The Housing Bubble

Road trip to upstate NY and NY/VT border counties. Quite a few empty houses with no for sale signs(Mrs. is great at spotting these). Local sentiment does not reflect the lofty NAR hype we’ve all read in the media. There are no “bidding wars” or “dramatic increase in sales” but there is certainly mass delusion when it comes to asking prices.

Great job NAR you piece of $hit liars. You got everyone here expecting big pay days with no buyers in sight.

Housing is booming…..(?)
But where are the buyers?
Inventory is looming,
Realtors Are Liars.

Awaiting…From yesterday;

I LOVE those types of laws ??

So do plaintiff attorney’s….!!!!

I would suggest you read Bill’s response because my position is more inlined with his…One mans nuisance is another mans paradise…Lots of kids in the neighborhood could be someones nuisance (see Tchik) because they may make a hell of a lot of noise particularly in the early evening during the summer…Do you disclose that ?? The answer is yes…

My point of them being over-the-top is that it is difficult to know what to disclose in todays Litigious enviorment…A good professional will help along with the standard disclosures you can buy from competent disclosure company’s…The newest disclosure required here in California is that of NG main line within a certain distance of the house…

The saying is, if you know it disclose it no matter how trivial you may think it may be and get every report or inspection that covers your backside so you don’t get that letter from the plaintiff attorney 6 months after you have closed the deal….

Credit observations while at the KIA dealership in Kalamazoo Mich on Saturday. My wife and I purchased a new car (the old one was a KIA RIO with 398000 miles). The salesman was a young guy and said he’d been on the job 7 months now. We haggled over the price, came to an agreement, and ultimately were waiting to see the Finance guy. As we waited my wife thought he looked familiar and asked did he know our nephew. He did! We chatted a bit and he let his guard down some. He told me I was the first person he’d ever sold a car to who argued over the final price. He said it was the first time he ever went to the manager and asked for a reduction (we got the $1000 cashback AND an additional $600 off). He said everyone else haggles over the PAYMENT. He says typically if he can beat a competitors’ PAYMENT he sells the car. He said it was not unusual for people to come in and qualify for a loan using 50% of their monthly takehome. The Finance guy agreed and said things were tight for a while but were fast returning to “normal”.

I’m trying to figure out how to reconcile abundant anecdotal evidence that the FHA is again making low-downpayment, easy-money loans to marginally-qualified buyers with stories like this one, suggesting that well-qualified buyers are essentially disqualified from borrowing.

Is there more to this story than meets the eye? Why couldn’t Megabank, Inc figure out a sufficiently-large down payment amount for Mr. Eberle to make which would cover a worst-case risk of default? Seems like a no-brainer opportunity to make some risk-free money. Is it a case where government regulation is killing a potential win-win between borrower and lender?

KENNETH HARNEY NATION’S HOUSING
LOWER-INCOME RETIREES SHOULD PERSIST WITH LENDERS
By Union-Tribune
12:01 a.m., May 27, 2012
Updated 12:13 p.m., May 25, 2012

It’s a mortgage problem that is likely to intensify as homeowning baby boomers by the millions shift into retirement: Though they may have significant financial assets tucked away in retirement accounts, their diminished monthly incomes may not be sufficient to meet some lenders’ hyper-strict underwriting rules.

Jim Eberle of McLean, Va., found this out the hard way when he applied to refinance his mortgage. After spending much of his career working for banking industry trade associations in Washington, Eberle, 68, decided to take advantage of this spring’s unprecedented low interest rates with a 2.89 percent adjustable-rate 30-year loan offered by a large Midwestern bank.

To his utter shock, Eberle was rejected — the first time in 45 years of homeownership and eight different home loans. The reason for the turndown: insufficient income. “To get rejected was incredible,” Eberle said, because based on the extensive documentation he provided the bank, he looked highly qualified. He had substantial checking, savings and 401(k) holdings and a net worth he describes as “in seven figures.”

The appraisal the bank did on his house showed it to be worth $664,700 — more than double the $322,000 refi he was seeking. His credit score, according to TransUnion, was 826, indicating minimal risk of default.

Yet the bank “told me it could not make the loan because, even though I have sufficient (liquid) assets and a high credit score,” his monthly Social Security payments, bank deposits, checking accounts and 401(k) plan “were not enough.”

How commonplace is Eberle’s experience? Conversations with mortgage lenders and analysts suggest it is happening more frequently, thanks to some large banks ratcheting up their underwriting standards so tightly that the old joke — they’ll only lend to people who don’t really need the money — is beginning to resemble reality for some borrowers.

Eberle says he was willing to pull out funds from his checking and banking deposits and set them aside to make up any perceived monthly income shortfalls. “I was willing to do whatever it took,” he said. But the bank still said no.

