seeking a buyer for 36 partially built condos it inherited from a high-flying, short-lived Atlanta bank. The agency has been fending off vandals, haggling with architects and uncovering the developer’s blunders, all in a bid to dispose of this condo project, just one of the 2,554 foreclosed assets dumped onto its books. “These are properties with a bad story,” says Jim Gallagher, a senior official in the FDIC’s Division of Resolutions and Receiverships. “What we’re trying to sell is something that is rundown or not completed or has some property damage.”

The financial crisis started with Americans buying homes they couldn’t afford. It is ending with the government struggling to sell buildings it never wanted.

In the past two years, the FDIC has taken over 150 failed banks. In the process, it has seized more than 5,000 houses, subdivisions, buildings, parcels and other foreclosed assets. The current backlog of property stuck on the agency’s books, with an appraised value of $1.8 billion, ranges from an $18,700 clapboard home with stained carpets in Birmingham, Ala., to a $1.7 million mountainside lodge with a heated driveway in Steamboat Springs, Colo.

Taxpayers will be grappling with this flotsam for years to come, one example of how the crisis will linger long after the economy begins to revive. At a recent FDIC auction in Atlanta, the agency offered a four-unit condo building it had already sold once before — after the savings-and-loan crisis two decades ago.

These days, it takes the FDIC on average six to eight months to sell a property. Dresden Heights, tied up with unpaid bills, a lawsuit and complex right-of-way questions, is among its toughest prospects.

GMAC’s Carpenter Focuses on Auto Finance, ‘Solution’ at ResCap

Nov. 17 (Bloomberg) — GMAC Inc., the lender seeking a third taxpayer bailout, must focus on auto financing and find a “solution” to its money-losing mortgage business, newly appointed Chief Executive Officer Michael Carpenter said.

“The first priority is we have to make GMAC the premier auto-finance company,” Carpenter, 62, said in an interview yesterday. Secondly, “the mortgage business has been a drag on the company and we need to find a solution,” he said.

Carpenter’s goal for auto finance matches government policy, which deemed Detroit-based GMAC necessary for the survival of General Motors Co. last December. The U.S. financed two GMAC bailouts totaling $13.5 billion and had been negotiating another injection worth as much as $5.6 billion. As for the Residential Capital LLC mortgage unit, investors, analysts and even GMAC have been speculating about bankruptcy.

“The government is running into bailout fatigue and GMAC is realizing it can’t rely on this pool of support from the taxpayers,” said Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, who expects ResCap bonds to fall today. “The easiest group of assets to jettison, if you want to call them assets, is ResCap. They’ve been a source of a huge amount of embarrassment and pain.”

Mortgage delinquencies hit another record in 3Q.
Tuesday November 17, 2009

NEW YORK (AP) — The pace at which people fell behind on their mortgages slowed during the summer for the third consecutive quarter, but the overall delinquency rate hit another record, a new report shows.

For the three months ended Sept. 30, 6.25 percent of U.S. mortgage loans were 60 or more days past due, according to credit reporting agency TransUnion. That’s up 58 percent from 3.96 percent a year ago.

Being two months behind is considered a first step toward foreclosure, because it’s so hard to catch up with payments at that point.

The rate was up 7.6 percent from the second quarter. That’s a much smaller jump than the 11.3 percent rise in the second quarter from the first, and the 14 percent leap seen in the quarter before that.

While the slowing growth rate is a positive sign, the increase shows there’s still a lot of problematic mortgages out there, said F.J. Guarrera, vice president of TransUnion’s financial services division. The company doesn’t expect the figure to start declining until the middle of 2010.

I’m sure Step can assure us he doesn’t see it all in his paycheck -

Cost of Keeping One U.S. Soldier in Afghanistan Per Year: One Million Dollars

Cryptogon.com November 15th, 2009

The U.S. doesn’t have to “win” the war for a handful of diabolical corporations to make a killing. The trick is to keep the war going for as long as possible.

And, day after day, the shakedown continues.

Bogus contracts, drugs and energy. That’s all, folks.

Plus a little change we can believe in.

Via The New York Times:

“While President Obama’s decision about sending more troops to Afghanistan is primarily a military one, it also has substantial budget implications that are adding pressure to limit the commitment, senior administration officials say.

The latest internal government estimates place the cost of adding 40,000 American troops and sharply expanding the Afghan security forces, as favored by Gen. Stanley A. McChrystal, the top American and allied commander in Afghanistan, at $40 billion to $54 billion a year, the officials said.”

Even if fewer troops are sent, or their mission is modified, the rough formula used by the White House, of about $1 million per soldier a year, appears almost constant.

So even if Mr. Obama opts for a lower troop commitment, Afghanistan’s new costs could wash out the projected $26 billion expected to be saved in 2010 from withdrawing troops from Iraq. And the overall military budget could rise to as much as $734 billion, or 10 percent more than the peak of $667 billion under the Bush administration.

Such an escalation in military spending would be a politically volatile issue for Mr. Obama at a time when the government budget deficit is soaring, the economy is weak and he is trying to pass a costly health care plan.

What we are seeing in US will come to Asia in the next year or so. Asia is still partying with high home prices, high stock prices and a lot of foreign investments in their economies.

Do you think all this would end there and we can see prosperity back here in US? Unless US consumers spend, Asia will also go down in time to come and US would spend only if we have jobs and stable home prices.

I mentioned a while back that I picked up a copy of Niall Ferguson’s ‘Ascent of Money’ at a yard sale. I’ve been reading it fairly slowly (I’m not a slow reader, just don’t have much time) and came across a quote I thought was worth sharing.

“Inflation is a monetary phenomenom, as Milton Friedman said. But hyperinflation is always and everywhere a political phenomenom, in the sense that it cannot occur without a fundamental malfunction of a country’s political economy.”

This is in the context of Germany’s hyperinflation after WWI. It seems after WWI Germany wasn’t just printing tons of money, but doing lots of stupid stuff too. I haven’t gotten far enough in the book to see where NF is going with this, but I can guess.

As a side note, I consider this book as a keeper type book. One you put on the bookshelf and review periodically. Since I found it at a yardsale, I must conclude that the previous owner either didn’t like the content or doesn’t believe in keeper type books. There’s a nice happy birthday message written in the cover from mom.

I know most of HBBers like Volcker, but any of you shocked that he is supposedly against “mark to market” asset valuation rules? How does that change your view regarding this inflation-fighting luminary?

Volcker Criticizes Accounting Proposal

By FLOYD NORRIS
Published: November 16, 2009

A proposal to give banking regulators authority to block accounting standards is “a terrible idea,” Paul A. Volcker, a former chairman of the Federal Reserve Board, said Monday.

Mr. Volcker has been an outspoken critic of “mark to market” accounting that forced banks to take large write-downs in asset values, a position cited by banks earlier this year when they persuaded members of the House Financial Services Committee to demand changes in that rule.

But in an interview Monday, two days before a House committee vote on a proposal that would grant bank regulators the power to sidestep accounting standards, Mr. Volcker said he believed that accounting rules had to be set by an independent agency. He voiced concern that rising political pressures on both sides of the Atlantic were endangering that independence.

The Financial Services Committee is to vote on amendments to a bill to establish a council of bank regulators as a systemic risk regulator, able to take action if bank activities threaten financial stability.

Goldman resists, Tubotax Timmy relents, Taxpayers screwed.

Audit Faults New York Fed in A.I.G. Bailout
NYT, Published: November 16, 2009

The Federal Reserve Bank of New York gave up much of its power in high-pressure negotiations with the American International Group’s trading partners last year, according to a government report made public on Monday.

Just two days before the New York Fed paid A.I.G.’s partners 100 cents on the dollar to tear up their contracts with the insurance giant, one bank volunteered to take a modest haircut — but it never got the chance.

UBS, of Switzerland, alone offered to give a break to the New York Fed in the negotiations last November over how to keep A.I.G. from toppling and taking other banks down with it. It would have accepted 98 cents on the dollar.

