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  • Tue, Nov 11 2008
  • 9:38 AM » Fannie: $100 Billion May Not be Enough
    Published Tue, Nov 11 2008 9:38 AM by Calculated Risk Blog
    From Bloomberg: Fannie Mae may need more than the $100 billion in funding pledged by the U.S. Treasury to stay afloat after reporting a record $29 billion loss and confronting more difficulty in issuing and refinancing debt. ``This commitment may not be sufficient to keep us in solvent condition or from being placed into receivership,'' if there are further ``substantial'' losses or if the company is unable to sell unsecured debt, Washington-based Fannie said in a filing today with the U.S. Securities and Exchange Commission. Here is the filed with the SEC. This statement is under "Risks Relating to Our Business" and is not a prediction from Fannie, just a statement of a possible risk. The huge loss reported today was mostly because of a reduction in deferred tax assets. Here are a few excerpts from the Fannie section on Housing and Economic Conditions: Growth in U.S. residential mortgage debt outstanding slowed to an estimated annual rate of 2.0% based on the first six months of 2008, compared with an estimated annual rate of 8.3% based on the first six months of 2007, and is expected to continue to decline to a growth rate of about 0% in 2009. We continue to expect that home prices will decline 7% to 9% on a national basis in 2008, and that home prices nationally will decline 15% to 19% from their peak in 2006 before they stabilize. Through September 30, 2008, home prices nationally have declined 10% from their peak in 2006. (Our estimates compare to approximately 12% to 16% for 2008, and 27% to 32% peak-to-trough, using the Case-Schiller index.) We currently expect home price declines at the top end of our estimated ranges. We also expect significant regional variation in these national home price decline percentages, with steeper declines in certain areas such as Florida, California, Nevada and Arizona. The deteriorating economic conditions and related government actions that occurred in the third quarter of 2008 have increased the uncertainty...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • Mon, Nov 10 2008
  • 10:49 PM » Fed Delays Plan to Shore Up Money Funds
    Published Mon, Nov 10 2008 10:49 PM by WSJ
    The Fed is delaying a plan to buy up to $540 billion of money funds' short-term debt until later this month.
  • 10:49 PM » Winners and losers from China's $586 billion boost
    Published Mon, Nov 10 2008 10:49 PM by Market Watch
    China’s 4 trillion yuan ($586) billion economic stimulus plan may have lifted sentiment toward global growth, commodities and related stocks, but some market strategists were quick Monday to identify potential losers from the plan, starting with U.S. consumers and Treasury debt.
  • 10:34 PM » Recession fears eclipse AIG rescue, China stimulus
    Published Mon, Nov 10 2008 10:34 PM by Reuters
    NEW YORK (Reuters) - The United States pledged more support for struggling insurer AIG on Monday as international action to halt the financial crisis failed to dent investor sentiment that the economy was in for a long and deep recession.
  • 10:33 PM » Citigroup Offers to Ease Mortgage Terms
    Published Mon, Nov 10 2008 10:33 PM by www.nytimes.com
    The bank joined a growing list of financial institutions which are offering a program to help thousands meet their monthly payments.
    Click Here to Read the Full Article

    Source: www.nytimes.com
  • 10:33 PM » Breakingviews.com: For Regulators, A.I.G. Is Exhibit A
    Published Mon, Nov 10 2008 10:33 PM by www.nytimes.com
    The example of the bailout of A.I.G. shows that regulations are needed to capture any company that becomes too significant to the financial system.
    Click Here to Read the Full Article

    Source: www.nytimes.com
  • 10:33 PM » Housing agencies to widen homeowner help: sources
    Published Mon, Nov 10 2008 10:33 PM by Reuters
    WASHINGTON (Reuters) - The regulator for Fannie Mae and Freddie Mac will on Tuesday announce fresh steps to mitigate foreclosures while a separate agency is preparing to ease terms on another homeowner-aid program, sources familiar with the plans said late on Monday.
