The Housing Bubble

“We are now, broadly speaking, in the process of debt de-leveraging. The private sector in America is paying down and defaulting on debt. In the housing market, for example, delinquencies and foreclosures are at peak levels. And demand for new mortgage loans is at a 13-year low.”

~Bill Bonner

Bank Failure Scorecard:

U.S. Bank failures in 2010 … 73. (Double the rate of 2009)

Number of banks on FDIC “troubled list” … 775.

FDIC Deposit Insurance Fund … in the red by $21+ billion.*

Danger to depositor accounts of $250,000.00 or less…none.

(*Note: The American taxpayer is on the hook to cover the overdrawn Deposit Insurance Fund .)

Transit workers rally against proposed cuts, lay offs ~ Detroit

The Rev. Jesse Jackson, Congressman John Conyers and Congresswoman Carolyn Cheeks Kilpatrick joined scores of transit union workers, community leaders and bus riders Friday morning at a rally to protest plans to cut services and lay off workers.

The “Save Our Ride” rally at Hart Plaza was one of several planned nationwide.

“We have to tell Congress not to bail out Wall Street; bail out mass transit,” Jackson told the cheering crowd.

“I can fly from Detroit to Chicago in 45 minutes, but then it takes two hours to reach downtown Chicago by car, or 20 minutes by train.

“We need to choose mass transit over mass congestion.”

N.C. loses 1,800 more construction jobs
Charlotte Business Journal

North Carolina lost 1,800 jobs in the construction industry in April, according to a report released Friday. But the study also shows the industry’s nationwide slowdown is beginning to wane.

The Tar Heel State had 172,000 workers employed in the construction sector in April, according to federal employment data analyzed by the Associated General Contractors of America. The N.C. employment total was down from 173,800 in March, a 1 percent decline, the AGC says.

And the sector has lost 25,600 jobs in North Carolina since April 2009, a drop of 13 percent, according to the AGC.

Anger mounts as oil blackens Louisiana coast.

Anger was mounting as heavy oil blackened Louisiana’s marshes and beaches and efforts to cap the oil which has been gushing into the Gulf of Mexico for more than a month met with more delays.

Initially scheduled to begin on Sunday, BP’s latest attempt to cap a leak in a ruptured pipe 5,000 feet (1,500 meters) below the surface is not expected to get underway until Tuesday at the earliest.

Crews used submarine robots Saturday to position equipment for the “top kill” attempt to plug the leak with heavy mud and then seal it with cement.

“There’s a lot of staging that must go on — on the surface of the water as well as on the seafloor — testing, getting the mud and the ship staged,” BP spokesman John Curry told AFP.

But while a fleet of skimmers did its best to contain the massive slick which has spread across the gulf and begun to make its way towards Florida, oil washed past protective booms and continued to sully miles of Louisiana’s coastline.

Susan Villiers, 52, stared with frustration at the empty waters as she walked along the oil-soaked beach of Grand Isle, Louisiana.

“Everybody is angry because they want to see action,” said Villers, who has three fishing boats sitting idle because of the spill.

“They want to see boats deploying booms and nothing’s happening.”

With the federal government facing accusations of lax supervision of lucrative offshore oil drilling, President Barack Obama vowed to hold Washington accountable and warned that the future of the industry hinges on assurances such a disaster “never happens again.”

Financial Overhaul Bill Poses Big Test for Lobbyists.

WASHINGTON — Last Wednesday, Representative David Scott, Democrat of Georgia, mingled with insurance and financial executives and other supporters at a lunchtime fund-raiser in his honor at a chic Washington wine bar before rushing out to cast a House vote.

Nearby, supporters of Representative Michael E. Capuano, Democrat of Massachusetts, gathered that evening at a Capitol Hill town house for a $1,000-a-head fund-raiser. Just as that was wrapping up, Representative Peter T. King, Republican of New York, was feted by campaign donors at nearby Nationals Park at a game against the Mets.

It was just another day in the nonstop fund-raising cycle for members of the House Financial Services Committee, which has become a magnet for money from Wall Street and other deep-pocketed contributors, especially as Congress moves to finalize the most sweeping new financial regulations in seven decades.

Executives and political action committees from Wall Street banks, hedge funds, insurance companies and related financial sectors have showered Congressional candidates with more than $1.7 billion in the last decade, with much of it going to the financial committees that oversee the industry’s operations.

In return, the financial sector has enjoyed virtually front-door access and what critics say is often favorable treatment from many lawmakers. But that relationship, advantageous to both sides for many years, is now being tested in ways rarely seen, as the nation’s major financial firms seek to call in their political chits to stem regulatory changes they believe will hurt their business.

The biggest flash point for many Wall Street firms is the tough restrictions on the trading of derivatives imposed in the Senate bill approved Thursday night. Derivatives are securities whose value is based on the price of other assets like corn, soybeans or company stock.

okay… second attempt to ask about this:

As you know I’ve been living in Gainesville, FL for a few years. I am on the verge of relocating to Orlando, FL. I’m looking to rent an apt for the first year, 1 or 2 bdrm. Looks like there are a lot of options and the market’s a bit soft (free 1st month’s rent specials, etc).

Any advice? We’re looking in the S/SW part of the city, near OBT (because of where we’ll likely be working).

Also, I’m trying to get into Lynx but can take a crummy paying part-time or temp driving job for now (I have a class B & prefer to drive bus). Suggestions or comments?

Charles Djou: How did a Republican win in Obama’s Hawaii hometown?

Republican Charles Djou won the special election in Hawaii’s First Congressional District – the Honolulu district where President Obama grew up. Djou is only the third Republican Hawaii has elected to Congress since statehood.

By jove, I think they got it, lol:

http : // www . abc. net. au/news/video/2010/05/20/2905304.htm

Angela Merkel has come down with a severe case of Spitzer face. Is there any known cure for the malady?

* Business
* European debt crisis

FTSE 100 hits seven-month low on European debt fears

• London index drops below 5000
• European markets slide
• Germany to propose eurozone overhaul to EU

* Julia Kollewe
* guardian.co.uk, Friday 21 May 2010 14.17 BST

German chancellor Angela Merkel has vowed to fight for a global tax on bank transactions at the G20 summit next month. Photograph: Tobias Schwarz/Reuters

The FTSE 100 index in London fell through the 5000 mark today for the first time since last November, as the European debt crisis continued to haunt stock markets around the globe.

In volatile trading, the index extended its recent losses and briefly touched a seven-month low of 4957 points, a drop of 116 points or over 2.2%. US and German government bonds also rallied as traders sought safety from the eurozone crisis.

There were losses across Europe’s major stock markets, with Germany’s Dax down 1.8% and France’s CAC 40 losing 1.2%. Indices in Spain, Portugal and Italy also fell into the red, following a sell-off in Asia overnight.

Will Hedden, sales trader at IG Index, said investors were braced for further losses later today.

“With markets still a little punch-drunk following the German decision earlier this week to restrict short-selling, investors may be wary of any other government announcements over the coming weekend and may choose to sit on cash until the situation becomes clearer.”
…

Another Knotty Economic Problem

The government shelled out $140 billion in unemployment benefits last year to an estimated 21 million people. That price tag is likely to increase this year. This week, the Senate is expected to extend jobless benefits to more than 5 million Americans through the end of the year. It is the sixth time in nearly two years that they’ve expanded or extended unemployment benefits — putting off, again, a day of reckoning our political leaders seem unwilling to face.
Jobless Benefits

(Our elected leaders in Washington are doing it again. Borrowing billions of dollars to give to the unemployed in the hope of buying some time. The burden of paying the money back falls on the future generation. A cowardly way of conducting business.)

The trader in the photo accompanying the article linked below looks as though he expects a black swan guano bomb to drop from the sky.

* Business
* European debt crisis

Day of market turmoil as investors panic over eurozone crisis

• FTSE 100 falls below 5,000 before staging recovery
• George Osborne urges EU ministers to adopt austerity measures

* Larry Elliott and Jill Treanor
* guardian.co.uk, Friday 21 May 2010 20.04 BST

On a rollercoaster day for shares, money ­markets and bonds, a trader waits for news on the floor of the New York Stock Exchange. Photograph: Richard Drew/AP

Stock markets seem to be signaling another leg down in the recession. This bodes strongly for lower housing prices going forward, as demand is likely to hide under the mattress once prospective home buyers realize prices are falling once again. Why buy now if you can get the home of your dreams for a substantially lower purchase price in a year from now?