But UBS’s good-faith gesture was quickly drowned out by Goldman Sachs and the top French bank regulator. They argued, with others, that it would be improper and perhaps even criminal to force A.I.G.’s trading partners to bear losses outside of bankruptcy court.

The banks and the regulator were confident that the New York Fed was not willing to push A.I.G. into bankruptcy, because earlier in the fall the New York Fed had stepped in with $85 billion to prop up the insurer.

The New York Fed, led then by Timothy F. Geithner, who is now the Treasury secretary, therefore had little leverage in the negotiations, according to a post-mortem of what has emerged as the most inflammatory episode in the rescue of A.I.G.

The hits keep comin’

The Buyout of America: How Private Equity Will Cause the Next Great Credit Crisis.

just a couple of things state tax authorities are up to…you know…things they always do during great economic recoveries:

1. California is issuing IOUs.
2. Illinois is no longer issuing tax refunds.
3. Pennsylvania is not taking action on amended returns.

This cheap Chinese junk that’s in all the stores today is unbelievable . I was stuck out in the boonies with a bad leak in my truck tire . I had my tools though . Also one of those cheapie plug-a- tire kits . The handles on the reamer and the tire plug tool both shattered at first use . I finally grabbed a trusty screwdriver and got the plug in well enough to hold some air as I eased back to town . They replaced the kit with another one like it . we’re paying the price for all the cheap Chinese goods ,they are worth less then nothing ,

Food + Energy prices up, deflation otherwise

By Christopher S. Rugaber, AP Economics Writer
On 8:52 am EST, Tuesday November 17, 2009

WASHINGTON (AP) — Wholesale prices rose less than expected in October as the weak economy keeps inflation pressures largely in check.

Federal Reserve Chairman Ben Bernanke said Monday that inflation probably will remain “subdued for some time.” That allows the central bank to keep the short-term interest rate it controls at its record low of nearly zero.

The Labor Department said Tuesday that its Producer Price Index rose 0.3 percent last month, after falling 0.6 percent in September. Analysts had expected a 0.5 percent gain, according to Thomson Reuters.

The index tracks the prices of goods before they reach store shelves and is considered an early read of price trends.

In the 12 months ending in October, producer prices fell 1.9 percent, the 11th straight decline.

Excluding volatile food and energy costs, the core index dropped 0.6 percent in October.

Another it’s less bad… therefore must be all good:

Report: Record Mortgage Loan Delinquency Rates in Q3

TransUnion reports that the 60 day mortgage delinquency rate increased to a record 6.25% in Q3, from 5.81% in Q2.

Mortgage loan delinquency (the ratio of borrowers 60 or more days past due) increased for the 11th straight quarter, hitting an all-time national average high of 6.25 percent for the third quarter of 2009. This statistic is traditionally seen as a precursor to foreclosure and increased 7.57 percent from the previous quarter’s 5.81 percent average. While still increasing, this quarter marks the third consecutive period the delinquency rate increase has decelerated. For comparison purposes, the delinquency rate from the fourth quarter 2008 to first quarter 2009 saw an increase of almost 14 percent, and the percent change from first quarter to second quarter 2009 increased by 11.3 percent. Year-over-year, mortgage borrower delinquency is up approximately 58 percent (from 3.96 percent).

Finding Jobs.

ITEM: With unemployment among blacks at more than 15 percent, the N.A.A.C.P. will join several other groups today to call on President Obama to do more to create jobs. The organizations — including the A.F.L.-C.I.O. and the National Council of La Raza, a Hispanic advocacy group— will make clear that they believe the president’s $787 billion stimulus program has not gone far enough to fight unemployment.

Obama has already said he will convene a ‘jobs summit’ to finally bring the problem under control. Using all the analytic skill that his administration can muster, the President is determined to figure out why so many people are losing their jobs and then formulate a solution. The Obama administration can analyze the job market until the cows come home, but the government will fail if its “solution” is to borrow billions to create make-work jobs at today’s artificially high wage levels.

If left alone the marketplace would create plenty of jobs, but not at present wage levels. Hasn’t anyone noticed that the economy is imploding all over the place and the price trends are DOWN? Wages and salaries are prices people charge for their time and energy. If a job paying $45,000.00 a year becomes worth only $35,000.00 which is better…take the lower salary or become unemployed?

US Wants China to Buy into Its Small Banks.
17 Nov 2009
Reuters

Chinese and U.S. regulators are negotiating a pact aimed at encouraging Chinese financial institutions to buy into small and medium-sized banks in the United States, bankers briefed on the plan said on Tuesday.

Chinese bankers have complained that it’s been difficult for them to set up branches or invest in banks in the world’s leading economy, due partly to U.S. regulators’ tough supervision and strict approval process for financial deals.

But the global financial landscape has been revamped by the credit crisis, and cash-rich Chinese banks are now bigger players on the world scene and are scouting around for investment targets.

To illustrate the global shake-down, Industrial and Commercial Bank of China is now the world’s biggest bank by market value, while Citigroup [C 4.18 --- UNCH (0)], once the world’s No.1 bank, is worth the same as a second-tier commercial bank in China.

Two senior Chinese bankers said they had been invited this year by U.S. officials, investment bankers and financial advisers to look at several potential investments in U.S. banks, mostly in financial trouble.

“The trend is already there,” said one Chinese banker.

“Now they’re going to make this into an agreement to show there’s a change in official attitude towards Chinese investments in the U.S. banking system,” said the banker, who declined to be identified due to the sensitive nature of the matter.

Do the right thing, Paul, get rid of the H1Bs and hire back the American workers who made you, and you just might beat this thing.

http://www.eweek.com/c/a/Windows/Microsoft-CoFounder-Paul-Allen-Diagnosed-With-Lymphoma-601587/

The share prices of the firms mentioned in this article are generally headed south. It tells you something about how well pump-and-dump efforts are working out for the builders these days.

Nonetheless, I note that the builder stocks appear to have plunge protection measures in place. For instance, Toll’s stock has gyrated around the $20/share level ever since the onset of the financial crisis. I expect it to continue doing so until the crisis is over.

Nov. 17, 2009, 12:11 p.m. EST

Forecast mixed for stocks of home builders and retailers

By Kate Gibson, MarketWatch

NEW YORK (MarketWatch) — Stocks of residential builders have benefited amid signs of improvement in the troubled housing sector, although there are those that largely chalk up any gains to controversial tax credits for home buyers.

“It’s been a tough four years, and I think hopefully we’re at the bottom of this thing. We’re seeing signs of things going in the right direction,” Larry Nicholson, chief executive officer of Ryland Group Inc. (RYL 19.69, -0.25, -1.25%) , said Tuesday at an industry conference.

Also recognizing some signs of industry stabilization, Home Depot Inc. (HD 26.63, -1.02, -3.69%) Chief Executive Frank Blake noted “a great deal of pressure” remains in the housing and home-improvement markets.

The News Hub panel discusses whether a spike in commodity prices could cause investor pain down the road.

Home Depot shares were down more than 4% after the home-improvement retailer’s implied fourth-quarter forecast fell short of Wall Street’s expectations. Read details about Home Depot’s results

Home Depot’s results came one day after Lowe’s Cos. Inc. (LOW 21.35, -0.39, -1.79%) reported a quarterly profit drop of 30%, saying recession-weary consumers continued to delay big-ticket purchases.

“Lowe’s continues to deal with a difficult home-building and home-improvement environment,” said Fred Dickson, chief market strategist at Davidson Cos.

And, in preliminary quarterly results released last week, Toll Brothers Inc. (TOL 20.79, -0.43, -2.03%) said its orders jumped a better-than-expected 42% from the year-ago period.

But the results are unlikely to translate into a profitable 2010 for the luxury builder, maintains Stephen East, a research analyst at Pali.

“The next two quarters will show massive order growth thanks to the tax credit, management focus on burning through inventory and ridiculously easy comparisons. However, converting some near-term volumes into sustainable profitability is too much of a leap for us,” he wrote in a research note.
…

Thank Heavens there are a few optimists left in the MSM financial press!