  • 3:04 PM » 401(k)s Under Attack!
    Published Mon, Nov 10 2008 3:04 PM by www.minyanville.com
    Late last week the following news story began circulating widely on the Internet and has begun to take on an epic hysterical new life:Dems Target Private Retirement AccountsThe story's scary and misleading headline aside there are some facts to consider:A hearing was held on October 7 by Education and Labor Committee Chairman George Miller (D-CA) to look into the impact of the financial crisis on workers' retirement security. Please read Congressman Miller's opening remarks because there is no mention in them whatsoever about confiscating retirement assets. Instead Congressman Miller mentioned in his remarks and has long been an outspoken advocate of ...
    Click Here to Read the Full Article

    Source: www.minyanville.com
  • 3:04 PM » WSJ Op-Ed: “global depression?”
    Published Mon, Nov 10 2008 3:04 PM by ml-implode.com
    I haven’t seen anything published on the Journal editorial/op-ed pages that articulated even the possibility of a “depression,” much less a “global” one. As recently as this past Spring, they were still publishing op-eds saying the economy was fine and would continue growing. The typical establishmentarian "horses out of the barn" about-face. Also see from Rolfe: One world government? No. Still, when UK Prime Minister Gordon Brown says we should “seize the moment” to build a “global society,” I get a bit queasy. Will leaders at this week’s G20 meeting propose a new supra-national framework to solve various world problems?
    Click Here to Read the Full Article

    Source: ml-implode.com
  • 3:04 PM » Credit Crisis Indicators: Little Progress
    Published Mon, Nov 10 2008 3:04 PM by Calculated Risk Blog
    A daily update ... day to day there has been little progress, but overall most indicators have improved since the crisis started. As an example, the LIBOR is down sharply from 4.82% on Oct 10th to 2.24% today. And the TED spread is at 2.0% from 4.63%. The progress is slow, but there has been progress. LIBOR declined again , from Bloomberg: The London interbank offered rate, or Libor, that banks say they charge each other for such loans declined 5 basis points to 2.24 percent today, the lowest level since November 2004, the British Bankers' Association said. The three-month LIBOR was at 2.29% on Friday. The rate peaked at 4.81875% on Oct. 10. ( Better ) The on 3 month treasuries fell to 0.20 for 0.303%. ( worse ) With the effective Fed Funds rate at 0.23% (), this is probably somewhat in the right range. At some point, I'd like to see the effective Fed funds rate close to the target rate (currently 1.0%). The : 2.02, up slightly from 1.98 ( slightly worse ) The TED spread is around 2.0, but still too high. The peak was 4.63 on Oct 10th. I'd like to see the spread move back down to 1.0 or lower. A normal spread is about 0.5. The from Bloomberg: 103.75 down slightly from 107.25 ( slightly better ). This spread peaked at near 165 in early October, so there has been significant progress, and we are finally getting close to 100. Activity in the Treasury's (SFP). This is the Treasury program to raise cash for the Fed's liquidity initiatives. If this program slows down borrowing, I think that would be a good sign. Here is a . It has been a few days without an announcement from the Treasury... ( no progress ). Weekly Fed Balance Sheet. This will be update weekly. Click on graph for larger image in new window. The Federal Reserve assets increased $105 billion last week to $2.075 trillion. Note: the graph shows Total Factors Supplying Federal Reserve Funds and is an available series that is close to assets. So far the Federal Reserve assets are still increasing...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 2:32 PM » AIG CEO Edward Liddy’s Optimistic Journey
    Published Mon, Nov 10 2008 2:32 PM by Seeking Alpha
    submits: Could American International Group (AIG) be as great a buy at $2 as Wachovia (WB) was? The market certainly has shown little faith this morning in the . AIG will be selling $40B perpetual preferred to the TARP at a 10% dividend plus warrants for 2% of the common equity, receive a 5 year $60B credit facility for 3% over LIBOR plus an undrawn fee of 0.75% and 77.9% of the common equity, and facilities to liquidate a large percentage of CDS and RMBS exposures. The most compelling statement CEO Liddy made during this morning’s conference call was that the latest changes in the Fed and Treasury’s support for AIG are just step 2 in a long journey. I take this to mean that if AIG could show that the government can profit more by even less onerous terms, AIG has further room to negotiate. Liddy implied that even the government’s 79.9% might be negotiable if a reduction in systemic financial risk could be shown.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 2:31 PM » Op-Ed: Solutions for the President-Elect
    Published Mon, Nov 10 2008 2:31 PM by www.minyanville.com
    Barack Obama is the President-Elect of the United States of America. I don’t envy him. He must not let the extremists in his party push him to make hasty short-sighted decisions. President-Elect Obama will need to realize that short-term stimulus packages are the last recourse of weak-minded politicians like George Bush and Nancy Pelosi. Long-term thinking is what’s required at this juncture of history. Barack Obama ran one of the best Presidential campaigns in history. At his first press conference after the victory however he looked a bit lost. It reminded me of the final scene in the movie ...