Mortgage market experts, such as Dennis Smith, co-owner of Stratis Financial in Huntington Beach, are not surprised at Eberle’s experience. Smith had a recent client — a physician seeking a $350,000 loan with $2.5 million in bank accounts — who was rejected by one lender because the deposits, which were proceeds from an inheritance, had been in his account for just eight months. This was too short a time period to satisfy the bank’s pristine and unyielding standard.

Part of the problem here, according to Smith, appears to be overcorrections by some banks to the lax underwriting that characterized the years leading up to the housing bust — especially see-no-evil practices such as “stated income,” where the loan officer accepted the monthly income number provided by the applicant with no verification. But another factor, says Bruce Calabrese, president and co-founder of Equitable Mortgage in Columbus, Ohio, is that some loan officers aren’t aware of techniques available for qualifying retirees who are asset-rich but income-deficient.
…

At the same time private lenders appear to be tightening up mortgage underwriting standards, it appears that Uncle Sam is throwing the U.S. taxpayer (aka involuntary mortgage guarantor) under the bus with lax lending standards.

What gives?

Bloomberg News
FHA New Foreclosures Jump as Modified Loans Default
By Kathleen M. Howley on May 09, 2012

The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later.

The FHA’s role in lending to first-time buyers with poor credit and limited cash expanded after the 2008 collapse of the mortgage market put it at the center of government efforts to revive housing. The FHA allows down payments as low as 3.5 percent for borrowers with a credit score of 580, below the 640 defined as subprime by the Federal Reserve.

“The credit standards are way too loose — you can get into a house with very little skin in the game, and if home prices drop by a small amount, you’re underwater,” said David Lykken, managing partner at Mortgage Banking Solutions, an Austin, Texas-based consulting firm. “We’ve got to start getting reasonable about standards. What they’ve done so far, some very slight attempts at tightening, doesn’t really count.”

An increase in FHA foreclosures may lead to further demands for stricter standards that could shut buyers out of the real estate market as it shows signs of stabilizing after a six-year slump. Mark Calabria, director of financial regulation studies at the Cato Institute in Washington, in a February report called for Congress to tighten the agency’s lending qualifications to protect taxpayers, who insure the loans. First-time homebuyers accounted for 33 percent of real estate sales in March, according to the National Association of Realtors.
Treasury Study

Borrowers with mortgages for homes bought in 2010, the FHA’s peak lending year, now owe almost 7 percent more than their homes are worth if they used the minimum down payment, according to S&P/Case-Shiller home price index data. That year, the agency insured 1.1 million loans to purchase single-family homes, more than four times the total of 261,165 in 2007.

Lenders initiated foreclosures on 36,400 FHA-backed mortgages, twice the number in April 2011, according to Lender Processing Services. The increase for Fannie Mae and Freddie Mac loans was 13 percent, the Jacksonville, Florida-based mortgage- data company said.

A Treasury Department study of modified government- guaranteed mortgages in the fourth quarter found that 49 percent were delinquent again after 12 months. The Treasury report analyzed a group of loans that was 80 percent FHA, 15 percent Veterans Administration mortgages and 5 percent Department of Agriculture rural home loans. The rate for Fannie Mae and Freddie Mac was 27 percent.
…

At the same time private lenders are tightening mortgage underwriting standards, it appears that Uncle Sam is throwing the U.S. taxpayer (aka unwitting, involuntary mortgage guarantor) under the bus with lax lending standards.

What gives?

Bloomberg News
FHA New Foreclosures Jump as Modified Loans Default
By Kathleen M. Howley on May 09, 2012

The number of Federal Housing Administration-insured home loans entering foreclosure jumped in March after half the mortgages it modified to ease repayment terms were in default again a year or more later.

The FHA’s role in lending to first-time buyers with poor credit and limited cash expanded after the 2008 collapse of the mortgage market put it at the center of government efforts to revive housing. The FHA allows down payments as low as 3.5 percent for borrowers with a credit score of 580, below the 640 defined as subprime by the Federal Reserve.

“The credit standards are way too loose — you can get into a house with very little skin in the game, and if home prices drop by a small amount, you’re underwater,” said David Lykken, managing partner at Mortgage Banking Solutions, an Austin, Texas-based consulting firm. “We’ve got to start getting reasonable about standards. What they’ve done so far, some very slight attempts at tightening, doesn’t really count.”

An increase in FHA foreclosures may lead to further demands for stricter standards that could shut buyers out of the real estate market as it shows signs of stabilizing after a six-year slump. Mark Calabria, director of financial regulation studies at the Cato Institute in Washington, in a February report called for Congress to tighten the agency’s lending qualifications to protect taxpayers, who insure the loans. First-time homebuyers accounted for 33 percent of real estate sales in March, according to the National Association of Realtors.

