The Housing Bubble

All of the lending industry’s attempts to shame underwater borrowers into continuing to make unaffordable mortgage payments are just a scam. If it is in the homeowner’s rational self-interest to walk away and he does so, then good for him — this kind of business acumen is extolled on Wall Street as smart thinking, and if it helps a Main Street household settle the score with greater fools in the banking business, then all the better.

Strategic Defaulters Are Not Mortgage ‘Deadbeats’
By Annie Lowrey
4/23/10 5:01 PM

Bloomberg News’ Caroline Baum has a tart piece on strategic defaults and consumer spending — invoking the theory, first put forward by HousingWire’s Paul Jackson, that underwater homeowners are purposefully defaulting on their mortgages and using the funds to buy regular goods. That would explain why consumer spending is increasing despite high unemployment, declining real incomes and rising foreclosure rates. Historically, at least, cash-strapped consumers cut their discretionary spending and then stopped paying their auto loans and credit cards before quitting their mortgages. But the latest recession has upended that calculus. And homeowners left owing more on their homes than their homes are worth are more and more often walking away.

Baum writes, “Those deadbeat homeowners, facing possible eviction and in some cases unemployed, are throwing caution to the wind — and money at retailers.” I quibble with that depiction. Strategic defaulters are not “deadbeat,” nor are they lacking “caution.” They are making an economically rational calculation, generally one that is in their best interests. They walk away, and the bank takes their house — that is how real-estate contracts work, and banks themselves do it all the time.

As Roger Lowenstein wrote in the New York Times Magazine: “Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. [When a homeowner strategically defaults, he] isn’t escaping the consequences; he is suffering them.”

Moreover, strategic defaulters tend to be economically distressed. These “deadbeats” decide that they and their families would be better off finding a new place to live, rather than continuing to let their mortgage winnow away at their income. My guess is that they aren’t heading out to buy new Hummers, but rather thinking more along the lines of toothpaste and new shoes and infant formula.
…

Good morning. One more day and I might get home. If not, I will be looking for that ship that Palmetto or Packman keeps mentioning.

The stock market is up 8 weeks in a row. It seems that the Obama administration views the stock market as the economy. It is as if they believe that a rising stock market means a healthy economy. The backwards thinking at work here is just astounding. We are back to bubble stupidity. The thought that the stock market can drive the economy is just as dumb as thinking housing can drive the economy. The cart is squarely in front of the horse.

I believe TPTB want people to see their 401k statements and think everything is wonderful. I doubt Joe Lunch Pail and Tina Text Messager understand that they need to cash in for those valuations to mean anything. The economy, and 401k participants, are better served with a nice steady upward trend. They can buy at lower prices for a long time. Now, they are going to have their 401k shoved full by fund managers that are buying retail stocks, REITs, financials and tech stocks at nosebleed levels. AAPL is 270 dollars. Amazon is 150 dollars.

We are priced for perfection here. The fund managers will be buying and praying that they can make it through until bonus time.

It seems that Mister Bernanke has chosen his game. The Euro may be showing us what it is. If he can make moves that crash other currencies then the dollar may be the last of the worst standing. Greece may be the first domino but I doubt it is the last. Aladinsane may be laughing as all of these currencies seem to be weakening against his shiny little rods.

It is Saturday morning. The sun is shining. There is so much to think about. But, hey, it is great to be alive.

Let’s face it: times are tough for everyone these days, in one way or another.

http://tiny.cc/ev5l9

Can someone tell me why the DOW is up 70 points? Here in N.C., it’s being reported that ALL 100 counties had a lower unemployment rate this past reporting period.

The reason I say this: One of the big points on this blog is that without employment, there can be no real housing recovery. Does it look to anyone else like a fake pushing up of the housing market is coming again? Seems like they (the establishment) are setting the stage…

Greece can’t wiggle free of the debt bind it’s in and today begged for money from member nations of the European Union. Spain and Portugal are juggling heavy debt and have their backs to the corner, too.

~ Come the Greeks, bearing debt.~ NYT

< Think about it. If you find yourself carrying a debt load you can’t pay you take hat in hand and beg for more loans. Sound reasonable? Not to students of monetary history who have found nations repeating this sad exercise over and over again ever since the days of….well, ancient Greece!!

Plugs sez…

Biden sees up to 200,000 new jobs next month

WASHINGTON (Reuters) – Vice President Joe Biden predicted on Friday the U.S. economy would create 100,000 to 200,000 jobs next month, with a rise to 250,000 to 500,000 jobs per month soon afterward, according to a press pool report.

“We caught a lot of bad breaks on the way down. We’re going to catch a few good breaks because of good planning on the way up,” Biden told a political fundraiser in Pittsburgh, the pool report said, as he hailed the Obama administration’s recovery efforts.

A BREED APART
Our four-legged friends are now getting their own Army battalion - but dogs have been doing duty on the battlefield for centuries

Read more: http://www.dailymail.co.uk/femail/article-1268323/A-breed-apart-Our-legged-friends-getting-Army-battalion–dogs-doing-duty-battlefield-centuries.html#ixzz0m0yfiO7A

Arizona, YOU ROCK! Hats off to Jan Brewer, one of the most courageous ladies in politics today. Thank you, Jan Brewer!!

WSJ

* APRIL 23, 2010, 11:04 P.M. ET

2nd UPDATE: US Regulators Close Seven Illinois Banks

(Adds quote from Alexi Giannoulias.)