Sunday May 23, 2010

Bloomberg
Stocks Sinking to Crash Low Signals Worse to Come (Update3)
May 21, 2010, 5:18 PM EDT

More From Businessweek

* S&P 500 Futures Fall Below Level Reached During May 6 Crash
* Bull Market Since March 2009 Too Young to End Now, Birinyi Says
* U.S. Stock Plunge Is Buying Opportunity, Birinyi Says (Update2)
* GMI?s Raoul Pal Predicts Stock-Market Crash Amid Debt Defaults
* Experts Talk Market Volatility, Euro Bashing, Deficit

(Adds today’s trading in fifth paragraph.)

By Lynn Thomasson and Rita Nazareth

May 21 (Bloomberg) — Any investor who wants to gauge how serious the stock market’s retreat is need only know the Standard & Poor’s 500 Index has fallen below its low on May 6, when panic selling prompted calls for reform.

The equity index retreated 3.9 percent yesterday in its biggest loss in 14 months, sinking to 1,071.59, and slipped as low as 1,055.90 today. That compares with 1,065.79, the low two weeks ago when $862 billion was wiped out in 20 minutes. The options market benchmark known as the VIX soared 30 percent to 45.79 yesterday, meaning expectations for volatility are the highest in 13 months.

Europe’s debt crisis has pushed the S&P 500 down 12 percent during the past month as concern grew that deficits in Greece, Spain and Portugal will unhinge the global economic recovery. Regulators have proposed six potential causes of the May 6 crash, including losses in exchange-traded funds and an unwillingness to match orders among some electronic traders.

“As far as we know, it’s not a computer error today,” Jerome Dodson, who oversees $4 billion as president of Parnassus Investments in San Francisco, said of yesterday’s slump. “The May 6 flash crash was driven by technical troubles and didn’t reflect any fundamentals. It’s surprising that regular trading would take us down to the same levels as a technical glitch.”
…

Birinyi says it is time to buy the dip, this bull market is too young to die, and there will not be any twenty percent correction this time. Birinyi is one smart bovine, and he is rich. Birinyi is taking advantage of this buying opportunity, too. Don’t second guess Birinyi — if he says it is time to buy the dip, then it is high time for dips to buy.

P.S. The article linked below came out last Thursday. I wonder how much money Birinyi made with his long bets the next day, on Friday’s 3 percent leg down of the correction? Is there any chance anyone could post his results here?

Bloomberg

U.S. Stock Plunge Is Buying Opportunity, Birinyi Says (Update2)
May 20, 2010, 4:21 PM EDT

More From Businessweek

* Bull Market Since March 2009 Too Young to End Now, Birinyi Says
* Trade Errors Are Magnified in Electronic Markets, Birinyi Says
* Biggest Rally in 76 Years Not Dead as Seers See Gains (Update1)
* S&P 500?s ?Constructive? Retreat Not Over: Technical Analysis
* Technical Bulls Unshaken by Rout, See Rally Resuming After Drop

(Updates trading in third paragraph.)

By Elizabeth Stanton

May 20 (Bloomberg) — The slump that drove the Standard & Poor’s 500 Index to the lowest level since Feb. 10 is creating buying opportunities, said Laszlo Birinyi, the founder of Birinyi Associates Inc.

“I am not of the view that we’re going to go into a 20 percent downdraft,” Birinyi said in a telephone interview. “We are buying to take advantage of this weakness.”

U.S. stocks plunged today, with the S&P 500 extending its drop from last month’s high to 12 percent, after jobless claims unexpectedly rose and Europe’s debt crisis deepened. The benchmark gauge for American equities slid 3.9 percent to 1,071.59 in the biggest slump since April 2009. It fell below its 200-day average, a sign of more losses to some traders.

While the declines reflect reasonable concern that Europe’s sovereign debt crisis will derail global growth, U.S. corporate earnings and favorable valuations will prevail, Birinyi said. Profits for S&P 500 companies are forecast to increase 17 percent this year, pushing the index’s price to 13.2 times annual income, according to data compiled by Bloomberg.

“Emotion and political circumstances are dictating the short-term move, and understandably,” Birinyi said. “But ultimately it comes down to good companies and proper valuations, and I don’t think there’s a big issue.”
…

Hedge funds bet big on the falling euro

Hedge funds that made millions from the implosion of America’s subprime market are betting on a similarly dramatic collapse of the euro.

Hedge funds, including Hayman Advisers and Matrix Group, have told investors that they expect the sovereign debt crisis to worsen despite the €110bn (£79bn) bail-out by the International Monetary Fund, the European Union and the European Central Bank.

Anxiety about the financial health of Europe increased yesterday after Spain’s national bank was forced to take control of CajaSur, a savings bank ridden with distressed property debt, after a rescue merger with a rival collapsed.

Traders and brokers told The Sunday Telegraph that hedge funds are using a range of financial instruments to bet that the value of the euro will fall. One trader said: “Shorting the euro is the biggest bet in town.

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7753874/Hedge-funds-bet-big-on-the-falling-euro.html

Look what this aging Wall Street bovine was telling the greater fools two months ago: “I’m not debt yet.”

P.S. The last ounce of confidence hasn’t disappeared, YET. Abandon all hope, ye who readeth my posts.

Bloomberg
Biggest Rally in 76 Years Not Dead as Seers See Gains (Update2)
March 11, 2010, 5:20 PM EST

(Updates S&P 500 in ninth paragraph.)

By Rita Nazareth and Whitney Kisling

March 11 (Bloomberg) — Laszlo Birinyi will never forget the moment a year ago when the last ounce of confidence disappeared. Everyone from billionaire Warren Buffett to New York University Professor Nouriel Roubini was convinced that the economy was in a free-fall, that exploding deficits would devastate the dollar and that home prices were heading down as much as 20 percent.

“At turning points, the mood is always in one direction,” says the 66-year-old Birinyi, who characterized the “total conviction” of pessimists as the start of an advance that would end up making Barack Obama’s first year in office the best for shareholders in 76 years. What’s more, the Standard & Poor’s 500 Index, which gained 70 percent in the past 12 months, is nowhere near its peak in a rally that may persist through the next presidential election, he says.
…

“The old world and the new world are both beginning to look a little stale. Both have too much debt. Both have made too many promises to too many people. ”

~Bill Bonner

Despite Roubini’s oft-repeated warnings, when U.S. inflation ultimately trashes the value of long-term dollar-denominated debt, I expect many to be heard saying, “No one could have seen it coming.”

Bloomberg

Roubini Says Rising Debt Leads to Inflation, Defaults (Update1)
April 28, 2010, 6:46 PM EDT

By Vivien Lou Chen and Gabrielle Coppola

April 28 (Bloomberg) — Nouriel Roubini, the New York University professor who predicted the U.S. recession more than a year before its start in December 2007, said rising sovereign debt from the U.S. to Japan and Greece will ultimately lead to higher inflation or government defaults.

“While today markets are worried about Greece, Greece is just the tip of the iceberg, or the canary in the coal mine for a much broader range of fiscal problems,” Roubini, 52, said today during a discussion on financial markets at the Milken Institute Global Conference in Beverly Hills, California. Increasing tax revenue won’t be enough “to save the day.”

Roubini’s remarks underscore statements by officials such as Dominique Strauss-Kahn, managing director of the International Monetary Fund, that the global economy still faces risks. Credit-rating cuts on Greece, Portugal and Spain in the past two days are spurring investors’ concern that the European deficit crisis is spreading and intensifying pressure on policy makers to widen a bailout package.

“The thing I worry about is the buildup of sovereign debt,” Roubini, who teaches at NYU’s Stern School of Business, told attendees at the Beverly Hilton hotel. If the issue isn’t addressed, nations will either fail to meet obligations or experience higher inflation as officials “monetize” their debts, or print money to tackle the shortfalls.
…

As many people now understand, Wall Street is a monopolistic cartel that thrives on putting the rest of the nation and much of the world in debt and controlling all money in the system . It has structurally lived as a parasite on the United States for a century. It seemed like a symbiotic relationship for a long time, but it is now clear that it took over the host and now has nearly reached the point of killing it. Such a parasitic structure is fundamentally pathological, one could say immoral and pathological structures naturally attract pathological personalities.