Borrowers with mortgages for homes bought in 2010, the FHA’s peak lending year, now owe almost 7 percent more than their homes are worth if they used the minimum down payment, according to S&P/Case-Shiller home price index data. That year, the agency insured 1.1 million loans to purchase single-family homes, more than four times the total of 261,165 in 2007.

Lenders initiated foreclosures on 36,400 FHA-backed mortgages, twice the number in April 2011, according to Lender Processing Services. The increase for Fannie Mae and Freddie Mac loans was 13 percent, the Jacksonville, Florida-based mortgage- data company said.

A Treasury Department study of modified government- guaranteed mortgages in the fourth quarter found that 49 percent were delinquent again after 12 months. The Treasury report analyzed a group of loans that was 80 percent FHA, 15 percent Veterans Administration mortgages and 5 percent Department of Agriculture rural home loans. The rate for Fannie Mae and Freddie Mac was 27 percent.
…

Are two candidates who properly know how to say “You’re fired” better than one?

Why Is Mitt Romney Embracing Birther Donald Trump?
May 25, 2012
Donald Trump and Mitt Romney

So Mitt Romney’s newest fundraising effort involves not only appearing with the world’s most famous birther, Donald Trump, but also dining with him and a lucky, raffle-winning supporter. OK, I give up: What exactly is Romney thinking?

My own snarky first reaction is that Donald Trump is the kind of rich guy that Mitt Romney imagines the common people can relate to. Romney, remember, has a habit of saying things like he doesn’t follow NASCAR “as closely as some of the most ardent fans, but I have some friends who are NASCAR team owners.” Maybe he thinks Trump—known far and wide for a decorating style that gives new meaning to the word vulgar—has the common touch in a way that stolid Romney doesn’t? That can’t be it, right?

Thinking I must be missing something here, I checked with a couple of top GOP operatives. “I got nothin’,” one says. Another offers the Godfather theory for dealing with Trump: “Yes, it reinforces the ‘I have wealthy friends’ stereotype,” the Republican strategist says. “And whenever Trump says something stupid it’s magnified 10-fold, so there are serious downsides to it. But in the end you would rather embrace it—like the Godfather line about keeping your enemies close.” It’s better to have Trump running amok inside the tent than causing trouble outside of it, in other words. Trump, remember, has floated the idea of a third-party candidacy, which could only serve to divide the anti-Obama vote (a December Public Policy Polling survey had Trump pulling 19 percent in a three-way race with Obama and Romney, with 7 in 10 of his supporters coming from Romney’s column). “We’d rather have Donald Trump saying ‘you’re hired’ than ‘you’re fired,” the strategist says.
…

I hate to break it to fellow Americans who got so wrapped up in the Junior Seau story that they lost track of the financial news, but there are still a lot more shoes to drop from the European debt crisis onto your stock portfolios.

I note that at this point, the DJIA has almost erased all 2012 gains to date. There has never been a better time to own Treasurys!

Stock Market Lookahead
Europe debt crisis and jobs numbers to drive stocks
By Hibah Yousuf @CNNMoney
Invest May 27, 2012: 7:40 AM ET

The Dow is down almost 6% in May and headed for its worst monthly loss since November 2011. Click the chart for more stock market data.

NEW YORK (CNNMoney) — Memorial Day may mark the unofficial start to summer, but investors won’t be getting any rest and relaxation during the coming week.

Following a three-day weekend (U.S. markets are closed Monday for Memorial Day), uncertainty will continue to swirl over Europe, with the threat of Greece leaving the eurozone still looming.

Worries over Greece’s future and the broader region’s debt problems have already triggered deep losses in U.S. stocks and international markets this month. The S&P 500 (SPX) and Dow (INDU) are down almost 6% in May, and headed for their worst monthly losses since November 2011. In fact, the Dow has only been up four days so far this month. The only other time the Dow had a month with just four advancing days was September 1903.

Meanwhile, the Nasdaq (COMP) has tumbled almost 7% and is on track for its worst monthly performance in two years.

U.S. markets will continue to be driven by the situation in Europe, especially in the weeks leading up to Greece’s June 17 elections, said Tom Schrader, managing director at Stifel Nicolaus. Until that date, investors will keep close tabs on polling results and comments from European leaders.

If Greece ends up with a coalition government led by the leftist Syriza party, which is currently leading the polls, chances are good that Greece will be forced to exit the eurozone.

Syriza party leader Alexis Tsipras has denounced the country’s austerity measures that are a condition of Greece’s bailout deal. While EU leaders say they want Greece to remain in the eurozone, they also stress that the nation must abide by the terms of its bailout agreement.
Spanish banking woes threaten Europe

The growing risk of a Greek exit also raises concerns about the ramifications for Italy and Spain, said Schrader. Spanish banks are already in the spotlight, with Spain’s fourth-largest bank, Bankia, asking the nation’s central bank for €19 billion to recapitalize itself.