Paul B. Farrell

Nov. 17, 2009, 12:01 a.m. EST

Wall Street’s 2012 meltdown sweepstakes
Don’t say we didn’t warn you this time — a new crash is dead ahead

By Paul B. Farrell, MarketWatch

LOS ANGELES (MarketWatch) — It’s coming in 2012: Another, bigger meltdown of Wall Street’s “too-greedy-to-fail” banks. No, this is not another fanatical warning about that Dec. 21, 2012 end-of-days prediction based on the Mayan calendar, though you may well ask “Who will survive?”

Here is what’s happening: History is repeating itself. Wall Street’s soul-sickness is setting up a new meltdown. Dead ahead. Be prepared.

My track record speaks for itself. Back on March 20, 2000, my column headline read: “Next crash? Sorry, you’ll never hear it coming.” Bull’s eye: The dot-com bubble popped at 11,722. The economy collapsed. A 30-month recession. Markets lost $8 trillion. Today the market is still below that 2000 peak. Factor in inflation and Wall Street’s “too-greedy-too-fail” banks have lost about 30% of your retirement nest eggs in this decade. Incompetent? Clueless? No, Wall Street is a bunch of crooks without consciences.
…

I have a feeling the renewal of the home buyer’s tax credit is setting up the home builders for more disappointment. The fence sitters who would base their purchase decisions on $8K in free money have already been beaten into the market. The impact of the credit’s renewal is hence likely to be “weaker than expected.”

market pulse

Nov. 17, 2009, 1:00 p.m. EST
U.S. Nov. home builders’ index flat at 17

* Home builders still irritable, survey says (1:08p)
* Five tips on tapping the new home-buyer tax credit (Nov. 16)
* How did economy do without Uncle Sam’s subsidies? (Nov. 15)
* Tax credit or no, let the home purchase proceed (Nov. 16)

By Rex Nutting

WASHINGTON (MarketWatch) - U.S. home builders remained discouraged about their business in November, but were a bit more hopeful about future sales, according to a monthly survey released Tuesday by the National Association of Home Builders. The home builders’ sentiment index held steady at 17 in November, but October’s index was revised lower to 17 from the 18 previously reported. Economists surveyed by MarketWatch were forecasting an improvement to 19. The survey had risen to 19 in September but fell in the past two months as it appeared that the federal $8,000 subsidy for first-time home buyers would expire on Nov. 30. The November survey was conducted before Congress voted to extend the subsidy to June and to expand it to some repeat buyers.

Was it the crisis or the policy response which confirmed the existence of free (taxpayer-provided) bailout insurance for TBTF firms that worsened the too-big-to-fail problem?

Fed’s Kohn: Crisis has worsened too-big-to-fail problem
Mon Nov 16, 2009 7:42pm EST

CHICAGO (Reuters) - The issue of large financial firms being perceived as “too big to fail” is bigger now than it was before the crisis, the Federal Reserve’s number two official said on Monday.

Fed Vice Chairman Donald Kohn said bailouts have worsened the “too big to fail” problem and said the government needs a way to resolve big institutions in an orderly way.
…

It’s Time to End ‘Too Big to Fail’

By Ilan Moscovitz and Morgan Housel

Published in Investing Strategy on 16 November 2009

The US is making the same mistakes. It will all end in tears, again.

Of the 8,195 banks in the US, just four, JPMorgan Chase, Citigroup, Wells Fargo, and Bank of America control nearly 40% of the deposits. Those four, plus Goldman Sachs, hold 97% of the industry’s notional derivative exposure.

These statistics would be hilarious if they weren’t true, and if the banks behind them didn’t have the power to manipulate vast portions of the economy. We spent the latter half of 2008 feeling the wrath of “too big to fail.” Today, US banks are bigger than ever. We need to end that. Now.

It Will Happen Again

We all know the downside of “too big to fail.” They screw up; we pay the price. Yet many people (mostly bankers) still defend the practice. So rather than firing off reasons why “too big to fail” is such a menace — you already know those — we’ll refute the arguments defending it.

Start with the first argument — that post-Lehman, the problem has evaporated. JPMorgan Chase CEO Jamie Dimon, for example, recently argued that his bank wasn’t too big to fail. Wrong. JPMorgan Chase is not very likely to fail at the moment, but let’s not pretend that the eruption of its balance sheet, with more than $79 trillion in notional derivative exposure wouldn’t annihilate everything in sight.

Plus, we’ll remind you that AIG, Bear Stearns, Lehman Brothers, Citigroup, Washington Mutual, Fannie Mae, and Freddie Mac all once gave off the impression of being “not very likely to fail”, too. Overcoming the notion that last autumn’s financial crisis was a random, one-off event is perhaps the most crucial aspect of stabilizing the financial industry. Last autumn was no fluke. It will happen again.
…

* November 16, 2009, 1:27 PM ET

Bernanke on ‘Too Big Too Fail’: Just Breaking Up Banks Not the Answer

By Matt Phillips

Federal Reserve Chairman Ben Bernanke voiced skepticism that breaking-up big banks is the way to solve the so-called too big to fail problem among the financial institutions that survived the crisis.

Asked for his thoughts on Bank of England Gov. Mervyn King’s recent speech that advocated breaking up banks that were so large that their failure would represent a risk to the broader financial system, Bernanke said that making banks smaller would not necessarily be the solution to the problem. Smaller banks can also play important roles in financial systems, he said. He noted that during the 1930s, the U.S. didn’t have too many large bank failures, but the country suffered thousands of failures of smaller banks that added to the woes of the Great Depression. “I don’t think simply making banks smaller is the way to do it,” he said.
…

UPDATE 1-BofA knew of Merrill pain in November -House panel
Tue Nov 17, 2009 1:32pm EST

WASHINGTON, Nov 17 (Reuters) - A congressional panel
accused Bank of America Corp (BAC.N) on Tuesday of knowing
about Merrill Lynch & Co’s huge losses as early as November
2008, suggesting the bank lied to investors in saying it did
not grasp the depth of the problems until the following month.

The U.S. House Oversight and Government Reform Committee
unveiled internal Bank of America documents they said show the
bank was alarmed by the losses far before shareholders of both
companies approved the merger last Dec. 5.

Democratic and Republican lawmakers piled criticism on
Brian Moynihan, a key figure in putting together the merger and
a leading candidate to replace the outgoing Chief Executive
Kenneth Lewis, and two bank directors.

“I find your testimony troubling,” Democratic Rep. Elijah
Cummings told Moynihan, Bank of America’s general counsel when
the merger closed on Jan. 1 and now its retail banking chief.
“I find some of the things you said not believable.”
…

Can anyone who knows the definition please explain what is meant by “strong dollar policy”?

Investing November 16, 2009, 7:17PM EST

Low Interest Rates: Steroids for the Stock Rally?

The “carry trade” that helps fuel this global rally is fed by super-low interest rates—and the cheap capital they create. Should investors worry?

By Ben Steverman
Finance

Nov. 16 featured two events now familiar to traders: Federal Reserve Chairman Ben Bernanke told financial markets to expect low interest rates “for an extended period.” And once again the value of the U.S. dollar slipped vs. other major currencies. Both developments were welcomed by traders who are plying the dangerous but profitable “carry trade.”

In the dollar carry trade, investors borrow money in U.S. dollars, taking advantage of very low short-term interest rates. Armed with cheap money, they buy up higher-yielding assets. Everything from Hong Kong real estate and commodities to foreign and even U.S. stocks can be driven higher by the carry trade.

Investment flows associated with it can also exacerbate the dollar’s weakness. “This kind of carry trade generates remarkable pressure on the dollar,” says Michele Gambera, chief economist at Ibbotson Associates, a subsidiary of Morningstar (MORN).

On Nov. 16, the U.S. dollar index—a measure of its strength against a basket of world currencies—lost 0.37% of its value, extending an eight-month slump. A euro is now worth almost $1.50, up sharply from $1.25 in March.