By Victoria McGrane
Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)–U.S. regulators closed seven Illinois banks on Friday, including a Chicago bank closely tied to the Democratic candidate running for President Barack Obama’s former Senate seat.

Friday’s failures bring to 57 the number of U.S. banks that have failed already this year, after 140 failures in 2009. The FDIC said the total cost to its deposit insurance fund from Friday’s failures topped $970 million.

State banking regulators shuttered Chicago’s Broadway Bank, owned by the family of Alexi Giannoulias, who is locked in a fierce midterm election battle with U.S. Rep. Mark Kirk (R., Ill.) for Obama’s old Senate seat. Giannoulias’ role at the scandal-plagued institution, which had total assets of approximately $1.2 billion as of the end of 2009, has become a central issue in the race.

Late Friday, Giannoulias told the Associated Press that the collapse of the bank will inspire him to work harder in his bid to win the Senate race. He said he knows first hand the impact that the economy has had on people and businesses in Illinois.

“There was no bailout for my father’s bank. It is an incredibly sad and heartbreaking day for me and for my family. This bank has helped thousands of people when no one else would give them a chance,” he said. “What has happened tonight is just a sliver of the hardship which has become endemic in our society only strengthens my resolve.“

The word is the big emerging market economies are back to strong growth, and global commodity prices are rising. That means there may be demand to match supply that atrophied in the recession, even if U.S. consumers no longer have the money to buy.

This gets back to a stagflation scenario for us as the next step. Consumer prices rise even with high unemployment, because former real estate brokers cannot easily switch to producing raw materials and the stuff we can no longer afford to import from China. Asset prices remain weak, unless and until a falling dollar allows them to rise in nominal dollars while falling or being stagnant in real dollars. Unemployment eventually falls, but people work for less and pay more — as taxes rise and public services are cut.

Not a happy scenario, though most of the alternatives are worse.

Has the Fed ever previously sucked up an entire asset class of toxic securities onto its balance sheet? How is it going to unwind this without roiling markets? Perhaps if they jawbone about their future unwinding plans long and loudly enough, the bond market will price in the adjustment before the actual unwinding occurs.

So many questions, so much opacity…

* The Wall Street Journal
* CREDIT MARKETS
* APRIL 24, 2010

Fed’s Focus: How to Sell Its Mortgage Securities

By JON HILSENRATH

The Federal Reserve has acquired more than $1 trillion worth of mortgage-backed securities in the past 15 months. At their policy meeting in the coming week, Fed officials will try to decide how and when to get rid of them without jarring financial markets and the nascent economic recovery.

The Fed’s thinking on interest rates is straightforward. The recovery has gained traction but hasn’t been vigorous or long lasting enough to warrant raising them soon; after its Tuesday and Wednesday meeting it is likely to repeat its signal that rates will stay low for an “extended period.”

The more challenging issue will be agreeing on a long-term plan to shrink a balance sheet bloated to $2.38 trillion—more than double precrisis levels—according to Fed insiders.

At their policy meeting next week, Fed officials will try to decide how and when to get rid of them without jarring financial markets and the nascent economic recovery.

Sales of mortgage-backed securities aren’t likely soon. It is also possible that the Fed won’t signal its intentions on the matter in its post-meeting statement Wednesday. But markets are on edge because its mortgage bonds holdings are so large. At $1.1 trillion in holdings of mortgage debt guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, the Fed owns roughly a fifth of all these outstanding instruments.

The sheer size of the portfolio makes these decisions so key. The Federal Reserve Bank of New York estimates Fed purchases of mortgage and Treasury bonds pushed long-term interest rates down about half a percentage point. The mere announcement of sales could have the opposite effect, as investors price in future sales.

Speculation about sales Friday morning knocked prices of longer-term Treasury bonds down, and helped push the 10-year note’s yield up from 3.770% to 3.813%.

“If they sell the assets, it is clearly going to have a pretty big impact on the long end of the bond market, depending on how they do it, when they do it, and the speed at which they do it,” said David Zervos, bond market strategist with Jefferies & Co.

Even if they reach a consensus, many officials want to stay flexible to avoid locking themselves into a course they might need to change later. “It seems to me neither necessary nor advisable to decide upon a single game plan that will be announced in advance and rigidly implemented,” said Daniel Tarullo, a Fed governor, earlier this month.

Fed staff in the coming week will present models to forecast how different approaches to reducing the portfolio might play in markets. But some officials worry that they have little experience selling assets and can’t rely exclusively on models to predict how markets will react. That—and a worry about disturbing the vulnerable housing market—has top officials inclined to proceed gradually and cautiously, at a predictable pace.

Though interest-rate increases and asset sales are still likely a ways off, the Fed is gearing up to take smaller, baby steps toward the exit. In coming weeks, it is likely to start testing a new program in which it will accept long-term deposits from banks called term deposits, a step meant to help drain money from the banking system when it wants to raise interest rates.

It also will broaden tests of “reverse repo” trades which are another way to drain money from the financial system to include not only banks, but also money-market mutual funds and possibly other financial institutions.

Fed officials will describe these as tests, and not the beginning of a tightening.