Later in the week, focus will shift to the U.S. economy, as investors parse through a deluge of economic data, including four different readings on the job market, as well as a reading on manufacturing activity and auto sales figures.

The most important number will come in the Labor Department’s May jobs report before the opening bell on Friday.

Economists are forecasting that 155,000 jobs were added in May. While that would be an improvement over the measly 115,000 jobs added in April and the 154,000 in March, the pace is still weak compared to job gains in the previous three months, each of which exceeded 200,000. The unemployment rate is expected to hold steady at 8.1%.

“If the jobs number doesn’t come in above expectations, that will raise some red flags,” said Schrader. A lack of more robust jobs growth could push the country into a somewhat mild recession, he added.
…

Here is a boldly cautious prediction:

El-Erian Says Greek Euro Exit Probably Inevitable
By Catarina Saraiva and Tom Keene - May 21, 2012 7:32 AM PT

Greece may have to exit the 17-nation euro and the monetary union should plan for it to ensure stability, according to Pacific Investment Management Co.’s Mohamed El-Erian.

“A Greek exit will be expensive and messy, but it’s probably inevitable and therefore we should plan for it,” El- Erian, the chief executive officer of the world’s largest manager of bond funds, said in an interview on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene and Ken Prewitt.

Group of Eight leaders on May 19 urged Greece to stay within the euro area as polls in the country showed a close race between parties supporting and opposing the European Union’s bailout deal. The country is preparing for June 17 elections, following an inconclusive May 6 ballot.

The economies of the union are being gripped by political confusion as policy makers fail to develop solutions to address Greece’s worsening financial crisis, El-Erian said. Investors pricing in both a “policy risk premium” and a “complexity risk premium” is adding to volatility in markets.

The euro has lost 3.7 percent against the U.S. dollar this month and almost $4 trillion has been wiped from equity markets amid concern the turmoil in Greece may weigh on other members of the economic union.

European Leadership

Germany, France, Italy and Spain, the union’s four biggest economies, need to take the lead in solving the crisis by creating a smaller currency union that is “less imperfect,” said El-Erian, a former deputy director of International Monetary Fund.

“For Greece there is no first best,” El-Erian said. “They’re looking at a series of fifth and sixth bests. They have to focus on which step allows them medium-term viability.”
…

I’m trying to get my brain around this snippet from the following two-day-old story:

It’s beginning to feel like Fall 2008 all over again.

Euro Declines Most in 2012 on Deepening Turmoil in Spain
By Allison Bennett - May 25, 2012 9:00 PM PT

The euro had its biggest weekly loss since December against the dollar as Greece’s anti-bailout party gained in the polls and amid a deepening crisis in Spain.

The shared currency fell for a fifth week versus the yen, the longest stretch since October, as German manufacturing shrank and the Bank of Japan refrained from adding stimulus to the economy. Brazil’s real was the only winner against the dollar as the central bank sold currency-swap contracts. The dollars of Australia and New Zealand declined as reports showed the Chinese economy is stalling. A report June 1 is forecast to show U.S. employers added more jobs in May than the prior month.

“Uncertainty is high, growth is poor and a Greek exit is a wild card,” said Aroop Chatterjee, a currency strategist at Barclays Plc’s Barclays Capital unit in New York. “It’s unlikely that the euro finds a bottom for a while even in a good state of the world.”

The euro declined 2.1 percent on the week to $1.2517, touching $1.2496, the weakest since July 2010. The 17-nation currency declined 1.2 percent to 99.75, falling below 100 for the first time since February. The Japanese currency fell 0.8 percent to 79.68 per dollar.

Hedge funds and other large speculators increased wagers the euro will decline versus the dollar to a record high for a second consecutive week. So-called net shorts increased for a third week, totaling 195,361 in the period ended May 22 compares to 173,869 for the week before, according to the Commodity Futures Trading Commission.
Euro Crisis

“Risk appetite itself has traced its undulation to the movements in the euro,” Ravi Bharadwaj, a market analyst in Washington at Western Union Co. (WU)’s Western Union Business Solutions unit, said May 23.

European leaders announced no new measures to stem the bloc’s crisis at a summit in Brussels this week. The gathering took place as Greece prepares to hold new elections on June 17 after an anti-bailout party surged to second place in balloting on May 6. A poll on May 24 had the Syriza party with 27.2 percent support, boosting speculation that the country may exit the currency bloc.

The euro weakened 1.2 percent against nine developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes, the worst performance along with the Swiss franc. The dollar gained 1.1 percent and the yen rose 0.2 percent.

The shared currency fell below $1.25 for the first time in 22 months after the president of Catalonia, one of 17 semi- autonomous regions in Spain, repeated his call for Spanish central government to help regions access funding, Standard & Poor’s cut the credit ratings of five Spanish banks and the Bankia group said it needed 19 billion euros ($23.8 billion) of government money.