    Click Here to Read the Full Article

    Source: www.minyanville.com
  • 2:31 PM » Buffet’s Investment in Goldman - Nothing To See Here
    Published Mon, Nov 10 2008 2:31 PM by mrmortgage.ml-implode.com
    Bloomberg put put out a great story on the Lehman saga over the weekend. We already knew most of it, but the color and detail makes for a fun read. One thing I found particularly interesting is how Buffet was ready to do a deal with Lehman during its crisis period. If he would have done so, he would have ended up with a big, fat ZERO. Perhaps this is why Goldman is having such a rough time lately - a Buffet deal does not automatically mean that everything is great. Hearing this should make Buffet chaser investors proceed with caution. Not even Buffet has lived through a global crisis like the one that faces us today and everyone seems to be making the wrong move lately. - Best, Mr Mortgage Source: Bloomberg - Counter-Punching This time around Fuld also reached out to Omaha billionaire Buffett, the man who had ridden to the rescue of Salomon Inc. in 1987, according to two people with knowledge of the approach. He asked investment banking chief , 49, to call , chairman of Berkshire Hathaway-owned MidAmerican Energy Holdings Co., and see if Buffett might be interested in a stake in Lehman. Spurning Buffett The answer was yes, Sokol told McGee. So Fuld called the 78-year-old Buffett. would buy preferred shares that would pay a dividend of 9 percent and could be converted to common at the then-market price of $40, the people said. That was costlier than what other investors demanded, Fuld was told by associates, and he spurned the offer. A few days later, on April 1, Lehman sold $4 billion of convertible preferred stock to public investors with a 7.25 percent interest rate and a 32 percent conversion premium. That meant those buying the convertibles were willing to pay one-third more than the market price for Lehman’s shares if and when they wanted to convert. Buffett was willing to pay only the going price at the time, which would have meant more dilution for existing shareholders. A spokeswoman for Buffett declined to comment. Fuld had saved some money, yet he rebuffed...
    Click Here to Read the Full Article

    Source: mrmortgage.ml-implode.com
  • 2:31 PM » The Wealth Effect of House Price Declines
    Published Mon, Nov 10 2008 2:31 PM by Seeking Alpha
    submits: reckons that wealth effects alone would be sufficient to cause a massive recession, even absent any kind of financial crisis: Homeowners have lost more than $5 trillion in housing wealth. There is a very well established wealth effect whereby $1 of housing wealth is estimated as leading to 5 to 6 cents of annual consumption. This implies that the loss of wealth to date would cause consumption to fall by $250 billion to $300 billion annually (1.7 percent to 2.0 percent of GDP). If you add in the loss of around $6 trillion in stock wealth, with an estimated wealth effect of 3-4 cents on the dollar, then you get an additional decline of $180 billion to $240 billion in annual consumption (1.2 percent to 1.6 percent of GDP).