Some Fed officials are pushing for a more aggressive approach. In April, Narayana Kocherlakota, president of the Minneapolis Federal Reserve Bank, called for monthly sales of $15 billion to $25 billion to eliminate the Fed’s mortgage holdings within five years. “It is likely the Fed will have to sell a nontrivial amount of its MBS holdings,” he concluded. Some Fed policy makers—among them Charles Plosser of Philadelphia, Jeffrey Lacker of Richmond and Kevin Warsh at the Fed board—are sympathetic.

Fed Chairman Ben Bernanke made his preferences clear. “I currently do not anticipate that the Federal Reserve will sell any of its security holdings in the near term, at least until after policy tightening has gotten under way and the economy is clearly in a sustainable recovery,” he said in February testimony before Congress.

As part of their debate, Fed officials will be weighing how to reach different objectives. Officials see sales of mortgage-backed securities as a way to accomplish two things at once—shrinking the balance sheet over time and returning to a portfolio dominated by government bonds.
…

I find the market’s deafness to bad news a great puzzlement. Back in the day, bad news would be instantly priced into shares; more recently, an overwhelming avalanche of bad news can have little apparent effect.

What gives? The “too much noise” theory is highly dubious.

The Wall Street Journal

* THE INTELLIGENT INVESTOR
* APRIL 24, 2010

Full Disclosure: Most Risks Hide in Plain Sight

* By JASON ZWEIG

Without full and proper disclosure, investors can’t make an informed decision. Even with full and proper disclosure, however, many investors still can’t make an informed decision.

That is the unspoken irony at the heart of the Securities and Exchange Commission’s lawsuit against Goldman Sachs.

Don’t get me wrong. One of the most fundamental tenets of financial regulation is that forewarned is forearmed. Without good disclosure, the markets can’t function. I’m not saying that Goldman—which denies all wrongdoing and any material omission—shouldn’t have disclosed to buyers that short sellers at Paulson & Co. helped put together the now-notorious Abacus deal.

What I am saying is that telling investors what they need to know is necessary, but insufficient. Receiving information and using it wisely are two entirely different things. Regulators, rightly, focus on ensuring that disclosure is provided. But investors struggle with using it wisely. As the Nobel Prize-winning economist Herbert Simon warned: “Information consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention.”

Consider a recent analysis of disclosures by Ambac and MBIA, two specialty insurance companies. Each quarter, in forms they file with state regulators, such firms must list any significant exposures they may have to the same kinds of derivative securities that are under dispute in the SEC’s case against Goldman. The insurers posted the filings on their own Web sites; with a little digging, investors could find them.

Robert Bartlett, a law professor at the University of California, Berkeley, found that Ambac and MBIA’s state filings—plus other public information from the Irish Stock Exchange Web site—gave ample disclosure about the derivatives to which they were exposed. But on the days when the credit ratings of those derivatives were massively downgraded, the share prices of Ambac and MBIA barely budged relative to the market. Only when the insurers issued earnings announcements that showed the cumulative losses did investors finally take notice and sell Ambac and MBIA’s stock.

“It was apparently very difficult even for institutional investors to contend with the amount and volume of noise in the market in 2008,” Prof. Bartlett says.

Gollum’s evil plan was admittedly a thing of beauty.

The Wall Street Journal
Moody’s chief admits failure over crisis
By Stephanie Kirchgaessner in New York and Kevin Sieff in Washington
Published: April 23 2010 19:20 | Last updated: April 24 2010 00:55

The chief executive of Moody’s admitted to a Senate panel on Friday that the US credit rating agency failed to anticipate the severe deterioration in the US housing market that led to the financial crisis and was “not satisfied” with its performance.

However, Raymond McDaniel defended the the credit agencies’ dependence on fees paid by Wall Street firms, claiming that “potential conflicts exist regardless of who pays”.

But evidence presented at a hearing before the Senate detailed how some senior managers at Moody’s and Standard & Poor’s suppressed internal concerns about the securities they rated due to pressure from the banks that paid their fees.

Eric Kolchinsky, a former managing director of a Moody’s unit, believed that he had saved the agency from committing fraud in 2007 when he insisted that it change the way it rated the instruments because of deterioration in the housing market.

When it emerged that Moody’s had seen a slight drop in market share, Mr Kolchinsky was berated by a manager.

Friday’s hearing before the Senate subcommittee on investigations, as well as a hearing on Tuesday that will centre on Goldman Sachs, are being held as senators negotiate a bill to reform financial regulation. Senators are expected to vote on Monday to begin formal debate on the controversial measure.

On Moody’s ratings of Goldman’s Abacus product, at the centre of allegations against the bank, Mr Kolchinsky said that he would have wanted to know that hedge fund manager Paulson & Co was making bets against the security.

He said neither he nor his staff had been aware of Paulson’s involvement in their rating of the transaction. “It just changes the whole dynamic – if the person choosing it, wants it to blow up,” he said.
…

Can anyone imagine a hooker making ends meet who refused to ever accommodate her customers’ desires?

The Financial Times
Nixon moment for ratings agencies
By Sam Jones in London and Stephanie Kirchgaessner in Washington
Published: April 23 2010 19:58 | Last updated: April 24 2010 02:17

It was September 2007 and Standard & Poor’s, the world’s largest ratings agency, was about to send the global economy into a tailspin with the surprise downgrading of billions of dollars worth of mortgage-backed securities.