‘Unwelcome Development’

A German index based on a survey of purchasing managers in the manufacturing industry declined to 45 this month from 46.2 in April, Markit Economics said May 24.

“It’s unwelcome development with German manufacturing, because typically that’s where you go looking for a silver lining in the euro,” Andrew Wilkinson, chief economic strategist at Miller Tabak & Co. in New York, said May 24. “The second quarter had delivered a shock to growth expectations globally.”
…

There is an English word to describe “Recession, Recession, Everywhere,” and it isn’t “decoupling”; it’s “depression.”

May 24, 2012, 6:57 a.m. ET

MONEY TALKS
Recession, Recession, Everywhere
By Alen Mattich

Five years of relentless infusions of monetary policy into the global economy, not to mention enormous doses of fiscal stimulus, and it looks like the global economy is once again sliding into recession.

And that’s even though most major economies didn’t show anything more than a lackluster recovery from the financial-crisis inspired downturn.

That a significant slowdown is happening most everywhere is evident in the latest batch of purchasing managers’ data. Indications are that the euro zone is slipping into deeper recession, with Germany also teetering on the cusp of contraction. Revisions to the U.K.’s most recent GDP numbers show that it has been suffering a deeper contraction than first thought. A handful of bearish U.S. analysts figure that economy is already heading into recession, though that’s far from a consensus call. And this time the slowdown has spread to the emerging markets too. China, India and Brazil are all stumbling.

What went wrong?

There are a handful of candidates.

Keynesians point to insufficient monetary expansion by central banks facing the zero lower bound. If only they could boost inflation expectations further, self-sustaining growth would take off. They also criticize a lack of fiscal policy, and, more recently, austerity.

It’s not clear how much merit these arguments have. Yes, Greece, Spain, Portugal and Ireland have been hit hard by austerity as their governments desperately seek to take control of their finances. And recession in the euro-zone periphery is filtering elsewhere, including Germany.
…

Although the Baltic Dry Index is up considerably from its low level of earlier this year, it looks pretty sickly in the five-year view. It appears to have peaked at 11,459 on 5/16/08. The current level remains off peak by
(1,034/11,459-1)*100% = -91%.

BALTIC DRY INDEX
BDIY:IND
1,034.00 USD 24.00 2.27%

As of 05/25/2012 ET on 05/25/2012.

Florida swindlers’ $77 million cow pasture

http://www.miamiherald.com/2012/05/26/v-fullstory/2819509/florida-swindlers-77-million-cow.html#storylink=cpy

You have to love a story that keeps on giving such an ongoing, unlimited dose of Schadenfreude.

Apparently, a harpoon fisherman can be a whale’s worst enemy!

The Hunch, the Pounce and the Kill
How Boaz Weinstein and Hedge Funds Outsmarted JPMorgan

Given the secretive nature of the business, few on Wall Street, including Mr. Weinstein, were willing to speak publicly about how the hedge funds harpooned the London Whale. But interviews with more than a dozen hedge fund managers, investors and traders pull back the curtain on the ways of this band of traders, and on what really happened.
…

Anyone who is dumb enough to buy a stock with the ticker symbol of “FB” deserves to ‘loose’ his shirt.

Loosers!

The Associated Press May 24, 2012, 12:13AM ET
Facebook, JPMorgan gaffs erode faith in Wall St.
By CHRISTINA REXRODE and PALLAVI GOGOI
NEW YORK

Wall Street appears bent on convincing Main Street that the game is rigged.

Investor anger is mounting over the initial public offering of Facebook stock last week, which was fumbled by the banks that managed the deal and complicated by technical problems at the Nasdaq stock exchange.

Shareholders filed at least two lawsuits against Facebook and Morgan Stanley, the bank that shepherded the IPO, over reports that it withheld negative analyst reports about Facebook from some clients before the company went public.

It was the second stumble this month by a major Wall Street firm. JPMorgan Chase, usually revered for taming risk, has yet to contain a growing $2 billion loss in one of its trading units.

The missteps are further eroding the confidence of small-scale investors, or what was left of it after the financial meltdown of 2008.

Judson Gee, a financial adviser in Charlotte, N.C., placed a call Wednesday morning to a client who had plowed $50,000 into Facebook stock on Friday, the day of the IPO.

Gee said he called to tell the client, a restaurateur, about reports that Morgan Stanley had told only select customers about an analyst’s reduction of revenue estimates for Facebook just before the IPO.

“I could see his jaw dropping on the other side,” Gee said. “A lot of expletives came out.” He said his client had asked: “How can they give that information to the big boys and not give it to the public?”

In the final planning of the IPO, Facebook, working with Morgan Stanley, raised the total number of shares being offered for sale by 25 percent, to 421 million. They expected extraordinary demand for the stock by investors.