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 9:14 AM » Peter Schiff Hugely Right, Enormously Wrong as Hard Landing Hits China
    Published Mon, Nov 10 2008 9:14 AM by feeds.feedburner.com
    We will take a look at Schiff from two perspectives shortly. First let's note the massive influx of workers into Chinese cities is now in reverse as . Tens of thousands of migrant workers are leaving the southern Chinese city of Guangzhou after losing their jobs, railway officials say. The increase to 130,000 passengers leaving the city's main station daily is being blamed on the credit crunch. Guangzhou is one of China's largest manufacturing hubs, but many companies who export products have collapsed. Chinese officials are worried that a sudden increase in unemployment could lead to social unrest. The most badly hit export companies are toy, shoe, and furniture manufacturers. There are already reports of demonstrations and social unrest in the provinces of Zhejiang and Guangdong. Toy Manufacturing Collapses Here are a few headlines about the Chinese to exporting business. A total of 3,631 toy exporters or 52.7 percent of the industry's businesses shut down in 2008. They were mainly small-sized toy producers with an export value of less than $100,000. Workers at a toy factory in Guangdong have become the latest victims of the worldwide financial tsunami. More than 6,000 employees lost their jobs when Smart Union, a major toy manufacturer in Dongguan, closed earlier this week. "The main reason for the closure is we are too dependent on the US market, which has become sluggish," said Xu Xiaofang, a Smart Union human resource worker. After losing money for the first half of the year, its cash flow finally dried up. Machinery normally busy churning out toys for major US toy brands Mattel and Disney now sits idle. Speaking in an interview with Guangzhou Daily, Wang Zhiguang, vice-chairman of the Dongguan Toy Industry Association, said: "Of the 3,800-odd toy firms in Dongguan, no more than 2,000 are likely to survive the next couple of years." Xiao Yong, the owner of a Dongguan firm that sells Christmas trees and gifts, is equally worried...
    Click Here to Read the Full Article

    Source: feeds.feedburner.com
  • 8:58 AM » The Housing Solution No One Wants to Hear
    Published Mon, Nov 10 2008 8:58 AM by Seeking Alpha
    Joe Adamaitis submits: For over 50 years, FHA and VA have had in place a program which, if those in DC and elsewhere were to consider, may find itself to be a lifesaver in today's housing crisis. Not to mention it could save us (taxpayers) billions. The simple solution I suggest is to take the FHA guidelines that allow 'qualified buyers' the opportunity to assume a mortgage from someone who needs to sell, can't make payments or is simply mailing in the keys. Take this long time program and authorize Fannie and Freddie to allow all mortgages to be assumable. Deal with the servicers and securities folks in the same manner. Instead of allowing banks to pay dividends, buy out other banks etc., force them to work with these 'qualified buyers' to take over the mortgages of thousands upon thousands of homes.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:58 AM » Larger Bailout for AIG
    Published Mon, Nov 10 2008 8:58 AM by Calculated Risk Blog
    From the NY Times: The Treasury Department and the Federal Reserve were near a deal to abandon the initial bailout plan and invest another $40 billion in the company ... When the restructured deal is complete, taxpayers will have invested and lent a total of $150 billion to A.I.G., the most the government has ever directed to a single private enterprise. ... The revised deal, which may be announced as early as Monday morning ... What a mess ...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • Sun, Nov 9 2008
  • 8:58 AM » The Thundering Herd . . . “Were Pigs”
    Published Sun, Nov 09 2008 8:58 AM by The Big Picture
    “The mortgage business at Merrill Lynch was an afterthought — they didn’t really have a strategy. They had found this huge profit potential, and everybody wanted a piece of it. But they were pigs about it.” – William Dallas, founder of Ownit Mortgage Solutions, a lending business in which Merrill bought a stake a few years ago. > There is a monster Gretchen Morgenson piece in the Sunday Times, titled, . Its about the rise and ignomius fall of Mother Merrill. How did it happen? Bad mortgages. TYPICAL of those who dealt in Wall Street’s dizzying and opaque financial arrangements, Merrill ended up getting burned, former executives say, by inadequately assessing the risks it took with newfangled financial products — an error compounded when it held on to the products far too