~ Damon Vrabel

“Avoid banks at all costs” — I like that advice! Until trust is restored to the financial system (and I expect it will, by some point within the next two decades), why ANYONE would invest in U.S. banks is beyond me.

Meredith Whitney Says Investors Should Avoid Banks ‘At All Costs’
By editor|May 18, 2010, 12:31 AM|Author’s Website

Meredith Whitney told CNBC’s Maria Bartiromo that investors should “avoid financials at all costs, particularly in the banking sector” because the financial reform bill currently contemplated by the Senate will further restrict capital and hurt bank earnings.

“Politicians have proven far worse than our worst expectations,” she said during the interview. “It could be very bad for banks.”

Whitney added that instead of “jamming down last minute regulations just to appear to be tough on banks,” Congress should make it easier for small businesses to obtain credit.

Most of the changes are good for the HBB gang

How Will New Financial Regulation Affect Average Americans?
Systemic Risk Regulator

The Good: The hope is that this will enhance economic stability by spotting and fixing economic shocks before they hit. That means unemployment rates shouldn’t be a severe during recessions.

The Bad: Of course, we can’t be sure that the crystal ball of this new regulator will be any better than that of previous regulators. It could be a costly waste. The average Americans will face higher prices for products offered by the firms on which it imposes additional regulatory burden. Taxpayers will also be on the hook for its administrative expensive.

Non-Bank Resolution Authority

The Good: Again, economic stability is the goal here by quickly and painlessly winding down big firms.

The Bad: The way Congress structured it, the taxpayers will have to loan the FDIC the money to cover costs for winding down big institutions that fail. So if that includes paying creditors that the failed firm owes $10 billion to, for example, then that money will come in part from your tax return. Those firms are required to pay back the FDIC in full, but if they also go bankrupt before they can, then taxpayers could still end up with a loss.

Consumer Financial Protection Agency/Bureau

The Good: This one is easiest to relate to the average American. If it works as intentioned, it will protect consumers from dangerous financial products. Think: option adjustable-rate mortgages. Such toxic loans could be forbidden. It also seeks to ban abusive credit practices. Additionally, the agency will impose new requirements on borrowers — like proving your income before being provided a loan.

The Bad: This will limit the options available to consumers, as it will probably eliminate some products from the marketplace that it deems dangerous. You can also expect credit to cost more. As we saw with the credit card regulation last year, when banks are ordered to change their practices, consumers get stuck with a higher bill.

Regulation of the Derivatives Market

The Good: These new rules could produce a more stable economy, if advocates for this regulation are right.

The Bad: It’s easy, however, to see how these new requirements could make consumers worse off. It will likely be quite expensive for small banks and real estate shops with a weak capital base to utilize derivatives if they must be cleared (longer explanation here). That means more expensive loans for consumers.

New Rules for Securitization

The Good: Again, the hope is better economic stability if better underwriting produces safer asset-backed securities.

The Bad: By forcing banks to retain some of their securitizations, however, they will be forced to originate fewer loans. That will lead to less credit availability, which will raise the price of credit for consumers. Those people without spotless credit will also have more trouble getting loans going forward.

http://www.theatlantic.com/business/archive/2010/05/how-will-new-financial-regulation-affect-average-americans/57120/

Small Farms Might Not Be Spreading After All

USDA defines a small farm as an operation with gross cash farm income under $250,000. Within that group are commercial and noncommercial farms. The number of small commercial farms—with sales of $10,000 to $250,000—actually fell between 2002 and 2007…

In fact, all of the growth occurred among farms under $1,000 in sales … Most of these operations are better described as rural residences; the households on these farms—and on many other small farms—rely heavily on off-farm income.

http://www.theatlantic.com/food/archive/2010/05/small-farms-might-not-be-spreading-after-all/57126/

How To Know Very Shortly Whether We’re On The Path Of Japan

Excellent… Doug Short (Dshort.com) has updated his excellent mega-bears chart to take into account last week’s big drop in the stock market.

As you can see, from a timing perspective, it lines up fairly nicely with a major leg down in the Nikkei (when our peak is overlaid with theirs… he uses the peak of the .com bubble to show our one true peak).

So if we have a sharp rebound then our path doesn’t look anything like theirs. On the other hand, if we keep falling, then there’s a scary historical precedent about what could lie ahead.

http://www.businessinsider.com/sp500-vs-nikkei-2010-5#ixzz0olPU6oaD

And I like to argue with myself.

I’m thinking that through the lens of the rear-view mirror, the $8K first time homebuyer credit and subsequent expiration thereof may appear like a government-sponsored housing crash accelerator, as robbing demand from the future naturally leads to a drought of demand going forward, at the point when the credit was finally eliminated.

Of course, I don’t know to what extent announced or unannounced subsidies may be brought into play going forward to dampen the effect.

Economic Preview
May 23, 2010, 10:05 a.m. EDT

Last hurrah for home sales?
With tax credit going away, can market stand on its own?

Price rollback in U.S. economy

By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) — Home sales have jumped in the past few months, with buyers rushing to take advantage of the soon-to-expire federal tax subsidy. But what will happen when the subsidy disappears and the market must stand on its own?

In April, sales of existing home probably rose about 5% and sales of new homes likely gained about 3%, according to the median forecast of top economists surveyed by MarketWatch. The existing-home sales will be reported on Monday, while new-home sales will come out on Wednesday.

The April housing data will be among the most closely watched economic news of the coming week. Other key data to be released include home prices for March, April durable-goods orders, April consumer spending and income numbers, and consumer confidence readings for May.

The government has been supporting sales and home prices for about two years, providing up to $8,000 to qualified buyers. But the subsidy ends in June. To qualify, a buyer must have signed a sales contract by April, and must close the sale by June 30.

However, once the subsidy expires, sales will likely soften, at least temporarily.
…

U.S. Constitution becomes popular to read.

WASHINGTON, May 21 (UPI) — The U.S. Constitution has become a popular document to read in Washington and beyond, thanks in part to the rise of the Tea Party movement, The Hill reports.

The pocket edition, which also includes the Declaration of Independence, shot up to 10th in March among top sellers at the Government Printing Office, the Washington-based publication said.

Gary Somerset, a GPO spokesman, said public sales of the pocket edition have climbed to 8,700, higher than normal, since September 2009.

But the public sales numbers are dwarfed by the distribution of some 441,000 copies printed for House members and 100,000 for senators. Constituents can ask for free copies from their members of Congress or buy copies at $2.75 apiece.

“Many members have lately experienced a large increase in constituent requests for the Pocket Constitution,” House Administration Committee Chairman Robert Brady, D-Pa., wrote in a recent letter to his colleagues. He urged them to buy copies through their office accounts at a discount rate of $390 per 1,000.

“It was hard to get a lot of discussion going in (the House GOP) conference on the topic, but in the last year or so, the Constitution has become a much more favorite article of discussion,” said Rep. Scott Garrett, R-N.J., who founded the Congressional Constitution Caucus in 2005.

Gold bulls claim price could double to $3,000 in five years
Fears that American, British and other governments intend to inflate their way off the rocks of excessive debt prompted record inflows into gold this week. ~ Telegraph ~UK

Now some fund managers claim the price could more than double to $3,000 (£2,080) per ounce within five years.

Heavily indebted governments throughout the developed world are struggling to fill deficits of black-hole dimensions in public finances by imposing spending cuts and tax rises. Both are expected in Britain’s emergency Budget on June 22 and neither will be popular.

But keeping interest rates lower than inflation and letting the currency take the strain is another way to reduce the real value of debt. You can see why politicians may feel that is the ”least worst” option.

Stealthily robbing savers by eroding the purchasing power of money is less likely to cause riots in the streets than spending cuts, because inflation tends to hit older people hardest while unemployment hits the young.

(Looked through HBB past few days to see if this appeared before; apologies if it did and I missed it…)

WSJ Blogs
May 21, 2010

Credit Suisse Analyst: Tax-Credit Hangover is Here

Buyer interest in real-esate seems to have evaporated along with the expiration of the home buyer tax credit on April 30.

Since then, traffic has plunged to the lowest level since January 2009, says Dan Oppenheim, Credit Suisse’s builder analyst.

…

This “sharply lower traffic” has been consistent across markets, but it’s been pronounced in the mid-Atlantic and Texas regions, areas that made it through the crash in decent shape.