The weakening of the dollar may be good news for U.S. exporters, but it alarms the country’s foreign trading partners. Treasury Secretary Timothy Geithner heard concerns about the dollar’s strength from Asian finance ministers at last week’s Asia-Pacific Economic Cooperation forum. The dollar is also certain to be on President Barack Obama’s agenda during his first visit to China this week.
…

Gun sales shoot up amid America’s fear of rising crime and terrorism.
US Business Correspondent. ~ UK

Americans fear recession leads inevitably to more crime, leaving them staring down the barrel of a criminal’s gun.

Smith & Wesson, the famed American gunmaker once owned by Tomkins, the British conglomerate, expects to nearly double its annual sales in the next three to five years as demand for its firearms soars in the recession. It is not alone.

All over America demand for firearms and ammunition is rising amid concerns that rising unemployment, which passed 10 per cent this month, will lead inexorably to higher rates of crime. Fears of terrorism have also helped to lift demand, as have concerns among gun owners that the Obama Administration may introduce restrictions on gun ownership and impose additional taxes.

Smith & Wesson is expecting sales to rise by 30 per cent to $102 million (£61 million) in the first quarter of the next financial year, after growing by more than 13 per cent this year to $335 million.

At Sturm and Ruger, sales for the third quarter hit $71.2 million, up 70 per cent from the same period last year. At Glock, the leader in law enforcement markets, pistol sales rose by 71 per cent in the first quarter of the financial year for 2010, in comparison with the same period last year.

According to the National Shooting Sports Foundation, the FBI carried out more than a million background checks on behalf of gun dealers in September (a check is required with every sale), an increase of 12.4 per cent on the same period in the previous year.

Mike Golden, chief executive at Smith and Wesson, is sceptical about the so-called Obama effect on gun sales, believing that his company’s booming revenues have “nothing to do with the administration” and everything to do with the economy.

What do you all make of the Market Oracle’s charge that the Fed has been illegally buying CDO and MBS debt? I thought the Fed was above the rule of law?

The Fed’s Policy of Near Zero Interest Rates
Interest-Rates / US Interest Rates Nov 16, 2009 - 12:30 PM

By: Bob_Chapman

Interest-Rates

One of the outcomes of Fed policy of near zero interest rates is that seniors cannot live on an income of 1-1/2% and that pension funds, insurance companies and endowments cannot fulfill their commitments. As yields eventually rise, although the Fed has signaled that is at least a year away, and if Japan is any guideline, we could be 19 years away from solving the problem of fiduciaries.

This is part of a so-called exit strategy, which may be far, far away. As we have cited in the past, the Fed is in a box and cannot get out. If they raise rates and curtail money and credit, deflation will take over and deflationary depression will begin. Europe hasn’t raised rates, except for big oil producer Norway, but they have cut back the issuance of money and credit over the last year from 12.8% to 5.7%. In this environment Europe is tempting fate.

If and or when interest rates rise the riskier assets will be under severe pressure as will borrowers such as hedge funds and brokerage firms and banks, which still average lending of 40 times assets and whose balance sheets look like a tornado hit them.

Instead of upsetting the economy it has been suggested that excess reserves be drained form the banking system so that business and the investors do not understand what is going on. A bit of slight of hand. Then perhaps the program of the Fed monetizing CDOs, Agencies and Treasuries be ended. Such a move would send the economy plummeting into oblivion. Borrowing by government would screech to a halt and again deflation would reign.

These programs are supposed to be over, or in the case of CDOs and MBS, they are supposed to end next March. This is why the Fed cannot face an audit. They have for some time been secretly buying or arranging to have been bought all of these debt obligations illegally. The CDO, MBS program cannot be stopped. Otherwise the big banks could never clear their balance sheets and the result would be bankruptcy. Thus, until those banks, brokerage houses and insurance companies are rid of their problem assets the program cannot end. If the program ends they all go under. The toxic assets being bought by the taxpayer via the Fed will have to be worked off over the next 30 years with grievous losses. The high sounding Supplementary Financing Program is a transference of debt from banks, Wall Street and insurance to the taxpayer. Even worse is the Fed’s ability to pay interest on the money banks have borrowed from them at a higher rate of course, allowing the taxpayer to give free money to the banks, which, of course, is insane.

Even if reserves were drained it would have to encompass at least a two-year period. They propose to remove trillions of dollars from the economy and even being left with trillions in the economy after the general withdrawal of funds. Unfortunately as this occurs more than 2,000 banks will have gone out of business. These are the small and medium-sized banks that are not too big to fail. This, of course, is part of a nationalization process to consolidate banking in order to bring about world banking under the IMF. The Fed may have taken an enormous amount of debt supply out of the market, but as that has occurred a new massive amount of debt has hit the market. These capital demands are going to put big upward pressure on real interest rates over the next two years. As you can see the Fed, the elitists have no way out.
…

Glug, glug, glug…

Underwater Mortgages Could Sink Even Deeper
Published: Monday, 16 Nov 2009 | 10:32 AM ET
By: Diana Olick
CNBC Real Estate Reporter

Many are simply sitting in their homes, rent-free, as banks struggle to catch up and contact them. Others are vacating the homes, mailing in the keys, and choosing a credit hit, rather than be strapped to a home that will only ever be a liability.
…

The Battered Businesses Behind Housing
Published: Monday, 9 Nov 2009 | 2:47 PM ET
By: Diana Olick
CNBC Real Estate Reporter

Susan Walsh / AP

It’s not surprising, but I thought you might like to get a look at a really interesting chart I received from Sageworks, Inc, which does financial analysis of privately-held companies.

It shows rankings of the worst-performing sectors this year and last, based on the extent of revenue declines in each period.

Eight out of 10 are real estate-related.

While we all worry so much about the auto industry, I find it astounding that we don’t pay all that much attention to the battered industries behind the battered housing market.

It seems as if government is focused mainly on all the troubled borrowers, with not much attention paid to the businesses behind housing.
…

Unidentified Toronto-based real estate company buys Pontiac stadium for $583,000 - a fraction of the $55.7 million it cost to build.

NEW YORK (CNNMoney.com) — An unidentified Canadian real estate company was the winning bidder for the Silverdome, snatching it up for a mere fraction of its original value.

A Toronto-based family-owned company bid $583,000 for the under-used stadium on Monday, which is currently owned by the City of Pontiac, Mich., according to auctioneer Williams & Williams.

The company plans to refurbish the Silverdome into a stadium for men’s Major League Soccer and women’s professional soccer teams, said the auctioneer. While the stadium was the former home of the National Foodball League’s Detroit Lions, it also played host to the World Cup in 1994, when Brazil beat Italy in a knuckle-biter that ended in a penalty shootout.

The auctioneer Williams & Williams, based in Tulsa, Okla., said it will not identify the buyer “until the final details are worked out and the sale closes.”

Questions for the real estate investors in the blog audience:

Is real estate still the best investment?

The Cities Most Underwater

For individual homeowners, being “underwater” on a mortgage – when a home is worth less than outstanding debt, or has “negative equity” – is one of the worst positions to be in, short of foreclosure.

Zillow.com - a firm that compiles US real estate and mortgage information - has put together a list of the 156 largest metro areas that includes statistics on median home values, market changes and the proportion of homes with negative equity.

Included in the data is the “ Zillow Home Values Index ,” which represents the median measure of home valuations. According to Zillow’s Q3 report, the current median US home price is $190,414, down 6.9% from a year earlier. Almost one in five - 21% - of US homes are underwater, although this number has dropped from 23% from the second quarter of this year.

So, which metro areas have the highest proportion of homes underwater? Click ahead for the results.

By Paul Toscano
Posted 16 Nov 2009

U.S. Cities With The Most Underwater Mortgages

The Most Home Price Reductions

For the nation’s real estate market, home valuations have dropped off dramatically. However, the actual listing prices have not fallen as much, with realtors and sellers clinging onto original valuations, trying to minimize losses on their investments.