In an e-mail to a colleague, one S&P analyst ruminated about how, even in the middle of a looming crisis that was largely due to S&P’s own failures, the company was sounding more like the “Nixon White House” than a reliable agency worthy of investors’ trust.

“If this company suffers from an Arthur Andersen event, we will not be brought down by a lack of ethics … nor will it be by greed as this plays so little role in our motivations, it will be arrogance,” the analyst wrote.

The Enron scandal ultimately felled Arthur Andersen, a fate that does not appear on the horizon for the rating agencies. But an inquiry by the US Senate’s permanent subcommittee on investigations has put the groups’ ethics in a harsh spotlight.

The inquiry culminated in a full-day hearing on Friday, showing in minute detail the prominent role that S&P and its arch-rival, Moody’s, had in the financial crisis. The picture that emerged was of two companies engaged in cut-throat competition for market share and revenue, resulting in diminishing quality of credit ratings.

The Senate panel’s 500-page dossier depicts agencies acting in the interests of those who paid them – the banks – rather than those who depended on them – the investors. In a hearing on Friday, Richard Michalek, a former senior credit officer at Moody’s who left in 2007, described how the company’s then-president, Brian Clarkson, pushed to make it a more “accommodative” agency to its bank clients.
…
Quote-unquote: e-mail insight from the ratings agencies

‘Ratings agencies continue to create an even bigger monster – the CDO market. Let’s hope we are all wealthy and retired by the time this house of cards falters.’ S&P internal e-mail December 2006

‘Screwing with criteria to get the deal is putting the entire S&P franchise at risk – it’s a bad idea.’ E-mail from S&P employee, June 2005

‘Analysts and [managing directors] are continually “pitched” by bankers, issuers, investors – all with reasonable arguments – whose views can colour credit judgment, sometimes improving it, other times degrading it (we “drink the kool-aid”). Coupled with strong internal emphasis on market share & margin focus, this does constitute a “risk” to ratings quality.’ E-mail from Moody’s chief risk officer to Raymond McDaniel, CEO, October 2007

‘[N]o body gives a straight answer about anything around here … how about we come out with new [criteria] or a new stress and actually have clear cut parameters on what the hell we are supposed to do.’ Instant Message from Standard & Poor’s employee, August 2007

‘It sounds like Moody’s is trying to figure out when to start downgrading, and how much damage they’re going to cause – they’re meeting with various investment banks.’ Internal UBS e-mail, May 2007

‘You’re right about CDOs as WMD [weapons of mass destruction] – but it’s only CDOs backed by subprime that are WMD.’ E-mail by Moody’s employee, November 2007
…

AT&T sees 500% surge in Wi-Fi network usage
Dallas Business Journal

The use of smartphones and other devices has driven up demand for AT&T’s 20,000-plus Wi-Fi hotspots by more than 500 percent in the first quarter.

Use of Dallas-based AT&T’s Wi-Fi hotspots surged to 53.1 million connections in the first quarter, compared with 10.7 million connections made in the first quarter last year, and more than half of the 85.5 million total Wi-Fi connections made in 2009.

As customers increasingly adopt Wi-Fi-enabled smartphones and devices, they’re relying more and more on Wi-Fi hotspots to stay connected.

Oh, the good old days:

http://www.youtube.com/watch?v=WOKDK0g1Gno

Hey Guys

I got one for you.

Had a talk with my Grandpappy. He is a smart man worked as an accountant for Aurthur Young back in the 70s at time he was a very successful entrepreneur blah blah, my point is he is smart and good with numbers.

But I found me and him disagreeing.

He told he knew a family that wanted a house out in Las Veges. The bank owned it and wanted 300K they offered 150K the banks said no. Then they took it to auction (or were forced by FDIC I am not clear on that point) the family that offered 150 got it for 78.

So when grandpappy talked about getting a 300K house for 78K I pointed out that it was now a 78 K house cause isnt that what it went for?

He got alittle defense as I tried to point out that that the price you ask and the price you get are two different thing right? and really cranky when I pressed him how he knew the house was worth 300k etc.

So guys am I right in saying the house aint 300K?

Lawrence Yun, the Chief Economist for NAR was just on a local So Ca (L A area) Real Estate hype show, and he said we’ve hit bottom, and might see higher prices starting in 2011. Prcies have stablized, and consumer “confidence” in the real estate market is getting stronger. All is well.

IIRC, PB mentioned “consumer capacity” vs. “consumer confidence” a while ago.

.

Let’s dish inventory and housing prices.
In the area I’m looking in, housing inventory in the $400K-$500K is nonexistent (both price and listings)for anything in the 2,000 sq ft range. I’m looking in east Ventura County and west
L A County. I’m bummed out.

Evidently, the propaganda worked. One home that is reality is worth $300K, is being listed at $575K, a redone flip. Some idiot will buy it no doubt. Truly, I am floored.

People buying at these prices have truly lost or never had a mind. When will this insanity end?

http://news.yahoo.com/s/csm/20100423/wl_csm/296630

Not so fast, Germany says on Greek bailout.

Ohio Man facing foreclosure remodels home with SUV. Lets add a criminal record to the bad credit record.

http://www.youtube.com/watch?v=vGZakETyMgY

Ohio Man facing foreclosure remodels home with SUV. Lets add a criminal record to the credit hit.

http://www.youtube.com/watch?v=vGZakETyMgY

http://news.yahoo.com/s/nm/us_korea_ship

South Koreans raised their sunken naval corvette and now say it appears to have been hit with a torpedo.