Fewer shoppers nationwide is bad news…especially [for] public home builders, who will likely respond by cutting prices on all the houses they’ve built in recent months. Lennar is already trimming price tages, a move that could be copied industry-wide.

…

A Surprise Tax Hit on Foreclosures ~ The Wall Street Journal

Maxine McDaniel has a message for Americans considering walking away from an unaffordable mortgage: Beware of taxes.

Though not every homeowner who’s underwater on a mortgage need worry, many are finding that a foreclosure or other form of housing loss can lead to a big tax obligation.

In Ms. McDaniel’s case, the 59-year-old in January abandoned the 4,300-square-foot Loveland, Colo., home she and her late husband built. After her husband’s death in July 2008, Ms. McDaniel, who earns about $34,000 a year as a home-health nurse, couldn’t maintain the $3,000 monthly payments necessary on her nearly $500,000 interest-only mortgage. So she stopped making them and moved in with an uncle.

Now, she’s bracing for the next blow: an Internal Revenue Service form detailing as much as $150,000 in debt canceled by the bank when it took control of the house. The canceled debt is a form of income, says the IRS—meaning she’ll owe taxes on it.

“I had no clue this would happen,” says Ms. McDaniel, who, with her husband, had refinanced at least three times, including one cash-out loan. That transaction caused her problems because, while canceled debt originally used to buy or build a house can be exempted from tax filings, debt used for other purposes cannot. “I just thought I’d get out from under the house and that would be that,” she says.

Wow, this comes as a complete surprise…. Not.

U.S. drops criminal probe of AIG executives

NEW YORK (Reuters) - The U.S. Justice Department has dropped a probe of American International Group Inc executives involving the credit default swaps that sent the insurer to the brink of bankruptcy and forced a huge taxpayer bailout, lawyers for the executives said on Saturday.

The investigation had centered on AIG Financial Products, which nearly brought down the giant insurer after writing tens of billions of dollars on insurance-like contracts on complex securities backed by mortgages that turned out to be toxic.

The U.S. government stepped in with a $182 billion bailout to avert a bankruptcy filing by AIG.

The criminal probe had focused on whether Joseph Cassano, who ran the financial products unit, and Andrew Forster, his deputy, knowingly misled investors about the company’s accounting losses on its credit default swaps portfolio.

“Although a 2-year, intense investigation is tough for anyone, the results are wholly appropriate in light of our client’s factual innocence,” F. Joseph Warin and Jim Walden, Cassano’s lawyers, said in a statement.

NEW ORLEANS — The gooey oil washing into the maze of marshes along the Gulf Coast could prove impossible to remove, leaving a toxic stew lethal to fish and wildlife, government officials and independent scientists said.

Officials are considering some drastic and risky solutions: They could set the wetlands on fire or flood areas in hopes of floating out the oil.

They warn an aggressive cleanup could ruin the marshes and do more harm than good. The only viable option for many impacted areas is to do nothing and let nature break down the spill.

More than 50 miles of Louisiana’s delicate shoreline already have been soiled by the massive slick unleashed after the Deepwater Horizon rig burned and sank last month. Officials fear oil eventually could invade wetlands and beaches from Texas to Florida. Louisiana is expected to be hit hardest.

On Saturday, a major pelican rookery was awash in oil off Louisiana’s coast. Hundreds of birds nest on the island, and an Associated Press photographer saw some birds and their eggs stained with the ooze. Nests were perched in mangroves directly above patches of crude.

Plaquemines Parish workers put booms around the island, but puddles of oil were inside the barrier.

I could not care less who beats the slack jawed jackass Harry Reid, but this lady may have screwed herself over. To bad, Harry needs to move back to porchlight permanently.

Chicken Costumes Banned at Nevada Polling Places
Associated Press

State election officials on Friday added chicken suits to the list of banned items after weeks of ridicule directed at Republican Senate candidate Sue Lowden.

RENO, Nev. — Voters dressed in chicken costumes won’t be allowed inside Nevada polling places this year.

State election officials on Friday added chicken suits to the list of banned items after weeks of ridicule directed at Republican Senate candidate Sue Lowden.

The millionaire casino executive and former beauty queen recently suggested that people barter with doctors for medical care, like when “our grandparents would bring a chicken to the doctor.”

Democrats responded by setting up a website, “Chickens for Checkups,” and by sending volunteers in chicken suits to her campaign events.

Lowden is in a 12-way primary race to decide Senate Majority Leader Harry Reid’s Republican opponent. She had been the front-runner in the race, but was in a virtual tie for the lead in a recent poll.

Under the new rule, chicken costumes will be banned along with political buttons, shirts, hats and signs within 100 feet of polling places.

Kind of interesting having a small peak into how the other half lives - especially a UHS.

My 10 year old daughter has become quite good friends with one of her classmates at school. Up until yesterday, I had only heard about how big the house her friend lives in from my daughter. I had occasion yesterday to drop my daughter and her friend off at the friend’s house and saw up close where her friend lives. Turns out that her friend lives in probably the most exclusive neighborhood in Hillsboro “things are different here, OR, and to top it off, her neighborhood is a small gated street within the exclusive neighborhood. This gated street was a “street of dreams” back in 2001. My daughter hadn’t been exaggerating about the house. It is a 5400 sq. ft monster which is about 10,000 sq. ft. by AZ standards.

So, of course being part of the HBB community, I look at things in a cynical way and did some quick, online research to peel back the kimono. According to Zillow, the house was purchased on 3/13/2003 for $900,000. It is listed for sale today for $1,100,000. Property tax for this beast was $15,000 in 2006, $18,000 in 2007 and in the $17,000 range for 2008.

It doesn’t make any sense to me how a guy in the real estate business wont’ make any money on a million dollar house. I am sure Susanne researched it and told him he would be OK by buying this thing.

Unfortunately, we don’t have the recorded documents online here in Washington county, so I can’t see how much of a mortgage is on this beast. But, my assumption is that like any good UHS, he is leveraged to the hilt on the thing, because only idiots would tie up all their equity in a house. Got to keep that equity free and working for you!! Lot better investment to buy a few more houses and according to what my daughter tells me they have 4 houses.

If I look at the property tax bill alone - they have been in the house for 7 years, and I take an average of 15K a year, they have paid out around 90K (6*15)in property tax. If I put a 7th year in there, it would be 105K. So, 1,100,000 - 900,000 - 100,000 = 100K in “profit” in the house. Oh, but wait, if another UHS comes with a buyer, they get 3% of the 1,100,000 which is $33,000. 100,000 - 33,000 = $77,000.

77,000 is not including any maintenance, HOA fees, insurance and interest paid on the house. But wait, there is more to add to the mix. Another million dollar house on the street has been for sale for at least 2 years. Started out at 1.2 or 1.3 million, now it is listed at $750,000. Darn the bad luck. Now if the neighbor’s house sells for $750,000, that puts their house at $750,000. Oh darn, this dang math just isn’t working for the UHS.

Let’s see now, I take way the $77,000 they were going to make on the house and start all over. $750,000 - $900,000 = - $150,000 - 100,000 (taxes) = -$ 250,000. Ouch!! That isn’t what the UHS handbook talks about - losing $250,000 on a million dollar house. Must be nice being able to lose $250,000 on a house in 7 years. I wish I had that kind of money to lose.

The one one I feel sorry for is the younger, trophy wife. She has lived up to her end of the bargain. She has had all the proper plastic surgery that I can tell. She runs everyday to keep herself very fit and looking good. I am sure she looked fabulous on the beaches of Hawaii where they spent spring break. She drives the nice Escalade and dresses very well. It is not fair for her to live up to her end of the bargain and for him to lose it on bad investments. I don’t know their finances, so maybe they do have the money to lose on the house. The wife is very sweet and their daughter is a very nice kid. It is a bit of a change for her to be at our humble 2500 sq. ft. home with 4 kids, but she fits right in. Frankly, I am impressed that the parents allow her to hang out with renters!!

Well, I can’t think that things are going to end well on the house, but maybe they will find the right FB for the place and they will get their own bailout. Meanwhile, I will continue to rent a humble 2500 sq. ft home for a bit more than what they pay in property tax a year. Gotta love the rich for paying all that property tax!! I wonder how good it feels to pay that extra $1500 per month on a diminishing asset - I hope to never find out.