That appears to have been a miscalculation. Facebook stock jumped from $38 to as high as $45 in the opening minutes, but quickly sank toward $38 again. It dropped to about $34 on Monday and $31 on Tuesday. The stock recovered somewhat on Wednesday and climbed $1.

Dayna Steele, a motivational speaker in Houston, said she plans to wait and buy the stock “when everybody finishes suing each other.”

The shareholder lawsuit, filed in federal court in Manhattan, accuses Morgan Stanley of withholding the negative analyst report from some clients while it prepared to take the stock public.

One of the investors suing, Dennis Palkon, a professor at Florida Atlantic University, said that IPOs are tricky, but “this one had a lot of glamour, had a lot of interest. (Facebook) has a lot of users. I thought it’d be a pretty good investment.”

He bought 1,800 shares of Facebook at $38 through his ETrade account, meaning that after Tuesday, he was down more than $12,000 on paper.

“I think there were problems all over the place,” he said. “It was totally poor planning to raise the price as high as they did and then to add all those extra shares.”

Morgan Stanley declined comment on the lawsuit, but it said on Tuesday that it had complied with regulations in how it handled analyst reports before the IPO. Facebook called the lawsuit “without merit.”

The Senate Banking Committee, the Securities and Exchange Commission and other regulators also plan to look into the IPO.
…

Anyone who believes this story is not prima facie evidence of bank fraud, please explain why to this Rube.

The funniest part of this story is that it was only a few short years ago when CEOs of Megabank, Inc, such as Dick Fuld, were railing about private individuals short-selling Wall Street investment bank stock. I guess short sales are great, so long as it is only Megabank, Inc’s clientele who are doing it?

Conflicts abound as Facebook backers assist short sellers
by: TOM LAURICELLA
From: The Wall Street Journal
May 25, 2012 2:51PM

AS traders at Morgan Stanley were frantically trying to shore up Facebook’s share price following the company’s initial public offering, other managers on the deal were helping short sellers bet that the newly minted stock would fall.

Last Friday, at least 25 per cent of trading volume in Facebook shares - more than 143 million shares - were short sales, according to data from exchanges that handled 94 per cent of Facebook’s total trading volume over the first four days

Trading desks at Goldman Sachs Group and JP Morgan Chase, two of the firms that helped Morgan Stanley underwrite the IPO, were among those lending out Facebook shares that hedge funds needed for short sales, according to people familiar with the matter.

The role of the firms in enabling short sellers in Facebook’s stock shines a light on a long-standing Wall Street business that has the potential to create conflicts of interest. Even as one arm of a brokerage firm is getting paid to drum up interest in a stock, another part of the firm could be earning big profits by helping bet that the stock will fall in price.

“In general, Wall Street has conflicts of interest, and conflicts of interest are profitable,” said Daylian Cain, a Yale School of Management professor of business ethics. “It’s hard to navigate them when there are millions of dollars at stake.”

In a short sale, investors sell borrowed stock, hoping the shares fall so they can buy the stock at a lower price, return the shares and pocket the difference.

Clients of Goldman, JP Morgan and other banks were also helping contribute to a downdraft in Facebook’s shares. The decline in the stock in the days after the IPO added to widespread anger among investors over the handling of the IPO after trading was disrupted by glitches on the first day.

While it isn’t uncommon for Wall Street firms to make shares available for shorting on IPOs they manage, Morgan Stanley, the lead underwriter, didn’t lend shares, according to people familiar with the matter.

Facebook shares were priced at $US38 last Thursday. They held above that level last Friday as Morgan Stanley helped support the stock.

But they fell 11 per cent on Monday and a further 8.9 per cent on Tuesday, providing the opportunity for a rich profit for short sellers. The stock rebounded on Wednesday and ended trading at $US33.03 on Thursday.

Representatives for Goldman, JP Morgan and Morgan Stanley declined to comment.
…

“The 52-year-old retired medical-device salesperson in St. Louis bought 3,000 Facebook shares Friday at $42 through an online brokerage and now sits on losses of $30,000 based on Wednesday’s closing price of $32.”

$30,000 down the drain in the span of a week…it hurts to be a FB stock owner!

BUSINESS
Updated May 24, 2012, 12:28 a.m. ET

Some Big Firms Got Facebook Warning
By GINA CHON, JENNY STRASBURGand ANUPREETA DAS

Capital Research & Management wanted to buy into the Facebook Inc. (FB -3.39%) initial public offering. But days before the IPO, an underwriting bank on the deal warned the big investment firm about Facebook’s dimming revenue prospects.

Morgan Stanley and other underwriters have made a profit of about $100 million stabilizing Facebook stock since trading began Friday.