This can’t be good.

http://www.sacbee.com/2010/04/24/2702427/sales-taxes-in-free-fall-area.html

Sales tax revenues in Sacramento area plummet - doesn’t sound very green shootish to me. I wonder what the nationwide trends are showing.

Hey Guys,

I haven’t posted on this blog for a long time, except for the reply’s today. We sold in 2006. We are currently in escrow for a home that is 2200 sq ft, 15000 sq ft lot for 195k with major, major upgrades. We are putting 20% down and are looking at a payment of 1000 to 1100 per month. the house was built in 2007 surrounded by really great homes and golf courses. The home was sold in 2007 for almost 400K. I am in Bakersfield, Ca. Do you guys think we are doing the right thing? This 2 bedroom apartment we are living in is getting cramped with 3 children. I wanted to stay in the 2x annual income but we are slightly above that threshold. (single income family) Unemployment is high here @17%, inventory is huge due to foreclosures, but rent is higher in some cases than buying. Median family income in Bakersfield in 45K (that is household income!). I have this thesis that hyper-inflation will occur because the federal gov’t wants to pay their high debts with inflated greenbacks. If this is true, then buying now would be a prodigious move. I would be locking into that payment and to a fixed interest rate of 5% or so. I feel I have a job that will keep up with inflation. What say you guys given this info? Pls ask questions if you need more to answer. I’ve always respected most everyone on this board.

Birds have nested in the dryer vent near my bedroom window, and their eggs hatched a few days ago. Too nice to evict and foreclose on the rather large family, I have begun to keep the tv on at low volume. I was awaken when the volume suddenly increased dramatically. It was Armondo Montelongo of Flip This House fame. At first I thought it was a horrible nightmare, but to my dismay it was reality. It is going to be a tough couple of weeks.

Don’t look now, but our neighbors to the north are about to start tightening up their monetary policy. Where will that leave US?

Saturday April 24, 2010

Bloomberg
Sovereign Debt Only Lags Behind Greece, Portugal: Canada Credit
April 23, 2010, 8:04 AM EDT

By Alexandre Deslongchamps

April 23 (Bloomberg) — Canadian bonds, the worst performing sovereign-debt market the past three months after Greece and Portugal, may fall further as investors speculate policy makers will raise interest rates as early as June.

Canada’s bonds maturing in a year or more fell 0.9 percent during the last month as investors bet the central bank may begin raising its overnight target rate from a record-low 0.25 percent at its next meeting on June 1.

“The market isn’t sure if the bank will raise by quarter points or half points,” said Sebastien Lavoie, an economist at Laurentian Bank of Canada who expects the rate to rise to 2 percent by year-end. “There is an argument to be made for half- point increases and when the market becomes convinced of that, it will be reflected” in the two-year bond yield.

Bank of Canada Governor Mark Carney this week boosted his forecast for first-quarter growth and dropped a pledge to leave rates unchanged until July unless the inflation outlook changed. Investors are now considering if the central bank may raise its rate faster than a quarter-point at each of its five meetings until the end of the year.

“Short rates reflect an expectation that the bank will start tightening in June and increase in quarter point increments — attention will now shift to looking for clues the bank might tighten more aggressively” said Mohammed Ahmed, a rates strategist at Canadian Imperial Bank of Commerce in Toronto. “You can expect to see a period of extreme data sensitivity for short-term bonds — if you have much better- than-expected economic releases, and in particular consumer prices, the market will respond by pushing rates higher.”
…
More From Businessweek

* Sovereign Debt Only Lags Behind Greece, Portugal: Canada Credit
* Weber Says G-20 Countries Share ‘Certain Optimism’ on Growth
* Greece Debt Restructuring May Spark ‘Lehman Event,’ Reid Says
* Ontario’s Mayman Sees Risk of Overzealous Regulation (Update1)
* Canada to Sell C$3 Billion of 10-Year Securities on April 28

It’s all contained.
It’s all contained.
It’s all contained.
It’s all contained.
…

* The Wall Street Journal
* APRIL 22, 2010, 11:51 A.M. ET

Spain, Portugal Shares Plunge On Greek Contagion Fears
By Bernd Radowitz
Of DOW JONES NEWSWIRES

MADRID (Dow Jones)–Iberian stocks fell sharply Thursday amid concern the escalating Greek debt crisis could spread to other southern European countries with troubled finances.

Madrid’s IBEX-35 index ended 2.19% lower at 10,821.9 points, while Portugal’s PSI-20 index closed 2.57% down at 7,751.95 points.

“There’s confusion and a great insecurity in the market,” said Karsten Sommer, a trader at BCP in Lisbon, adding that rising government sovereign yields are bad news for stocks.

As Moody’s Investor Service Inc. downgraded Greek sovereign debt, the cost of taking out insurance of Greek government bonds through credit default swaps surged about 10% to 620 basis points earlier Thursday. Spanish CDS spreads were also pushed higher to 171.5 basis points from 158.5 earlier in the day, while Portuguese CDS spreads moved to 260 basis points from 232.

Banking stocks were hit hard, with Banco Santander SA (STD) down 3.1% to EUR9.91, and Banco Bilbao Vizcaya Argentaria SA (BBVA) plunging 3.1% to EUR10.55. Portugal’s Banco Espirito Santo SA (BES.LB) shed 4.1% to EUR3.569 after a Nomura downgrade.
…

This looks like Gollum’s Enron moment. Three cheers for subprime!