Everyone have a great week!!

For a good laugh, read “The Ethicist” in today’s NY Times:

http://www.nytimes.com/2010/05/23/magazine/23FOB-Ethicist-t.html

a Kidney Donor tries to scam the recipient into forking over $$$ to “save her house from foreclosure”.

People would like to say that credit default swaps serve a function ,but it’s laughable in that the betters didn’t even have the reserves to back
bets . If you want to talk about leverage ,this takes the cake . Oh ,I forgot the taxpayers end up coming up with the funds to pay on those bets . And people think the Feds printing money is bad ,how about creating money by unregulated leverage with no reserves .

Wall Street likes to play with money ,even if they have to create it out of thin air by fake ghost securities and counter bet high leverage games .
These sort of games do not serve a productive function but they put the investment funds of this Nation and other Nations at unsustainable risk .

I laugh when the PR machine has said the BIg Boy’s knew what they were doing with these big bets (while they still like to say they didn’t see it coming ) so therefore it’s OK . It’s clear that the losers didn’t know what they were doing and they were suckered by fraud and the mis-rating of risk . Again I say ,how does Wall Street Money handlers get off the hook by rating high risk CDO’s AAA investment grade when they had historical examples of faulty lending not being anything but high risk for default .Oh, did risk all of a sudden change because they got people cheer-leading for higher RE prices that became a mania of faulty lending
and speculation whereby they ran out of greater fools in the Ponzi-scheme ?

After the crash of the dom.com mania Wall Street was hurting for making money on investments and the stock market was loosing shares
for investment, which set the stage for this historic Ponzi scheme in real estate .

Ok ,I give up …throw out the bribed Politicians except for a few of the good ones and go back to true financial reform once you get the meat-heads out of there .But, that is providing that we can last so long as to have another round at reform of financial systems and the Health care system for that matter .

* The Wall Street Journal
* COMMON SENSE
* MAY 19, 2010

Flash Crash: No Harm For Normal Investors

By JAMES B. STEWART

In the search for the problem at the root of the apparent breakdown of trading on May 6, launched with such fanfare and urgency but so far showing scant results, investigators may have to confront an awkward question: What if there wasn’t any problem?

Everyone in a position of authority seems to have jumped to the conclusion that something went seriously wrong when the Dow Jones Industrial Average suddenly lost nearly 1,000 points and that it was only a matter of identifying the culprit(s). Securities and Exchange Commission Chairman Mary Schapiro called the plunge “unacceptable.” Even before knowing the cause, stock exchanges canceled trades that occurred between 2:40 p.m. and 3 p.m. at prices 60% above or below the price at 2:40 p.m. Nasdaq alone canceled more than 10,000 trades involving at least 1.4 million shares.

Various theories have surfaced, only to be discarded. First there was the “fat finger” theory, in which an errant trader supposedly entered some extra zeros to a sell order for Procter & Gamble shares, which sent the market into a tailspin. But apparently no such order existed. Then the focus shifted to trades on a S&P 500 futures contract. But they didn’t seem all that large or otherwise aberrational.

High-frequency trading operations—which use supercomputers to make superfast trades—came under the spotlight, and apparently many (but not all) of them halted operations due to the extreme plunge in the market, causing liquidity to dry up. But that was a reaction to the market breakdown, not a cause. And there’s nothing to say that high-speed traders are required to trade at all times. They’re not market makers.

If there was genuine human or electronic error, something akin to an act of God, then there’s a case for overturning the market results and unwinding trades. But if not, the case for intervention doesn’t seem nearly so clear.
…

So I am deeply puzzled by the financial reformers’ plans to hand off responsibility for consumer protection over to the Federal Reserve.

Wasn’t it Alan Greenspan who recommended that consumers should tap out their home equity to enable them to buy crap they couldn’t afford? How did that consumer recommendation pan out? Has the Fed ever admitted to its folly in supporting this idea?

And isn’t the Fed the agency which claims bubbles are not possible to detect until after they have popped? How could a bubble-blind agency be trusted to protect consumers from the pernicious effects of bubbles?

Texas board adopts new social studies curriculum.

AUSTIN, Texas – The Texas State Board of Education adopted a social studies and history curriculum Friday that amends or waters down the teaching of the civil rights movement, slavery, America’s relationship with the U.N. and hundreds of other items.

The ideological debate over the guidelines, which drew intense scrutiny beyond Texas, will be used to teach some 4.8 million Texas students for the next 10 years.

The standards also will be used by textbook publishers who often develop materials for other states based on those approved in Texas, although teachers in the Lone Star state have latitude in deciding which material to teach.

The board took separate votes on standards for high schools and kindergarten through eighth grades. The final vote was 9-5 on each set of standards.

The debate has brought national attention, including testimony from educators, civil rights leaders and a former U.S. education secretary.

The ideological dispute contributed to the defeat of one of the board’s most outspoken conservatives, Chairman Don McLeroy, in the March state Republican primary.

In final edits leading up to the vote, conservatives rejected language to modernize the classification of historic periods to B.C.E. and C.E. from the traditional B.C. and A.D. They also required that public school students in Texas evaluate efforts by global organizations such as the United Nations to undermine U.S. sovereignty.

McLeroy offered the amendment requiring students to evaluate efforts by global organizations including the U.N. to undermine U.S. sovereignty, saying they threatened individual liberty and freedom.

During the monthslong process of creating the guidelines, conservatives successfully strengthened the requirements on teaching the Judeo-Christian influences of the nation’s Founding Fathers and attempted to water down rationale for the separation of church and state.

The standards will refer to the U.S. government as a “constitutional republic,” rather than “democratic,” and students will be required to study the decline in the value of the U.S. dollar, including the abandonment of the gold standard.

Conservatives say the Texas history curriculum has been unfairly skewed to the left after years of Democrats controlling the board.

Educators have blasted the proposed curriculum for politicizing education. Teachers also have said the document is too long and will force students to memorize lists of names rather than thinking critically.

As heartwarming as this former Wall Street player’s story of financial folly and redemption is, I don’t see how his writedown solution works without forcing financially prudent individuals to pay for others’ profligacy.

A key Wall Street player makes amends
Cleaning Up the Mortgage Mess
by Joël Brenner
published: 05/23/2010

Despite the federal government’s efforts to rescue distressed homeowners, foreclosures continue to sweep the nation. In addition, more than 11 million U.S. families currently owe more than their houses are worth. For some homeowners, though, assistance is coming from an unlikely source: Lewis Ranieri, a former Wall Street trader whom many people blame for helping facilitate the mortgage mess.

In an environment where banks have been criticized for their slowness in salvaging Americans’ failed mortgages, Ranieri, 63, is trying to make a difference with his Selene Residential Mortgage Opportunity Fund. Selene buys distressed mortgages from lenders and then works with the homeowners to get them back on track. Ranieri is attempting to repair some of the damage caused by the misuse of the mortgage-backed securities market he pioneered while head of the mortgage desk at investment bank Salomon Brothers in the 1980s. He and his risk-taking band of traders popularized “ securitization”—the practice of packaging and selling mortgage debt—and earned millions in the process.

By turning homeowners’ loans into bonds that could be traded like stocks, securitization made abundant capital available to lenders and lowered the cost of loans for borrowers. But it ultimately backfired. So much money flooded the market, which boosted home prices and eroded lending standards, that it led to the housing crisis.

“Previously, most home loans were made by banks and savings-and-loans, which often had strict underwriting standards and held onto loans until maturity,” explains Andrew Berman, director of New York Law School’s Center for Real Estate Studies. “Securitization provided capital for a new type of lender—mortgage companies—to take over more than half of the home-loan market. These included many opportunistic lenders who had lower standards, offered complicated mortgages that consumers didn’t understand, and engaged in predatory lending.”

“It wasn’t supposed to happen this way,” Ranieri says, his voice full of remorse. “The sheer magnitude of the harm of all these loans going into foreclosure is mind-boggling, the amount of personal wealth that’s been destroyed, the millions of people whose lives have been affected. It’s a tragedy.

“I used to feel proud of my role,” adds Ranieri, who left Salomon in 1987. “But I don’t feel that way anymore.”
…

Must-see financial meltdown episode of The Simpsons, an instant classic if ever there was one!

The Bob Next Door
The Simpsons
Season 21:
Ep. 22|21:31

Europeans Fear Crisis Threatens Liberal Benefits.