But reduced prices could significantly increase the chances of a final sale, with homeowners finally choosing to cut their losses and accept a lower price. In a recent report by Trulia.com , the real estate website found that 25.6% of US listings have seen at least one price reduction. Of the 50 cities surveyed, 21 cities saw more than 30% of active listings receiving a price reduction, which may indicate that these markets are closer to the bottom than markets others who are hurting, but unwilling to reduce prices.

So, which US cities have seen the highest proportion of home listings getting price reductions? Click ahead to find out!

By Paul Toscano
Posted 12 Nov 2009

Source: Trulia.com

Cities With the Most Home Price Reductions

Bloomberg: Layoffs may be needed to trim budget
November 17, 2009

Mayor Bloomberg isn’t afraid to keep swinging that budget ax.

The mayor said today that he would not rule out the possibility of municipal layoffs to deal with the city’s budget woes.

“Does it mean layoffs?” he asked. “I hope not, but we’ll just see how cooperative everyone will be,” referring to unions.

Bloomberg said the city needs to save some $1.57 billion next year.

He said when it comes to finding reductions, payroll and benefits is “where it’s going to be.”

Bloomberg said personnel, including payroll and benefits, account for 78 percent of city expenditures.

“There are very few places you can go and say there is money we can easily cut — unless you talk about personnel,” he said.

The talk about possible layoffs comes as the mayor ordered spending slashed by four percent in fiscal year 2010. The cuts are meant to plug a $5 billion projected budget deficit for the 2011 budget year.

Thanks to this series of reality-oriented articles by Paul Toscano, I am on the verge of forgiving CNBC for past sins of credit bubble shillery.

Discounted Hedge Fund Homes

By Paul Toscano
Posted 22 Oct 2009

With housing at the forefront of the financial crisis, the high-end market is not immune. The national drop in home values and turmoil in the stock market have combined to lower demand for homes of the ultra-rich, such as hedge fund titans.

However, in the face of multi-million dollar price reductions, these homes are beginning to offer potentially profitable (and in the mean time, prestigious) investments.

With information from Trulia.com , these lavish homes in close proximity or actually in New York City are typical of the Wall Street elite, and are also examples of some of the most significant price drops in the area over the past several months.

So, want to see some hedge fund homes currently on the market? Click ahead to see the examples!

Where is the insanity in “heads-we-win, tails-you-lose” TBTF bailout insurance? I am missing the point…

What “Too Big to Fail” Means

By Morgan Housel
November 17, 2009

Last Friday, my colleague Ilan Moscovitz and I laid out why we think there’s no excuse not to break big banks apart, ending “too big to fail.” We specifically jabbed at JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon, refuting what we thought were unfounded defenses of the megabank culture.

That same day, by pure coincidence, Dimon penned an op-ed in the Washington Post, again defensively writing:

“J.P. Morgan Chase, employs more than 220,000 people, serves well over 100 million customers, lends hundreds of millions of dollars each day and has operations in nearly 100 countries. And if some unforeseen circumstance should put this firm at risk of collapse, I believe we should be allowed to fail … a failed bank’s shareholders should lose their value; unsecured creditors should be at risk and, if necessary, wiped out.”

No kidding, kind sir. No one — even the most hardcore defenders — has ever suggested that shareholders shouldn’t be punished. I couldn’t care less about the shareholders of these companies. What I care about is collateral damage to the rest of the economy. That’s what “too big to fail” is all about.

Everyone wants banks that screw up to fail. That’s capitalism. But we don’t want the resulting punishment of those who didn’t screw up. That’s just insanity.
…

Tax credit to steady, not rescue, shaky U.S. housing.

NEW YORK (Reuters) - Don’t expect the expanded home buyer tax credit to be a permanent cure for the U.S. housing market. It won’t.

Take the spike in mortgage demand created by the tax credit this summer. It was followed by a plunge as the incentive was set to expire, showing how housing’s recovery is tethered to government aid.

As the economy emerges from a recession triggered by the housing market crisis, increasing home sales is viewed as essential. Housing and related business account for about 20 percent of the economy, and more sales means more spending on everything from dishwashers to energy-efficient windows.

The Obama administration last week extended an $8,000 first-time buyer credit, added a $6,500 provision for move-up buyers and increased income limits. Eligible borrowers must sign contracts by April 30 and close loans by June 30, 2010 instead of closing by the end of this month.

Both the credit and another major government action — the purchase of more than $1.4 trillion in mortgage-related securities aimed at cutting home loan rates — will now end within weeks of each other. The purchases stop by March 31.

Unless the employment picture brightens around that time, housing does not have enough footing to forge a recovery on its own, most economists and industry experts said.

“Housing was going to fall off a cliff if they didn’t do it,” said John Burns, president of John Burns Real Estate Consulting in Irvine, California. “We’re still expecting a leg down, but it shouldn’t be as significant” as his prior estimate, which called for sales to plunge as much as 30 percent.

Up to 400,000 people bought a home for the first time due to the credit, boosting first-time buyers to a record 47 percent of sales over the past year, the National Association of Realtors has said.

With the help of the credit, existing home sales will rise 2 percent this year and 13.6 percent in 2010, the group estimates.

Paul Abrams

Physician, entrepreneur, biotechnology, law, economics, politics, professional iconoclast

Posted: November 16, 2009 02:37 PM

My Response to JP Morgan’s Jamie Dimon: More to Life Than Efficiency

Read More: BreakUpTheBigBanks dot Com, Goldman Sachs, Jamie Dimon, Lloyd Blankfein, Politics News

JP Morgan’s Chief Executive Officer, Jamie Dimon, wrote an op-ed piece for Friday (the 13th, very apropos!)’s Washington Post, arguing that the big banks should not be broken up. Whereas Goldman’s Lloyd Blankfein invoked the ‘divine right’ theory (”I am doing God’s work”) of big banks, Dimon was refreshingly terrestrial:

Scale can create value for shareholders; for consumers who are beneficiaries of better products, delivered more quickly and at less cost; for the businesses that are our customers; and for the economy as a whole. (Washington Post, Op-Ed., Friday, November 13, 2009).

Note that Dimon carefully omits mention that a large company has great financial resources to pay him and his top executives enormous salaries.

Although Mr. Dimon would like nothing better than to engage in a dialogue to defend these assertions, I do not take the bait. I will concede his point, that big banks “can” do these things. They do not always, they need not, but, certainly, they “can.”

Let us recall what big banks have actually already done, using Dimon’s own style of argument:

Scale has destroyed the entire economy for workers, causing millions of unemployed; for consumers who have had little choice but to pay hidden fees on accounts and credit cards; for taxpayers who have had to bail them out with hundreds of billions of their hard-earned money, and at no cost to the fragile banks; for peoples’ retirements and lifesavings; for government that is has pauperized; for bank executives, it has provided unprecedented wealth for creating not much of anything.

Dimon concluded his paragraph above: “Artificially limiting the size of an institution, regardless of the business implications, does not make sense.” (Ibid.)

But, juxtaposed against the harm big banks have already and can do again, Dimon’s arguments for scale, even if true, are woefully inadequate.

That is, it makes perfect sense to limit your institution’s size to ensure that you, Mr. Dimon, cannot destroy me and millions of my fellow citizens again, even if you have no intent to hurt us.
…

See no bubble, hear no bubble, speak no bubble…

The Fed

Nov. 16, 2009, 6:33 p.m. EST · Recommend (1) · Post:
Fed official sees no asset bubbles now
Raising rates to prick bubbles wrong prescription, Kohn says

By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) — Asset prices in U.S. financial markets aren’t obviously out of line with fundamentals, and there’s no reason for the Federal Reserve to raise rates in an attempt to prick a bubble that some say is building in equity and commodity markets, a top Fed official said Monday.

“The prices of assets in U.S. financial markets do not appear to be clearly out of line with the outlook for the economy and business prospects as well as the level of risk-free interest rates,” said Fed Vice Chairman Donald Kohn in a speech to the Kellogg School of Management at Northwestern University.
…

Wal-Mart Black Friday ad: TVs top deals
50-inch HDTV, Blu-ray player and $7 fleece jackets are among discounter’s early post-Thanksgiving specials.