No decent human being would behave in his personal affairs like these people did. Somehow, since these Really Smart Guys investment bankers made lots of dough on these deals, ethical considerations don’t matter at all.

The Wall Street Journal

* BUSINESS
* APRIL 24, 2010, 11:34 A.M. ET

Goldman’s Tourre Foresaw Subprime Chaos, Emails Show

By SUSANNE CRAIG And JOHN D. MCKINNON

Goldman Sachs Group Inc. executive Fabrice Tourre predicted in 2007 that subprime borrowers “will not last so long,” according to newly released emails from a Senate investigation.

“According to Sparks, that business is totally dead, and the poor little subprime borrowers will not last so long!!!” Mr. Tourre wrote in a March 2007 email to his girlfriend, referring to a Goldman Sachs colleague.

In a June 2007 email, Mr. Touree boasted to his girlfriend he had just landed in Belgium where he managed to “sell a few abacus bonds to widows and orphans that I ran into at the airport.”

Some of the emails came around the time of a transaction arranged by Mr. Tourre that is now the subject of a Securities and Exchange Commission civil suit.

The SEC charged the firm and Mr. Tourre with misleading investors. Goldman failed to disclose that a hedge-fund client helped design a security to drop quickly in value, the SEC alleged. The security was linked to the value of mortgage-backed securities.

Goldman Sachs CEO Lloyd Blankfein at Cooper Union in New York earlier this week.

Goldman said it did nothing wrong. It said the investors were sophisticated institutions that knew what they were getting into.

Separate emails released Saturday by Senate investigators showed top Goldman executives cheering the gains they were reaping as subprime-mortgage securities collapsed in value in 2007.

Oro Valley RE

For Eng in NJ, I looked up the entire area in ORO Valley, including Dove Mountain, and the MLS system only showed 5 houses on the market. Somehow that doesn’t seem right. In addition the most expensive was $399k, which didn’t seem to match what I thought you were looking for (aka Scottsdale or Sedona)

Lip

Option-Arm Loans Add to Shadow Inventory
Sunday April 18, 2010

Will the $230 billion in option adjustable rate mortgages (ARMs) create a second wave of foreclosures worse than the subprime mortgage crisis? These dangerous loans are worse than interest-only loans, because borrowers don’t even have to pay all the interest each month. Instead, they fall deeper into debt until the loan resets, sometimes tripling the payment.

Although only two percent of all home loans are option ARMS, they are worth $300 billion - and most are likely to default. That’s because 60% are in California where home prices have fallen 30-40%, disqualifying borrowers from MakingHomesAffordable home loan modification.

Here’s what makes option-arm loans so dangerous.

1. Option-arms start with “teaser” rates - about 1-2%. These can reset after the first payment.

2. Loans reset at higher rates - even though the fed funds rate has stayed the same.

3. Most (80%) option ARM borrowers make only the minimum payment each month. The rest gets added to the balance of the mortgage - just like negative amortization loans.

4. Most borrowers think payments are fixed for five years. However, once the unpaid mortgage balance grows to 110% or 125% of the original value, the loan automatically resets - sometimes as much as three times the original payment amount.

5. Steep penalties prevent borrowers from refinancing.

6. Banks weren’t required to report how many option-arm loans they wrote, so no one really knows how many are out there. (Source: “Toxic Mortgages,” Center for Responsible Lending,November 5, 2007; “Nightmare Mortgages,” Businessweek, Spetember 11, 2006

What It Means to You

Option ARM loans will keep housing prices down by adding to the backlog of shadow inventory. These are homes that are in the foreclosure pipeline and will end up at auction in a year or so. There are widely different estimates of how many homes are in the shadow inventory - anywhere from 1.7 - 7 million. This shadow inventory could keep housing prices flat for anywhere from one to three years.

The shadow inventory is in addition to the real inventory of 3.6 million unsold homes, an 8.6 month supply according to the National Association of Realtors. Another 300,000 homes are added to the shadow inventory each month.

Residential Market NW Phoenix

Well folks, we got an offer on our house 1 week after it hit the market. Therefore we’re looking in 85310 and 85383 while we prepare to rent.

Out of 32 houses that seemed acceptable, 4 were lender owned and 28 were short sales. Not one was owned and above water!!!

This evidence, plus the graph that someone posted yesterday about the Option Arms getting ready to reset, makes me think that the market is going to take another dive.

How long can the government prop up this market? Maybe after the election in Nov its all going to come crashing down then again, maybe they’ll just keep trying

Lip

http://www.huffingtonpost.com/2010/04/24/goldman-sachs-emails-big-short_n_550547.html

Goldman’s internal e-mails have been released and will be a PR disaster even if they don’t directly implicate the company in criminal activity [which remains to be seen]. GS’s defense strategy of blaming their short-related malfeasance on a single low-level employee are going to take a huge hit as these e-mails depict the depth of predatory cynicism and snarkiness that prevailed at the firm. Customers come first, my a$$.

http://www.smirkingchimp.com/thread/michael_winship/28246/goldman_sachs_what_hath_fraud_wrought

As each new day brings new revelations of GS wrongdoing, the firm is stepping up its funding of Republicans ($167K in March vs. $123K for Democrats). As always, the banksters’ best investment is a political contribution.