The Los Angeles firm, armed with information from a May 11 “roadshow” meeting with underwriters and Facebook, along with similar estimates of its own, slashed the number of shares it intended to buy. The night before trading began, a Capital Research manager told a banker at Morgan Stanley, MS -0.45% the lead underwriter, that the deal’s pricing was “ridiculous,” according to a person familiar with the situation. Some Capital Research fund managers didn’t buy into the IPO at all, say people familiar with the matter.

Jennifer Kohne received no such warning. The 52-year-old retired medical-device salesperson in St. Louis bought 3,000 Facebook shares Friday at $42 through an online brokerage and now sits on losses of $30,000 based on Wednesday’s closing price of $32. “We don’t get the information that these institutional fund managers are getting,” she says. “We’re at a disadvantage.”

It is one of Wall Street’s best-kept secrets: Securities firms are allowed to selectively confer with favored large investing clients about crucial information as they prepare IPOs.
…

“TALLAHASSEE — Out of $334 million in cash payments sent to Florida in a multibillion dollar mortgage settlement with major banks, more than $33 million will help bolster the state’s budget.”

http://www.tampabay.com/news/business/florida-grabs-a-chunk-of-foreclosure-settlement-money-for-state-budget/1232328

Last year Buffalo schools paid $5.9 million for its teachers to have plastic surgery. In 2010 the figure was up at $9 million.

Read more: http://www.dailymail.co.uk/news/article-2150656/Revealed-How-Buffalo-pays-teachers-plastic-surgery-tax-payers-money.html#ixzz1w7BbzLsx

“FCAT scores at Pinellas charter school that used Scientology ’study tech’ are among lowest in Tampa Bay

For those results, Life Force paid Islam’s companies — her charter school management firm, Art of Management, and a study-tech promotional group, the World Literacy Crusade — more than $100,000 in public funds over a span of five months, bankruptcy records show. ”

http://www.tampabay.com/news/education/testing/fcat-scores-at-pinellas-charter-school-that-used-scientology-study-tech/1232114

Bloomberg News
Bankia’s Writedowns Cast Doubts on Spain’s Bank Estimates
By Emma Ross-Thomas on May 27, 2012

Spain’s two-week effort to overhaul its lenders and estimate of what it will cost the taxpayer may already look out of date.

Economy Minister Luis de Guindos said May 11 that a law tightening provisioning rules, his second in three months, would require public funds of less than 15 billion euros ($19 billion). BFA-Bankia, the bank nationalized the same week, said on May 25 it was taking 8.5 billion euros of provisions on top of those demanded by the two decrees, as it sought a 19 billion- euro state bailout.

“They’ve done two reforms already and there will probably be more; I don’t know how many more,” Javier Diaz-Gimenez, a professor at the IESE business school in Madrid, said in a telephone interview. “They have zero credibility.”

Spain is seeking to clean up banks and help its cash- strapped regions just as its own access to capital markets has narrowed and depends increasingly on domestic lenders. The nation’s bank-rescue fund has 5 billion euros in cash, de Guindos said this month, leaving its ability to bail out lenders dependent on Spain’s access to markets.

The country plans to inject public debt instead of cash directly into the Bankia Group to pay for the bank’s recapitalization and avoid having to go to market with the instruments, El Pais reported yesterday, without citing anyone.
Debt Sales

Until now, to pay for bank bailouts, the state would sell debt in the market through its bank rescue fund, known as the FROB, and use the cash to aid banks. A jump in yields has made debt sales more difficult and expensive, El Pais said.

Spain’s 10-year bond yield rose to 6.3 percent on May 25, almost 50 basis points higher than before BFA-Bankia (BKIA) was nationalized, as borrowing costs approach the 7 percent level that prompted bailouts in Greece, Ireland and Portugal.

The nationalization of BFA-Bankia on May 9 and the new provisioning rules two days later were Spain’s fourth attempt in three years to restore confidence in lenders after the property crash left them saddled with 184 billion euros of what the Bank of Spain calls problematic assets linked to real estate. The present government came to power on Dec. 21.

In the first round, led by the former Socialist government, the FROB spent 10 billion euros buying preference shares in lenders it encouraged to merge, including Bankia, which received 4.5 billion euros.
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Is it too late at this point to pull out of emerging market investment funds?

Bloomberg News
Emerging Stock Funds Post $1.5 Billion Outflows on Greece, China
By Weiyi Lim on May 25, 2012

Related
Euro Breakup Chances Risen to 35%, Garner Says

Emerging-market equity fund outflows slowed this week amid signs of an escalation in Europe’s debt crisis and weaker economic growth in China, Citigroup Inc. said.

Developing nations had $1.5 billion of outflows in the week ended May 23, according to Citigroup and Morgan Stanley reports today, citing data from fund researcher EPFR Global. There were net sales of $2.3 billion the previous week, Citigroup reported on May 18. Funds in Asia excluding Japan had the biggest redemptions of the year with outflows of $768 million in the most recent week, Citigroup said today.