NEW YORK (CNNMoney.com) — Wal-Mart’s much-awaited Black Friday deals will focus on a gamut of gadgets such as high-definition TVs, laptops and Blu-ray players, as well as holiday gift favorites such as toys and DVDs, according to a copy of the retailer’s circular obtained by CNNMoney.com.

While not confirming the entire circular, a Wal-Mart spokeswoman confirmed some of the deals, which will be available between 5 a.m. and 11 a.m. local time on Nov. 27, that appear in the leaked circular.

“There’s a lot of excitement that builds up around electronics,” said Wal-Mart’s Tara Raddohl.

Items with confirmed prices for the day-after-Thanksgiving sale are a Sanyo 50-inch plasma 720p HDTV for $598, a Magnavox Blu-ray player for $78, a Tom Tom GPS for $59, select children’s clothing for as low as $3, a $7 reversible fleece jacket for kids and adults, and the Barbie Power Wheels Ride-On, a toy Jeep, for $88.

Raddohl also said Wal-Mart will match the price of any local competitor’s printed ad for an identical product

As more Americans tighten their gift lists — and budgets — retail experts expect Wal-Mart (WMT, Fortune 500) will become the destination of choice for many shoppers on the hunt for the lowest prices.

This holiday season, retail watchers expect sellers to duke it out with deep discounts on some models of HDTVs.

According to the circular, other early bird deals on Black Friday include a 32-inch Emerson LCD 720p HDTV for $248, and a 42-inch Emerson Plasma 720p HDTV ($448).

One of the juiciest Black Friday deals from Wal-Mart’s rival Target (TGT, Fortune 500) reportedly is a 32-inch Westinghouse LCD HDTV for $246.

Tucson Chapter 7 filings up 40% in Oct.
Arizona Daily Star
11.17.2009

Tucson bankruptcies in October increased about 42 percent from the same month last year, fueled largely by a year-over-year increase Chapter 7 filings.

But Chapter 11 cases — typically filed by businesses to restructure their debt — dropped 50 percent. There were six of those filings in October, down from 12 the year before.

Chapter 7 filings, in which people or businesses sell off remaining assets to repay creditors, increased nearly 40 percent. There were 500 such filings last month and 359 the previous October. The number of Chapter 13 filings — for individuals to restructure their debt — rose 70 percent to 121 in October.

Phoenix continued to see increases in Chapter 7 and Chapter 11 filings. Its total filings reached 2,496 — a 61 percent increase over last year’s number.

Statewide, there were 3,342 bankruptcy filings in October — a 58 percent increase from the same month last year.

Commercial Real Estate Check: 99% Loss

Uh, you think this might be a problem?

Pontiac — Nearly 35 years after taxpayers spent $55.7 million building the Pontiac Silverdome and a year after a $20 million sale fell through, city officials have sold the arena once called the most desirable property in Oakland County.

The price: $583,000.

Niiiice.

99% depreciation over 35 years, plus of course all the money poured into property taxes and maintenance.

“The citizens of Pontiac deserve better,” City Councilman Everett Seay said. “This is pennies on the dollar (of what it cost). It goes to show how bad times are … Worse, we don’t even know who bought it.”

Sounds like a Realtor. Oh wait - that’s a Pontiac City Councilman. Same difference.

Hint to the peanut gallery in Pontiac MI:

What something is worth is entirely dependent on what someone will pay you for it - nothing more or less. Ever.

This sale is emblematic of the general state of Commercial Real Estate. Bluntly, too many people built too much crap on wishes and dreams - dreams they financed with other people’s money, either the taxpayer’s (in this case) or with some poor jackass who believed the prospectus on some CMBS deal that screamed “PRIME Commercial Space!”

Well, perhaps. But there are only so many business interests that can inhabit a given area and turn a profit, especially when you send all the good jobs overseas to CHINA and INDIA, rendering unemployed the middle-class call-center employee who used to make $30,000 a year but now makes zero while the Indian or Chinese employee makes $2/day.

Worse, all real estate (that has buildings on it anyway) has a carrying cost, meaning that if you don’t have a revenue-producing use for it the value is actually negative. In the case of the Silverdome basic maintenance on the building and grounds is about $1.5 million a year. If you can’t make enough to cover that nut “ownership” just bleeds you out.

Welcome to the “new normal.”

If this doesn’t send a shiver up your spine on the “quality” of regional banks that are stuffed to the gills with commercial real estate loans made in the last few years, you’re not paying attention.

Don’t worry, you soon will be, as nearly all of these deals are interest-only and have to roll over between now and 2013.

They can’t and won’t.

(From K. Denninger)

Decency is not part of the Megabank, Inc business plan.

The Financial Times
Protesters lash out at Goldman
By Kevin Sieff in Washington

Published: November 16 2009 22:16 | Last updated: November 16 2009 22:16

A crowd of protesters converged on the Washington DC office of Goldman Sachs on Monday, carrying “wanted” signs bearing the face of Lloyd Blankfein, the bank’s chief executive.

About 100 demonstrators, organised by the Service Employees International Union, took turns berating the investment bank, which they called “too big to exist”.

Goldman has become the touchstone for a broader anger at banks and bonuses paid to executives, partly because it is preparing to pay large bonuses again after weathering the financial crisis better than competitors and partly because it is seen as being too close to the government.

“I’ve watched my congregants lose their homes and their jobs,” said Charlotte Dots, a reverend from Bloomington, Illinois. “All while Goldman Sachs plays our economy like a casino.”

The group hoisted a giant red squid over their heads, a reference to an article in Rolling Stone magazine, which called Goldman a “great vampire squid wrapped around the face of humanity”. On Constitution Avenue, where the company keeps a small office, several bemused tenants looked down.

Mr Blankfein became a lightning rod for criticism after he said last week that’s he’s “doing God’s work”. That comment to the Sunday Times – and analysts’ estimates that the company will pay more than $23bn in bonuses – has incited small demonstrations outside Goldman’s offices across the country. One group made their way to Mr Blankfein’s Manhattan home last week, giant squid in hand.

“Have you no decency?” Andy Stern, president of the SEIU, yelled through a megaphone on Monday. “Goldman and Blankfein seem to worship no God but the almighty dollar.”
…

Why is the Fed obstructing efforts to bust up up too-big-to-fail trusts? Is it a simple matter of regulatory capture by Megabank, Inc?

U.S. reform seen as boon to regional banks
Tue Nov 17, 2009 2:55pm EST

By Karey Wutkowski

NEW YORK (Reuters) - Regional banks could become more dominant in the United States as policymakers rethink risk in the financial system and draft stiffer regulations, an executive at the largest U.S. savings and loan said on Tuesday.

Denis Salamone, chief operating officer of Hudson City Bancorp, said the momentum in Washington to overhaul financial regulation has changed how he believes the banking industry will be structured in the future.

“Probably five years ago I would have said that we’ll end up with two groups of banks: the really large and the real small community banks,” Salamone said at the Reuters Global Finance Summit in New York. “Now this whole issue of systemic risk and too-big-to-fail may change that model, so you may see more mid-sized banks going forward.”

Lawmakers and policymakers are in the midst of drafting new rules to prevent firms from getting so large and risky that they are considered “too big to fail.”

During the recent financial crisis, taxpayers were forced to extend billions of dollars to rescue American International Group and Citigroup, while Lehman Brothers was allowed to collapse, contributing to a near-freeze of global credit markets.

The Obama administration has called for stricter capital requirements and higher leverage constraints on the largest financial firms. There have also been proposals to break up big banks, even before they become unstable.

Salamone said this tougher policing of the biggest banks could reshape the industry and encourage more regional banks.

“That story is being written now. I’m not sure how it will end,” he said.
…

Why not just eliminate the TBTF risk to American tax payers by busting up the TBTF trusts? What do we collectively gain by having the TBTF Sword of Damocles perpetually dangling above the world economy?