Pictures of the Iceland Volcano

http://www.boston.com/bigpicture/2010/04/more_from_eyjafjallajokull.html

Is this going to heat or cool the planet?

The Economist is coming off as quite the apologist for Gollum. Small wonder, given the large share owned by international pirates, er, I mean, banksters.

The Economist
From Wikipedia, the free encyclopedia
Jump to: navigation, search
For the Lost episode, see The Economist (Lost).
The Economist TheEconomistLogo.svg
Type Weekly Newsmagazine
(Registered as such in the UK)
Format Magazine
Owner The Economist Group
Editor John Micklethwait
Founded September 1843
Headquarters 25 St James’s Street
Westminster
London
SW1A 1HG
England
Circulation over 1.3 million copies per week
ISSN 0013-0613
…
The publication belongs to The Economist Group, half of which is owned by the Financial Times, a subsidiary of Pearson PLC. A group of independent shareholders, including many members of the staff and the Rothschild banking family of England,[8] owns the rest. A board of trustees formally appoints the editor, who cannot be removed without its permission. In addition, about two-thirds of the seventy-five staff journalists are based in London, despite the global emphasis.[9]

http://baselinescenario.com/2010/04/24/the-sickening-abuse-of-power-at-the-heart-of-wall-street/

The Sickening Abuse Of Power At The Heart of Wall Street

: “The finance ministers and central bank governors of the world are in Washington this weekend for the spring meetings of the International Monetary Fund. As is usual, the world’s megabanks are also in town in force, organizing big meetings and small dinners.
Through these meetings dutifully troop US treasury officials, providing in-depth and off-the-record briefings to investors.

Banks such as JP Morgan Chase and the other top tier financial players thus peddle influence, leverage their access, and generally show off. They accumulate information from a host of official contacts and discern which way policymakers – their “good friends” – are leaning.
And what is the megabank whisper mill working on? Ignore the “economic research” papers these banks put out; that is pure pantomime for clients-to-be-duped-later. I’m talking about what they are telling the market – communicated in specific, personal conversations this weekend.

They are telling people that, based on their inside knowledge, Greece and potentially other Eurozone countries will default on their debt. Perhaps they are telling the truth and perhaps they are lying. Most likely they are – as always – talking their book.

But the question is not the substance of their whisper campaign this weekend, it is the flow of information. Have they received material non-public information from US government officials? Show me the calendar of the top 10 treasury people involved, and then we can talk about whom to summon from the private sector to testify – under oath – about what they were told or not told.

http://www.youtube.com/watch?v=3-HTylLzXu8

Bill Black’s eye-popping opening statement at House FinServ hearing on Lehman Bros. failure

Bill did a good job spotlighting the crimes against the people and asks why the Fed and SEC didn’t act.

from jessescafeamericaindotcom

Great vampire squids have the defense mechanism to launch a vicious counter attack when cornered.

Telegraph
Goldman hits back over fraud claims
Goldman Sachs has launched an all out attack on the US Senate committee investigating the collapse of the mortgage market in America after the investment bank was accused of profiting from falling house prices.

By Kamal Ahmed
Published: 10:02PM BST 24 Apr 2010

Yesterday the investigating committee led by Democrat senator, Carl Levin, released a series of emails suggesting that the bank made more money than it lost during the crisis of 2007 and 2008. The emails were said to contradict claims by the bank that it had been “net long” on the market and had suffered losses of over $1bn.

One email from Lloyd Blankfein, the chairman of Goldman, said: “Of course we didn’t dodge the mortgage mess. We lost money, then made more than we lost because of shorts.”

Mr Levin said that the emails contradicted previous statements made by Goldman.

“These e-mails show that, in fact, Goldman made a lot of money by betting against the mortgage market.”

Goldman immediately hit back last night, saying that the investigating committee had “cherry picked” emails from millions of pages of evidence. The bank said that its accounts revealed the losses it had made.

“What it shows is that we had net losses of over $1.2bn in residential mortgage-related products in the period,” a spokesman said.

“It is concerning that the sub-committee seems to have reached its conclusion even before holding a hearing.”

http://tullyspage.blogspot.com/2010/04/goldman-sachs-fraudulent-history.html

The cautionary tale of Ghana’s Ashante Gold was an early illustration of Goldman’s propensity to screw over its nominal clients.

http://www.nydailynews.com/money/2010/04/23/2010-04-23_la_court_system_in_financial_crisis_closing_court_rooms.html

California’s fiscal crisis is causing a breakdown of the court system. Even during the Great Depression no courts were shut down. The world’s 8th largest economy is unraveling, and yet US markets are hitting new highs. It makes no sense to me.

How come shorts are evil when individuals use them, but just fine when Gollum does?

Goldman Sachs Execs Lauded Profits From Housing Market Collapse

Voice Of America News
24 April 2010

E-mails released Saturday show executives of the U.S. investment bank Goldman Sachs boasting about making money by betting against risky subprime mortgages as the U.S. housing market was collapsing in 2007.

In one of the e-mails, which were released by a U.S. Senate committee, Goldman Sachs Chief Executive Lloyd Blankfein said the company lost money on the mortgages - but made more than it lost by taking a so-called short position on the mortgages.

Short positions are bets the market will go down.