It was too early to draw any conclusions from the slowdown in emerging-market equity fund outflows, “given that flows of individual regions worsened,” Kelly Kwok, one of the Citigroup analysts named in the bank’s report, wrote in an e-mailed response to questions. “With no clear solution to the Greek problems and more data pointing to weaker growth in China, there should be no surprise that EM equity fund flows continued for another week.”

MSCI’s developing-nation index has fallen 0.9 percent this week, poised for 10 straight weeks of declines, which would be the longest string of weekly losses since 1994. Stocks have fallen in that time as speculation mounted that Greece may exit the euro group, while China reported April industrial production grew the least since 2009 and foreign direct investment sank for a sixth month.

The emerging-market measure fell 0.4 percent to 898.97 at 12:32 p.m. in Hong Kong. The gauge trades at 9.6 times estimated earnings, compared with 11.7 for the MSCI World Index (MXWO) of advanced nations.

Bond Fund Outflows

Greece is preparing for a second election on June 17 following an inconclusive ballot this month. Fitch Ratings cut Greece’s credit rating by one level on May 17, citing concerns the country won’t be able to muster the support needed to sustain its membership in the euro area. Italian Prime Minister Mario Monti said yesterday Greece will probably stay in the euro and that a majority of the region’s leaders support issuing a joint bond to fight the debt crisis.

Funds dedicated to emerging-market bonds had $478 million of outflows in the week ended May 23, marking the first weekly withdrawal since Jan. 11, according to a Barclays Plc report today that cited EPFR data.

Brazil had the largest outflow among emerging markets in the latest week, with withdrawals of $380 million, Jonathan Garner, Morgan Stanley’s Hong Kong-based emerging-market strategist, wrote in a report today. China was second largest with redemptions of $320 million, according to the report.
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Sunday, May 27, 2012
Global markets week ahead: Summer of discontent beckons

LONDON: The late spring warmth spreading across Europe and the United States is unlikely to soothe a growing anxiety in financial markets that the global outlook is anything but balmy.

An escalating euro zone crisis and weak data from China and Europe have turned investment flows ever more firmly toward safe-haven assets, mainly in the US, and away from anything with a hint of risk - a trend that is firmly entrenched.

In the coming week investors find out if the list of current concerns extends to the health of the giant US. economy with May non-farm payrolls and consumer confidence reports due, along with a more detailed reading on the first quarter’s economic performance.

But the focus of market attention will mainly be on risk in Europe, centered on elections on June 17 that could leave Greece governed by parties opposed to the international bailout that is keeping the country afloat.

That could force Greece to leave the euro zone, causing collateral damage of a scale that is hard to assess to the world’s fragile economic and financial system.

To the west, a perfect storm of soured bank loans and regional governments flirting with bankruptcy is gathering over Spain, with Bankia seeking a 15 billion euro bailout and Catalonia also going cap in hand to Madrid.

“I don’t think Europe will drag down the rest of the global economy if nothing too bad happens. The problem is there’s a possibility that something too bad will happen,” said Peter Westaway, chief economist at Vanguard Asset Management.

That uncertainty is spreading across the world is highlighted in data from fund tracker EPFR Global showing that emerging equity funds saw outflows of over $1.5 billion in the week to May 23 after losing $2.25 billion the previous week.

Emerging market bond funds lost almost $500 million in the same period, their first decline in 19 weeks.

Also in the past week, the European Central Bank said in the past week that direct and portfolio investment recorded net outflows of 54 billion euros in March, the month after the second of its two massive liquidity injections into the banking system.

At the other end of the risk scale, Germany was able to sell a two-year bond in the past week that offered investors no regular return and found buyers lining up for the deal.

The yield on 10-year US Treasury note dropped to near 1.7 percent, close to its lowest level on record, while the dollar indexed against a range of major currencies touched a 20-month high.

After a volatile week on global equity markets, MSCI’s world share index gave up virtually all its gains for this year and has fallen 12.5 percent since its peak at the end of March.

Safety first: The speculation about Greece exiting the euro, contagion in Italy and Spain, and the future of the whole euro zone project still isn’t fully reflected in market prices, according to some analysts.

“We think that the ramifications of a Greek exit are more serious than the market anticipates,” analysts at Morgan Stanley said in a note to clients.

“While a euro zone break-up is not our base case scenario, we raise our subjective probability to 35 percent from 25 percent, and reduce the time scale of this move to 12-18 months from five years.”

Analysts at RBS believe that even after the shake-out in financial markets sparked by the political turmoil in Greece, the drive into safe-haven assets has further to run.

“You’ve had a little smokescreen of the ECB liquidity injection, but apart from this it’s been same the trade for two years - don’t own any risky assets,” said Andrew Roberts, head of European Rates Research at RBS Markets. “The only difference now is that Asia is coming to the party partly because its main export market is Europe.”
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