The Financial Times
White House hits out at Fed plan
By Tom Braithwaite in Washington

Published: November 14 2009 02:00 | Last updated: November 14 2009 02:00

Plans to strip the Federal Reserve of its bank supervision powers were rebuffed yesterday in two separate speeches by senior Obama administration officials.

Chris Dodd, the Senate banking committee chairman, this week published draft legislation to merge four US banking regulators into one, with the Fed the most high-profile loser.

However, Austan Goolsbee, a White House economist, and Neal Wolin, deputy Treasury secretary, both pushed back against the plan yesterday as the administration abandoned its laisser faire approach to the versions of regulatory reform circulating in Congress.

“No regulator had a perfect record leading up to the crisis,” said Mr Wolin at the American Bar Association. “But in our view, the Federal Reserve is the agency best equipped for the task of supervising the largest, most complex firms.”
…

“[China and the U.S.] are threatened by the disconnect between production and consumption. In China, the threat is civil unrest. In the U.S., it’s a prolonged jobs and earnings recession that… could create political backlash.”

~Robert Reich

Hope&Change…Save or Create… Go big gubmint!

Northern Virginia adds more than 8,000 government jobs
Washington Business Journal

Northern Virginia has lost more than 13,000 jobs in the last year, but government employment is up, according to the Virginia Employment Commission.

The region’s total work force at the end of September was 1,305,600, down 1 percent from September 2008.

Some of the biggest losses were in construction, trade and transportation and information technology.

Northern Virginia’s information technology work force shrank by 8.6 percent, or 4,100 jobs in the past year.

The region’s construction industry shed 4,100 jobs, shrinking by 5.1 percent.

Total government employment in Northern Virginia in September was up 3.8 percent, with 8,300 new government jobs in the last year, much of it the result of stimulus spending, the Commission says.

And Northern Virginia’s leisure and hospitality industry is showing signs of recovery, with 5,400 new jobs, or growth of 4.6 percent from a year ago.

Statewide, Virginia’s nonagricultural employment shrank by 114,900 jobs, or 3.9 percent. Nationwide, job contraction during the same period averaged 4.2 percent.

Fines for too-tall grass could rise to $1,000 a day in Jupiter.

JUPITER — An overgrown lawn could cost a homeowner $1,000 a day.

A plan to quadruple the penalty from the current maximum of $250 per day for a first violation is scheduled for consideration at Tuesday night’s town council meeting.

A repeat violation by the same person would be boosted to $5,000 a day maximum from $500 per day.

If the code enforcement board finds that the violation is irreversible — the unapproved removal of an historic tree, for example — the violator would face a maximum fine of $15,000. The current maximum penalty is $5,000.

“That’s outrageous,” said Stefan Harzen, a member of the property owners association for the Woodland Estates neighborhood. Increasing the fines will not result in prettier neighborhoods, he said. “This is an easy way for the town to get more money,” Harzen said.

Higher penalties are needed to deter flagrant violators, said Councilman Robert Friedman. A landlord who allows too many people to live in a house simply sees the current fine as a cost of doing business, he said.

“Code enforcement needs a larger hammer,” Friedman said.

Last year Jupiter’s seven-person Code Enforcement Division collected about $39,000 in fines, according to town records.

The increase is being considered because once a town exceeds 50,000 people, state law says it can adopt higher penalties, according to a Nov. 9 memo from Building Department Director Robert Lecky to Town Manager Andy Lukasik. The town’s population as of April 1 was 50,275, according to the University of Florida Bureau of Economic and Business Research.

The town code regulates items such as when garbage cans can be placed outside, noise volume, parking of boats, heights of fences, the number of tenants and landscaping. Lawns cannot be higher than eight inches in developed residential areas.

“The higher maximum gives us more discretion in levying the penalty,” said Code Enforcement Director Frank Melillo.

Let’s get real: The only way to fix too-big-to-fail is to bust the TBTF trusts.

MarketWatch First Take

Nov. 17, 2009, 4:50 p.m. EST

Too big to fail vs. too little too late
Commentary: How can $200 billion backstop an $8 trillion industry?

Something doesn’t add up with too-big-to-fail plan

By MarketWatch

WASHINGTON (MarketWatch) — Congress is trying hard to figure out a way to avoid the next bailout of a gigantic bank, but it’s running into a problem with the arithmetic. The solution proposed by the Obama administration and its allies in Congress just doesn’t add up.

On one side we have a small group of banks that are so large that if they failed, they’d take down the global economy, as the failure of Lehman Bros. nearly did a year ago. On the other side, we have a laughably inadequate response.

The top five banks in the United States have assets of more than $8 trillion, but Rep. Barney Frank has endorsed creation of a $200 billion insurance fund that would pay for the orderly unwinding of one or more of these banks. See full story on the congressional debate over “too big to fail.”

The fund, like the fund of the Federal Deposit Insurance Corp., would be paid for by a tax on the industry. The idea is to make sure that the banks pay for their own cleanup ahead of time, instead of sticking the bill with the taxpayers. If the banks have to pay in advance, maybe they’ll be just a little more careful.

But $200 billion is woefully inadequate to the task. It’s smaller than the $700 billion bailout fund that was rushed through Congress last year. And it’s barely bigger than the $180 billion the government paid to prevent the failure of insurance giant American International Group.

Does anyone think $200 billion would cover the collapse of Bank of America, with $2.3 trillion in assets? Or Citigroup’s $2.04 trillion? Or even Morgan Stanley’s $770 billion? As we saw in 2008, a financial crisis doesn’t single out just one institution; if one goes, more will follow.

So why not make the insurance fund bigger? Because the industry doesn’t want to pay that much money into a government rainy-day fund. Frank admitted that $200 billion was the most that “could be reasonably raised.”

If the government assessed $1 trillion from the industry, that would be $1 trillion that couldn’t be used for lending, or for bonuses. And $1 trillion might be inadequate as well.
…

Cry me a river…

The Wall Street Journal

* November 17, 2009, 6:10 PM ET

Nicolas Cage’s Money Woes: The Countersuit From His Ex-Manager

By Sara Lin

Nicolas Cage, who is suing his ex-manager, has been hit with a countersuit

Nicolas Cage, one of Hollywood’s highest-paid leading men, is suing his ex-manager, Samuel J. Levin, for $20 million–and now Levin has responded with a countersuit. Cage claims bad advice from Levin put the actor on a path to financial ruin. The actor owes more than $6 million in unpaid taxes.

Cage says Levin mismanaged his money and failed to pay his taxes as they were due. In addition, Cage says in his suit Levin placed him in “numerous highly speculative and risky real-estate investments.”

In the countersuit reviewed by Speakeasy late Tuesday, Levin alleges that the Oscar-winning actor was broke by the time he was hired in 2001. Cage “had already squandered tens of millions of dollars…owed millions of dollars in accrued but unpaid income taxes, with no funds available to pay the tax debt,” the lawsuit says.

Levin warned Cage that he needed to earn $30 million a year to maintain his high-spending lifestyle and avoid pressure to take on film roles that might be harmful to his career, according to the suit. Levin goes on to allege that while Cage originally signed on to the idea to rein in his spending – agreeing to sell off more than a dozen cars and a $1.6 million comic book collection – a string of hit films with high payouts prompted Cage to set off on “a spending binge of epic proportions.”

In 2007 alone, Levin claims in the suit, Cage purchased three additional residences costing more than $33 million, 22 automobiles (including 9 Rolls Royces), several pieces of expensive jewelry and 47 pieces of artwork and exotic items.

By July 2008, the suit alleges, Cage owned 15 palatial homes around the world, four yachts, an island in the Bahamas and a Gulfstream jet. The actor’s “uncontrolled spending” on costly vacations and “Gatsby-style parties at his residences” prompted him to borrow large sums of cash against his residences. After the housing market plummeted in 2008, Cage was left underwater on several of them. Last week, he lost two multi-million homes in New Orleans, La. to foreclosure, according to the New Orleans Civil Sheriff.