PARIS — Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II.

Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism.

Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. “The Europe that protects” is a slogan of the European Union.

But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing rising deficits, with more bad news ahead.

I know it won’t happen, but I would love to see this group of world wide money wasting fools dissolved… “Diversity” The puke word of the decade.

UN says case for saving species ‘more powerful than climate change’
~UK

Goods and services from the natural world should be factored into the global economic system, says UN biodiversity report

The economic case for global action to stop the destruction of the natural world is even more powerful than the argument for tackling climate change, a major report for the United Nations will declare this summer.

The Stern report on climate change, which was prepared for the UK Treasury and published in 2007, famously claimed that the cost of limiting climate change would be around 1%-2% of annual global wealth, but the longer-term economic benefits would be 5-20 times that figure.

The UN’s biodiversity report – dubbed the Stern for Nature – is expected to say that the value of saving “natural goods and services”, such as pollination, medicines, fertile soils, clean air and water, will be even higher – between 10 and 100 times the cost of saving the habitats and species which provide them.

To mark the UN’s International Day for Biological Diversity tomorrow, hundreds of British companies, charities and other organisations have backed an open letter from the Natural History Museum’s director Michael Dixon warning that “the diversity of life, so crucial to our security, health, wealth and well being is being eroded”.

http://www.huffingtonpost.com/2010/05/22/dan-maes-ken-buck-andrew-_n_586199.html

Are the sheeple finally starting to wake up?

“In Colorado, the Republican front-runner to win the party’s nomination in the Colorado governor race and the state’s Democratic senator were dealt setbacks in party assemblies on Saturday.

Republicans voted to place businessman Dan Maes ahead of former congressman Scott McInnis on the August primary ballot for governor, while Democratic challenger Andrew Romanoff will get top billing on the ballot over incumbent Sen. Michael Bennet after winning the most votes at the state Democratic assembly.”

Good riddance to both. McInnis is a creature of the sleazy GOP establishment, while Bennet [and the equally odious Senator Udall] has been a slavishly reliable stooge of Wall Street and the Fed.

Funny, as the EU falls apart, our D.C. morons want us to follow their “proven” way of running things. We await the same fate. Go team Barry!

~300,000 jobs in public sector face the axe
The Cabinet Office, Whitehall. May 23, 2010 UK

AT least 300,000 Whitehall and other public sector workers may lose their jobs as the coalition government sets to work cutting the £156 billion budget deficit.

As George Osborne, the chancellor, prepares to unveil the first £6 billion of cuts tomorrow, the full scale of the job losses that will follow has begun to emerge.

The initial savings to be announced will target such items as civil servants’ perks, which include taxis, flights and hotel accommodation.

The package will also include a £513m cut in the budgets for quangos, with some being abolished altogether.

“The outgoing chief secretary [Liam Byrne] said it all, there is no money,” said a Treasury source. “There is no time either.”

While the first wave of cuts will mainly target Whitehall waste, more severe reductions of up to 25% in some departmental budgets will follow in a comprehensive spending review in

This is probably the most accurate summary of the European situation you will find. Runs just under 3 mins.

http://www.abc.net.au/news/video/2010/05/20/2905304.htm

The financial reform bill looks to me like it was written by the banksters, for the banksters, of the banksters, especially the bits about increasing the bubble-blind Fed’s financial oversight role. Nonetheless, we now get reassurances from the MSM that the pols ignored the banksters’ bucks and instead went with the people’s will.

Wall Street money has small effect on skittish Congress
David Morgan - Analysis
WASHINGTON
Sun May 23, 2010 5:57pm EDT

* Factbox: Wall St. money pours into Congress but to little avail
5:57pm EDT

WASHINGTON (Reuters) - Money usually talks. But this time, the millions Wall Street lavished on the U.S. Congress to avoid financial reform got shouted down by angry voters who hold bankers and traders responsible for their own financial troubles.

Securities and investment firms, commercial banks, insurers and others with a material stake in reform have spent over $286 million lobbying Congress since the financial reform debate began in earnest in the House of Representatives last summer.

Financial interests also poured $56 million into the election coffers of House and Senate members in that time. Just under half of that went to Democrats, who control the two chambers.

But with the U.S. unemployment rate just below 10 percent and the economy still limping, analysts say Wall Street money is proving unusually ineffective among members of the Senate and House whose constituents are angry at incumbents and financial fat cats.

“It’s likely another bad investment. When there’s a broad national mood, money’s often unable to negate it,” said Norman Ornstein of the conservative American Enterprise Institute.
…

Perhaps with sufficient patience and faith, savers who have been living for the past couple of years with zero interest rate returns while the banksters charge them a premium for any consumer loans may soon have alternative investments that pay a rate above zero. I never was personally much of a fan of lending discrimination, which describes the Fed’s policy of loaning money to its constituents at a zero percent rate so they can loan it out to the rest of us at a premium. It would be nice if investors could get in on the monopoly banking cartel’s opportunity to invest at rates above zero percent.

Nonetheless, a LIBOR rate of 1-1.5 percent still is something to sneeze at.

The Financial Times
Lenders warn of sharp Libor rises
By Michael Mackenzie in New York and David Oakley in London

Published: May 23 2010 22:33 | Last updated: May 23 2010 22:33

US financial reform and the eurozone debt crisis will keep driving up key money market interest rates that affect consumers and companies, in a sign of rising tension in the banking system and growing fears over the world economy.

Bankers warn that the London Interbank Offered Rates, at which banks borrow from each other and from money market funds, will rise sharply in the next few weeks and months.

They say three-month dollar Libor, the benchmark rate that served as a barometer of stress during the financial crisis of 2007 and 2008, could jump by up to a full percentage point in the next few months. Citigroup says Libor, fixed at 0.497 per cent on Friday, could rise to 1-1.5 per cent.

The pressures will be apparent on Monday as brokers forecast that three-month Libor will rise to 0.52 per cent. It has risen from 0.3 per cent in the past six weeks. Last Friday’s 0.497 per cent setting was its highest since last July.

Joe Abate, money market strategist at Barclays Capital, said: “We expect three-month Libor will move to 60 basis points within a week or two.”

Neela Gollapudi, interest rate strategist at Citigroup, said: “There are two separate, albeit interacting issues that are currently impacting Libor: regulation and the European credit crisis.”

Although tension is nowhere near as bad as at the height of the financial crisis – Libor rose to 5.725 per cent in September 2007 – its current rise is a worrying sign and comes in spite of investors lowering their expectations of US Federal Reserve rate rises.

Last week, financial markets were particularly unsettled by Germany’s unilateral decision to ban naked short selling, which was seen as counter-productive by investors.

An insight into funding stress has been provided by the growing dispersion between the 16 banks that provide borrowing rates.

On Friday, HSBC supplied a low quote of 0.41 per cent, while West LB was the highest with 0.545 per cent for dollar Libor.

“Many banks are paying higher rates for dollars now,” said Don Smith, economist at Icap. “US dollar liquidity is very, very tight, with lenders few and far between. This could start to pose big problems, if it continues.”
…
EDITOR’S CHOICE
Libor rises on debt concerns - May-16
Gillian Tett: Stress in dollar funding markets - May-18
Contagion fears drive Libor higher - May-06
In depth: Euro in crisis - May-11
In depth: Obama and Wall St - May-04

New rule says banks must prove ownership before foreclosing
By Kimberly Miller Palm Beach Post Staff Writer
Posted: 11:09 a.m. Sunday, May 23, 2010

Foreclosure filings have backed off this year, dropping 36 percent in Palm Beach County last month compared to March, but it may not be a brightening economy causing the decline.

A new Florida Supreme Court rule requires lenders to verify they are the actual owners of a home before making the initial case for foreclosure.

Show me the “note,” in other words.

The problem is the notes — legal promises from borrowers to repay a debt — have been sold and resold, bundled into securities, scanned into computers, sealed in unknown vaults and lost in various other ways as homes got caught up in the puzzling markets of the real estate boom.

“The original note is something very significant, and they just seem to have lost thousands of them,” said Boca Raton attorney Marlyn Wiener, who handles real estate cases. “Nobody knows where the stuff is.”

The new rule was approved in February with the intention of unclogging the foreclosure courts, which have an estimated statewide backlog of 500,000 cases. It also gives judges power to sanction plaintiffs who make false accusations on the ownership of notes, or missing notes.