The emails were released as Blankfein and other Goldman Sachs executives prepare to testify on Tuesday before a Senate committee investigating the origins of the financial crisis.

Goldman Sachs said Saturday the Senate committee unfairly released only four emails from almost 20 million pages of documents provided by the company.

Earlier this month, U.S. financial regulators filed suit against Goldman Sachs, accusing the company of assembling a package of mortgage investments intended to fail, and selling the security to investors without warning them of the dangers.

Goldman Sachs has vigorously denied any wrongdoing and has vowed to defend its reputation.

Some information for this report provided by AP, AFP and Reuters.

The Financial Times
Disgruntled bondholders round on Goldman
By Patrick Jenkins
Published: April 24 2010 03:00 | Last updated: April 24 2010 03:00

Goldman Sachs’ behaviour in Lloyds Banking Group’s November refinancing - in which it had a dual role as an underwriter of the bond and an investor - has drawn criticism from a surprising quarter: other investors in the deal.

The FT reported yesterday that as one of six underwriters on Lloyds’ £10bn bond restructuring, Goldman had pushed for a higher coupon on the new securities, including an uplift of as much as 2.5 percentage points compared with the old bonds they were replacing.

It had also been involved in the decision on the “waterfall”, deciding which bonds should be given priority rights to exchange for the new higher-paying securities and which should come lower down the ranking.

At the same time, Goldman was an investor in the bonds. The bank did not comment ahead of the original story’s publication, but yesterday disputed suggestions from some people close to the transaction that it had held a significant investment.

Is there any California gubernatorial candidate who is not tainted by ties to Gollum?

Whitman, Brown have ties to Goldman Sachs

The Republican was on the Wall Street bank’s board, and the Democrat was mayor of Oakland when the city was involved in a complex financing deal with the firm.

By Michael Rothfeld, Los Angeles Times

April 24, 2010

As a main theme of his campaign for governor, Jerry Brown has attacked Wall Street bankers for fueling the nation’s economic troubles.

But he has avoided mentioning Goldman Sachs, the bank that is a recent focus of scrutiny, even though it is one of the biggest liabilities for Meg Whitman, the leading Republican candidate for governor, who sat on the company’s board.

Brown, a Democrat and California’s attorney general, also has connections to Goldman, which was charged with civil fraud last week by the Securities and Exchange Commission. The links are his sister and a complicated financing deal made by the city of Oakland, where he served as mayor for eight years.

That deal, known as an “interest rate swap,” was supposed to guarantee Oakland stability in its debt payments but is now costing the cash-strapped city $5 million a year. The agreement, which goes until 2021, has an estimated cancellation cost of $19 million. The city is trying to renegotiate it, and union officials representing government employees are calling on Goldman to let Oakland and other municipalities out of such agreements.

The swap, like those entered into by many governments, began in 1998, the year before Brown took office. City officials renegotiated it in 2003, right before his sister, Kathleen Brown, the former state treasurer, began working for Goldman as the West Coast head of municipal finance. In 2005, when the city paid off the debt Goldman had arranged, it left the interest rate swap in place.

Municipal officials said it made sense to do so because they would have had to pay $15 million to end the deal. That decision also continued a steady revenue stream for Goldman Sachs that has turned more favorable for the company and less so for the city as the economy has eroded.

Whitman’s spokesman, Tucker Bounds, called the arrangement “a big-money deal for Wall Street that is costing California taxpayers millions of dollars a year.”

“No matter how you look at it, Jerry and his sister were on both ends of a bad deal for taxpayers, and Goldman Sachs pocketed millions,” Bounds said.

Jerry Brown seeks to force Moody’s to release evidence of role in housing meltdown

The state attorney general wants Moody’s to respond to a subpoena in a probe of why the firm gave glowing ratings to shaky securities. Moody’s says he’s looking for documents that don’t exist.

California Atty. Gen. Jerry Brown, at a news conference in Sacramento, accused Moody’s Investors Service lawyers of stonewalling. A Moody’s spokesman said the firm had been cooperating with Brown’s office. (Lawrence K. Ho / Los Angeles Times / April 19, 2010)
By Tiffany Hsu, Los Angeles Times

April 20, 2010

California Atty. Gen. Jerry Brown said Monday that he was seeking a court order to force Moody’s Investors Service to comply with a subpoena, claiming that the credit rating company was withholding evidence of its role in the housing meltdown and recession.

The subpoena from September is part of an investigation into why Moody’s gave glowing ratings to shaky securities backed by subprime mortgages.

But Brown accused the firm’s lawyers of stonewalling and said that in conversations with his office they had called the subpoena “a waste of time.” Brown said the lawyers had refused to provide “complete responses” to questions.

In a fiery press conference Monday, the attorney general accused Moody’s of “immaculate deception,” saying that the firm had “thumbed their nose at the people of California” while trying to cover up “behavior that was completely unethical and in many cases illegal.”

“If Moody’s has nothing to hide, then why are they hiding?” said Brown, a gubernatorial candidate this year. “Come out from your legal obfuscation and meet us.”

Michael Adler, a spokesman for New York-based Moody’s, said the company had worked with Brown’s office for months and was “committed to continuing to do so.”

“Moody’s has already provided tens of thousands of pages of documents in response to his requests, and is continuing to provide additional materials,” Adler said. “We will maintain our ongoing dialogue with the attorney general to resolve the concerns he raised.”