Levin also claims in the suit, dated Nov. 12, that Cage owes him $128,872.98 in unpaid service fees.

Levin’s spokespeople said he couldn’t be reached for comment.

A call to Cage’s lawyer wasn’t immediately returned.
…

* The Wall Street Journal
* OPINION
* NOVEMBER 16, 2009, 7:00 P.M. ET

The Permanent TARP

Current financial reform proposals would establish ‘too big to fail’ as national policy.

By PETER J. WALLISON

It’s hard to imagine a worse piece of financial regulatory legislation than the bill Barney Frank and the administration put before the House Financial Services Committee last month. But Sen. Chris Dodd’s effort, introduced last week, clears this hurdle.
…

* The Wall Street Journal
* REVIEW & OUTLOOK
* NOVEMBER 17, 2009

A Dollar Warning From Asia
Obama gets an earful about America’s super-easy money.

Federal Reserve officials sometimes sound as if their only worry is the domestic U.S. economy, but their gusher of dollars is starting to have serious consequences for the rest of the world. Nowhere is this more evident than in Asia, where President Obama is getting an earful from leaders this week about what all those greenbacks are doing to their economies.

Many of these nations peg their currencies, formally or informally, to the greenback. So they are getting a huge dollar liquidity kick from the carry trade, in which people borrow U.S. dollars at exceptionally low U.S. interest rates and invest them for higher returns elsewhere.

As a result, Asia’s stock markets are outstripping U.S. and European bourses by a country mile. Shanghai alone is up nearly 80% this year-to-date. Hong Kong property is climbing through the roof, with one recent apartment sale mooted at $57 million. Foreign investors are even getting enthusiastic again about one of the most corrupt emerging markets around—Indonesia—and dubbing it the “new China.”

At a conference in Singapore, Hong Kong chief executive Donald Tsang—a former finance minister—said Friday he’s “scared” about loose U.S. monetary policy. “Where is the money going—it’s where the problem’s going to be: Asia,” Mr. Tsang said. “You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.”
…

Is the second sentence here really a sentence?

“Price equilibrium will stabilize markets and bring growth back. The government has no business bailing out bad investments of these banks. If you buttoned down the counterparty risk, then let the bad assets wash out and let entrepreneurs go back into the market.”

— Brad Polifron

The zombie GSEs appear to be contributing to an epic housing glut. Eventually, affordable housing will result, but only by accident rather than by design.

* The Wall Street Journal
* REAL ESTATE
* NOVEMBER 18, 2009

Fannie, Freddie Woes Hurt Apartments

By NICK TIMIRAOS

The deteriorating commercial real-estate market is hitting Fannie Mae and Freddie Mac, the housing-finance giants that were taken over by the U.S. last year after billions of dollars in losses on residential real estate.

The firms, which together have taken more than $110 billion in capital infusions from the Treasury, stepped up their lending for apartment buildings as the commercial real-estate market peaked, and they are now facing rapidly rising loan losses.

Fannie, which has been more active than Freddie, faces the biggest problems. Its serious delinquency rate, or loans that were 60 days or more past due, stood at 0.62% at the end of September, up from 0.16% a year ago. One troubling sign: one-quarter of the $180 billion of apartment-building loans on Fannie’s books were originated near the top of the market in 2007 and those loans account for nearly half of all its commercial-loan delinquencies.

Fannie increased to $1.2 billion its reserves for losses on multifamily loans at the end of September, up from $104 million at the end of 2008. In a statement, Fannie Mae said market fundamentals “will remain under pressure in the near term” and that the company is taking steps “to mitigate risks associated with weak rental demand.”

The losses from Fannie’s and Freddie’s $300 billion in apartment-building loans will be a fraction of their losses on single-family homes, where the two firms back $5 trillion of loans. But the bigger impact could be on the market for apartment buildings. The firms were responsible for 84% of all multifamily lending last year, up from 34% of the market in 2006, according to the Federal Housing Finance Agency.

Fannie and Freddie have taken lumps from some financings, including a $9 billion loan in 2007 for the buyout of Archstone Smith.

A report published earlier this year by Harvard University’s Joint Center for Housing Studies warned that without Fannie’s and Freddie’s continued purchases, “apartment transactions could come to a near standstill” and that could spur a further unraveling where even “cash-flow-positive projects may not be able to get refinanced and will be pushed towards default.”
…

* The Wall Street Journal
* REAL ESTATE
* NOVEMBER 17, 2009

Ten Questions on the Volatile Housing Market
Lower Prices Have Spurred Home Sales, but Looming Foreclosures and High Unemployment Are Clouding the Outlook

By JAMES R. HAGERTY

The U.S. housing market has been in a slump for the past four years. When will it ever end?

In recent years, real estate has proven as jittery and unreliable as any other market. The average U.S. home price nearly doubled between January 2000 and April 2006, according to the First American LoanPerformance index. Since then, the average has fallen about 30%. The drop has been 53% in the Las Vegas metropolitan area and 39% in Miami, where about a quarter of all households with mortgages are behind on their payments or in foreclosure. The value of your home might be determined more by whether the neighbors keep their jobs than whether the house has ample light and closet space.

Here is a guide to navigating a fractured and volatile market:

1. Is the housing market getting better?
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2. When will housing bottom out?
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3. What signals should I watch to determine whether my local market is improving?
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4. How can I figure out the value of my home?
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5. Does it matter whether I’m “under water”?
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6. If I lose my home to foreclosure, how long will it take to repair my credit record?
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7. If I’m renting, is now a good time to buy a house?
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8. Can I get a tax credit if I buy a home now?
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9. Can I get a mortgage on attractive terms?
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10. Should I invest in foreclosed homes?

Probably not. A lot of investors chase these properties, and only the most experienced know how to deal with all of the pitfalls. Homes auctioned at trustee or sheriff sales are sold on an as-is basis, and there is no provision for an inspection before you take ownership. If after buying you find out that termites have been treating the floor joists as an all-you-can-eat buffet, that is your problem. You must pay for the full price within a day or two, so you need a lot of cash or access to special short-term loans for investors that come with interest rates of around 18%. This is a pursuit best left to people with a lot of time, nerve, cash and knowledge of the local market.

WSJ
* LETTERS
* NOVEMBER 17, 2009

Learn From Housing Market Fiasco

Edward Pinto’s excellent op-ed piece “Acorn and the Housing Bubble” (Nov. 12) provides a good outline of the government’s role in the housing market fiasco. By twisting the market mechanisms in order to advance their social engineering agenda, the government—under the influence of the affordable housing lobby—created a situation that eventually blew up in its face. Regulators were pressured to enforce housing affordability goals at the expense of loan quality. The result was not only the aimed-for increase in loans to the “underserved” (a very large percentage of whom turned out to be uncreditworthy), but a surge in borrowers who bought “too much house,” homeowners who sucked out the “dead equity” they had accumulated through cash-out refinancings, and amateurish real estate investors who were able to purchase housing on which they took almost no downside risk.

An important lesson to be learned from this fiasco is that the markets need to be kept safe from social engineering intrusions. We cannot rely on the countervailing powers of the affordable housing lobbly and the mortgage finance industry to safeguard the efficient functioning of the market. A restructured regulatory framework should vest the power to ensure market efficiency in the entities that would have to clean up the aftermath of any future market meltdown.

Stefan Jerzy

Washington

The pilot came on and said, ladies and gentlmen we have lost two of our three engines. A worried passenger tuned to the man next to him and asked, how far can this plane fly on one engine? The man next to him replied, all the way to the scene of the crash. We should be there about twenty minutes before the fire department.

I know it’s late (11pm PST), but am curious to know if anyone here has tried negotiating with their bank on the interest rate they’re paid, either for a MM account or for a CD?

I’m tempted to try it with Zion’s - I would think that an account roughly at the FDIC limit would be enough coin to give one some clout when it came to negotiations, but am curious to hear if anyone has given this a shot? Or does everyone just check bankrate.com for the highest rates, then look for what of those appear to be stable, and go from there?