“I believe it has affected the number of new filings,” said Palm Beach County Circuit Court Judge Meenu Sasser, who handles the county’s foreclosures. “It streamlines the process.”

Law firms handling the foreclosure overload, sometimes called foreclosure mills, have routinely filed a “lost note” claim with the original default notice, regardless of whether they looked for the note, said Miami-Dade Circuit Court Judge Jennifer Bailey.

The legal move gives lenders a statutory out if the original note truly can’t be located. When asked what efforts were made to find the note, however, such excuses as “searched file cabinet” and “searched fire proof safe” have appeared on several court records.

“It was very confusing. How can you foreclose on the note if the note is lost?” Bailey said. “The judges would be trying to track the note and they’re saying they own it, but don’t have it and don’t know where it is.”

But if a borrower didn’t protest the foreclosure, the cases often sailed through.

Judges were also finding, according to a statewide foreclosure task force that recommended the verification rule, that two different lenders would sometimes file suit on the same note at the same time because it wasn’t clear who the true owner was.

Defense attorneys, too, got keyed in on the lost note strategy, challenging the veracity of a lender’s claim to a home, and further stalling the process.

“There was just an abuse of the lost note statute,” said Scott Hast, an attorney with LaBovick & LaBovick, which has offices in Jupiter and West Palm Beach.

Hast said at least half of his foreclosure defense cases include lender pleas of lost notes. He almost always asks for evidence of the original document.

“They can say it’s a stalling tactic, but how can I not defend my client and seek out every route in his defense?” Hast said.

“Now the courts are saying you have to do your due diligence before filing,” he added.

Anthony DiMarco, executive vice president for government affairs for the Florida Bankers Association, said he doesn’t believe the new rule is causing the slowdown.

He attributes it more to an increase in loan modification workouts between borrowers and banks, and banks’ increased willingness to approve short sales.

It is another hoop for banks to jump through, he acknowledged, but something that was supposed to be happening all along.

Bailey, who was on the foreclosure task force, said the rule wasn’t needed before the real estate boom when home loans were more straightforward and foreclosures fewer.

“There’s some weird stuff going on,” she said.

Since many ARMs have rates tied to the LIBOR, a spike in the LIBOR just as the ARM reset tsunami crest is about to get underway is the mortgage market equivalent of A Perfect Storm.

From The Sunday Times
May 23, 2010
Eurozone fears hit mortgage bills
Elizabeth Colman

HOMEOWNERS who took out mortgage deals with private banks, and buy-to-let investors, could be facing higher repayments as debt fears in the eurozone spread to Britain’s banks.

Despite Bank rate remaining at 0.5% since March 2009, mortgage costs have risen for deals pegged to interbank rates such as three-month Libor (the rate at which banks lend to each other).

Libor-linked home loans are commonly offered by private banks and have often featured among recent best deals. Some buy-to let loans default to variable rates pegged to Libor. Ian Gray of largemortgageloans.com, the broker, said: “A lot of people sitting on the super-low standard variable rates after their deals ended are actually on Libor.”

Since the start of the year, three-month Libor has jumped from 0.61% to 0.7%, a nine-month high, adding £450 a year to a £500,000 loan, or £180 a year to a £200,000 loan.

In the past fortnight, Libor rose 0.05 percentage points as banks raised the risk premium on borrowing from each other. Libor hit a trough of 0.53% in September last year — markets are considered “healthy” when Libor is in line with Bank rate. At the height of the mortgage freeze, Royal Bank of Canada and Bank Leumi were offering market-leading rates at a fixed margin based on Libor. Last month, Largemortgageloans was offering a multi-currency offset on the same basis.
…

Another interesting article from today’s Times

http://www.nytimes.com/2010/05/23/business/23gret.html

Seems that big brokerage houses (UBS, Lehman for example) were selling people investments called ““100 percent principal protected absolute return barrier notes.” Needless to say, these people lost all their money.

What’s sad is that here were people who were absolutely hoodwinked (though, I must say, *I* wouldn’t have bought this product). And our government has no help for them, nor do they even have a right to sue for misrepresentation (though some arbitration may be possible.)

However someone who lied on a mortgage application, lied about income, and most likely lied on their tax return (for example, deducting HELOC interest illegally) gets all sorts of money from Barack H. Obama and our current administration. It’s a disgusting state of affairs.

ROTHFLMF-ING-ASSOFF! The frogs had it all figured out! What happened?

France poised to raise retirement age
Paris ~ May 23 2010 21:29 FT

Expectations are growing that France is set to remove the right to retire at 60, as it embarks on a contentious reform of its debt-laden pension system and brings public finances back into line.

Christian Estrosi, industry minister, said on Sunday the government was “leaning towards an increase in the [retirement] age” in its talks with unions and employers’ federations, despite denials from cabinet ministers over the weekend of a decision being taken.

Although there has been much speculation that France’s legal retirement age of 60 – one of the lowest in Europe – would be abandoned, Mr Estrosi’s comments on national radio are the clearest statement yet of government intentions.

His comments are likely to give ammunition to unions planning a national strike on Thursday to protest against spending cuts and pension reforms.

The government is expected to announce its planned reforms next month and expects to have a draft bill before parliament by September. Nicolas Sarkozy, president, has made pensions the last big reform of his government before the campaign for the next presidential election in 2012 gets under way

http://www.youtube.com/watch?v=Ar4Fgyqv2wo&feature=player_embedded

Coming September 3rd to theaters near you: MACHETE. This won’t help race relations in the Southwest or Texas.

Gonna need a bigger money fire hose…

Bank of Spain seizes control of savings bank CajaSur

TEL AVIV (MarketWatch) - The Bank of Spain on Saturday took control of and appointed an administrator for CajaSur, a savings bank that was hurt by bad property loans, media reports say.

Based in the southern city of Cordoba, CajaSur has $16.36 billion of loans outstanding and holds $23.9 billion, or 0.6%, of the assets within Spain’s financial system, the reports say.

CajaSur on Friday determined not to go ahead with a plan reached in August to merge with a bigger lender, Unicaja of Malaga. The failure of that plan prompted the authorities to take over CajaSur, reports say.

For 2009, CajaSur posted a net loss of 596 million euros ($750 million). Bank of Spain officials estimate that restoring the bank to solvency will require about 500 million euros of fresh capital, reports say.

New financial rules might not prevent next crisis Enlarge

By STEVENSON JACOBS The Associated Press
WASHINGTON — The most sweeping changes to financial rules since the Great Depression might not prevent another crisis.

Experts say the financial regulatory bill approved by the Senate last week, and a similar bill that passed the House, include loopholes and gaps that weaken their impact. Many provisions depend on the effectiveness of regulatory agencies — the same agencies that failed to foresee the last crisis.

A big reason for the bill’s limitations is that banks and industry groups lobbied against rules they felt would reduce their profit-making ability.

The financial sector’s influence in Washington reflects its enormous donations and lobbying. Over the past two decades, it’s given $2.3 billion to federal candidates. It’s outdone every other industry in lobbying since 1998, having spent $3.8 billion.

Here’s how the bills, which must be reconciled and approved by the full Congress, might address some causes of the financial crisis, and some of the bill’s perceived weaknesses:

— Derivatives:

The problem:

Banks used these investments to make speculative bets that helped inflate the housing market. Once home values crashed, these derivatives — and related side bets — magnified the financial crisis.

The value of a derivative depends on the price of an underlying investment. Examples include corn futures, stock options and mortgages.

The solution: The legislation would, among other things, require that many derivatives be traded on exchanges, as stocks are, so they are visible to regulators.

Why it might not work:

Business groups led by the U.S. Chamber of Commerce and the Business Roundtable lobbied successfully to dilute the rules. They argued that exchange-trading would make it too costly for companies other than banks to use derivatives.

The bill exempts companies that use derivatives to reduce the risk of fluctuations in interest rates and commodity prices. Experts say this exception could be exploited. Companies could, for example, find ways to combine traditional business activities with purely financial investment through the use of derivatives.

— Weak regulation of banks and other financial firms:

The problem:

Before the crisis, some regulators failed to recognize risks taken by banks they were supposed to oversee. Some companies sidestepped oversight entirely.

The solution: The legislation would eliminate one regulator, the Office of Thrift Supervision, criticized for lax oversight. And it would tighten oversight of large financial institutions that could threaten the system.

Why it might not work:

Smaller banks could still choose their own regulator. These banks would likely seek out the most lenient oversight.

Key advocates for that loophole were the Independent Community Bankers of America and the American Bankers Association.

The Senate voted against capping how much banks can bet relative to their reserves. It left that up to the same regulators who failed to properly monitor banks’ risk-taking before the crisis.

One reason the system of regulators escaped more drastic changes, lawmakers say, was that regulators lobbied to protect their agencies’ authorities. For example, Federal Deposit Insurance Corp. Chairman Sheila Bair fought changes that could limit the FDIC’s authority.

— Too-big-to-fail institutions:

The problem:

After bad bets on housing and other risky investments caused the collapse of Lehman Brothers, the government pumped billions into the largest banks to keep the system afloat.

The solution: The overhaul would let regulators close banks whose collapse could threaten the system.

Why it might not work:

The Senate bill lets regulators decide whether to protect the creditors of failed banks. Creditors might take a too-rosy view of a banks’ finances if they feel they have nothing to lose in a failure. They might still lend to weak banks and raise the cost of eventually closing them down.

The bill does little to prevent big banks from getting bigger, meaning taxpayers might have to intervene again. A Democratic amendment to limit the size of banks was rejected amid opposition from banks such as Goldman Sachs.

— Consumer protection

The problem:

Risky lending to homeowners who couldn’t pay helped inflate the housing bubble. Some of the worst offenders were nonbank lenders.

The solution: A new consumer protection watchdog would police banking products and ban those deemed too risky — no matter who offers them.

Luckily ‘Merica’s stock market is decoupled from Asia, or this news might be worrisome to the Wall Street bovine brain trust:

market pulse

May 23, 2010, 8:27 p.m. EDT
Nikkei Stock Average taps lowest level of the year
By Myra P. Saefong

TOKYO (MarketWatch) — Japanese shares fell Monday morning in Tokyo, with a drop Friday in oil and gold prices in New York putting pressure on trading firms and helping to send the benchmark index to its lowest intraday level since early December. The Nikkei Stock Average shed 0.2% to 9,768.37 after trading as low as 9,730.91, and the broader Topix fell 0.1% to 878.72, as shares of Mitsubishi Corp. (JP:8058 1,982, -29.00, -1.44%) fell 1.6%, and Marubeni Corp. (JP:8002 509.00, -17.00, -3.23%) lost 1.4%. Shares of Elpida Memory Inc. (JP:6665 1,614, -22.00, -1.34%) were among the gainers, up 3.3% after the chip maker’s President Yukio Sakamoto told the Nikkei business daily in an interview published Saturday that Elpida’s group operating profit would likely exceed 150 billion yen ($1.7 billion) for the year ending in March 2011 if dynamic random-access memory prices and the yen-dollar rate remain at current levels. Elsewhere in the region, South Korea’s Kospi traded 0.6% lower.

Call me skeptical, but I can’t help but wonder to what extent the sudden drop in U.S. mortgage rates is reflective of the bottom dropping out of demand for mortgage loans in the wake of the expiring $8K first-time buyer’s credit. All the MSM financial writers seem to want to attribute the drop in mortgage rates to the supply side of the market (e.g., Euro-driven flight-to-quality into dollars), forgetting the demand side (e.g. demand for home purchase loans).

Which side of the market is driving rates lower matters from the standpoint of where the market is headed; a demand-side-driven drop bodes for weaker home sales going forward, while a supply-side-driven move bodes for stronger sales.

* HOMES
* MAY 24, 2010

Mortgage Rates Decline
Home Buyers Get Surprise Boost From Europe Crisis as Loans Drop to Below 5%

By NICK TIMIRAOS

The financial turmoil in Europe is providing an unexpected windfall for American home buyers, as international money seeking a safe haven is flowing into the U.S., pushing domestic mortgage rates to the lowest levels of the year and back near 50-year lows.

The housing industry had been bracing for months for a period of rising mortgage rates, triggered by the end of the Federal Reserve’s $1.25 trillion mortgage-securities purchase program. Conventional wisdom held that mortgage rates would rise as the Fed pulled back from propping up the market.

Instead, many in the industry now say rates could drift as low as 4.5% this summer from 4.86% now, instead of rising to 6% as some economists projected, making for significantly lower payments for Americans buying homes or refinancing their mortgages.

Refinance business “exploded” last week, says Jeff Lazerson, chief executive of Mortgage Grader, a brokerage in Laguna Niguel, Calif. “It’s schizophrenic. We all had this expectation of higher interest rates and no more refinances.” He says he helped a borrower lock in a 30-year loan with a 4.25% fixed rate last week, the lowest in his 24 years in the business.

Rates on 30-year mortgages averaged 4.84% last week, according to a survey by mortgage-insurance titan Freddie Mac. Rates were quoted late Friday at 4.86%, the lowest since December 2009, according to a survey by financial publisher HSH Associates, and down from a high of 5.27% for the week ended April 9. Rates on 15-year mortgages averaged 4.24% last week—the lowest since Freddie began its survey in 1991.

Economists largely attribute the decline in mortgage rates to the European debt crisis and new concerns about the global economy, which unleashed a massive wave of cash into U.S. bonds from investors around the world.

This buying pushed down yields on Treasury bonds. Because mortgage rates are closely pegged to yields on 10-year Treasury notes, which fell to 3.2% Friday, the decline in Treasurys pulled down mortgage yields. Typically, mortgage yields remain around 1.5 percentage points above yields on 10-year Treasury notes.

Falling mortgage rates can give a powerful lift to the housing market. A general rule of thumb holds that every one percentage point decline in mortgage rates is the equivalent of roughly a 10% reduction in the home price for the buyer. So, if the current rates hold, say economists, that could help stabilize prices and allow current homeowners to sell existing homes without substantial price cuts.

It isn’t clear how much home-buying the lower rates will spur. Demand had fallen in recent weeks after buyers raced to close sales ahead of last month’s expiration of an $8,000 federal tax credit for home purchases. Applications for new-purchase loans hit a 13-year low in the week ending May 14, according to the Mortgage Bankers Association.

Borrowers do face roadblocks. Underwriting standards are their strictest in a decade, and record numbers of borrowers are “underwater,” owing more to the bank than their homes are worth. That has excluded large swaths of borrowers from getting loans at the new lower rates.
…

I will definitely vote for Poizner over Gollum’s candidate.

The Financial Times of London
Republicans clash over California nomination
By Matthew Garrahan in Los Angeles
Published: May 23 2010 18:09 | Last updated: May 23 2010 18:09

In a political season marked by voter hostility towards Wall Street and Washington, Meg Whitman may wish she had chosen a different year to run for governor of California.

With Arnold Schwarzenegger stepping down after two terms and Jerry Brown, the Democratic candidate, standing unopposed for his party’s nomination, the race is on to see which Republican will have their name on the ballot.

Ms Whitman, the former Ebay chief executive, is locked in battle with Steve Poizner who also has a Silicon Valley background.

At stake is the chance to run America’s most populous state and an economy that would be the eighth largest in the world if it were a separate country. “It’s the second-biggest job in American politics,” says Chris Lehane, a Democratic party strategist and former press adviser to Al Gore.

In spite of starting the year as much as 40 points ahead of Mr Poizner, Ms Whitman’s lead has narrowed to single digits, according to the Public Policy Institute of California.

The candidates have spent record sums on an increasingly acrimonious fight: Ms Whitman has poured $60m of her estimated $1bn fortune into her campaign, paying for a flood of TV commercials defending her record – and attacking her rival.

Mr Poizner, California’s insurance commissioner, has spent less – about $21m – but has produced a string of attack ads in the final weeks of the campaign. He has landed blows by attacking Ms Whitman’s stance on immigration – a hot issue following controversial anti-immigration legislation in Arizona.

He has also highlighted her former links to Goldman Sachs, which has become a national symbol of Wall Street excess. Ms Whitman used to be a board member of the investment bank and was accused in one of Mr Poizner’s ads of investing in vulture funds that profited from Californian foreclosures.

The attacks appear to have worked, judging by the fall in Ms Whitman’s poll numbers. “In this election cycle being a [Washington] incumbent is the equivalent of a four letter word,” says Mr Lehane. “But being a Wall Street insider is an obscene gesture.”
…