long. The fire that Merrill was playing with was an arcane instrument known as a synthetic collateralized debt obligation. The product was an amalgam of collateralized debt obligations (the pools of loans that it bundled for investors) and credit-default swaps (which essentially are insurance that bondholders buy to protect themselves against possible defaults). Synthetic C.D.O.’s, in other words, are exemplars of a type of modern financial engineering known as derivatives. Essentially, derivatives are financial instruments that can be used to limit risk; their value is “derived” from underlying assets like mortgages, stocks, bonds or commodities. Stock futures, for example, are a common and relatively simple derivative. Among the more complex derivatives, however, are the mortgage-related variety. They involve a cornucopia of exotic, jumbo-size contracts ultimately linked to real-world loans and debts. So as the housing market went sour, and borrowers defaulted on their mortgages, these contracts collapsed, too, amplifying the meltdown. The synthetic C.D.O. grew out of a structure that an elite team of J. P. Morgan bankers invented in 1997. Their goal was to reduce the risk that Morgan would lose...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 8:57 AM » The End of Our Banking System?
    Published Sun, Nov 09 2008 8:57 AM by Seeking Alpha
    submits: The American Banking System is one of the most regulated industries in America. Since 1935, banks have had to deal with regulations that no other industry has come near. So what went wrong? Because of 1929, banking regulations were devised setting up minimal capital requirements. They established capital adequacy ratios in order to prohibit banks from lending more than 12 times their capital plus retained earnings.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:57 AM » Insights from a Derivatives Salesman
    Published Sun, Nov 09 2008 8:57 AM by Seeking Alpha
    submits: I spent over , from 1993-2003. My role was a transactor in the Structuring and Origination part of the business, advising corporations on all manner of risk management strategies. During this time I saw the power - and the risks - of inappropriate derivatives transactions, either due to unnecessary complexity or blatant mis-application. The 1994 derivatives blow-ups of Proctor & Gamble (PG), Gibson Greetings, Air Products and Orange County, the 1998 leveraged bets of LTCM and assorted scandals ranging from MG to Barings to various municipalities marked the ebbs and flows of the industry. I spent the better part of 1994-95 restructuring broken transactions and giving "best practices" presentations, only to see many of the same mistakes made again and again over the subsequent decade. I have seen the "it" asset class move from interest rates to equity to credit, and transaction volumes move from billions to many trillions. It is a new - and scary - world. My years in derivatives as a practitioner, and now as an observer, have taught me many things and clarified my view of how and where these instruments should be used. Bottom line: is the way forward for the good of hedgers and speculators, promoting stability of the financial markets and protection of governments and taxpayers across the globe .
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:57 AM » Treasury Unveils New Plan To Expand TARP Coverage
    Published Sun, Nov 09 2008 8:57 AM by feeds.feedburner.com
    In late breaking news, Treasury Secretary Paulson has announced a new plan to expand TARP coverage. Congress was behind the push as . House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid sent to send a letter to Treasury Secretary Henry Paulson urging him to assist the Big Three auto makers by considering broadening the $700 billion Troubled Asset Relief Program to help the troubled industry. The two top Democratic leaders in Congress are likely to make the request in a letter to the White House, which could be forwarded as soon as Saturday afternoon, said individuals familiar with the matter. President-elect Barack Obama is generally supportive of the appeal, but at the moment is moving on his own track to assist the industry, these individuals said. Mr. Obama is scheduled to meet with President George W. Bush at the White House Monday. Though the administration is reluctant to widen the program to cover autos, there has been discussion among Bush officials of expanding use of the $700 billion to buy equity stakes in a range of financial-sector companies, moving beyond just banks and insurers. The focus would be on assisting companies that provide financing to the broad economy, such as bond insurers and specialty finance firms such as General Electric Co.'s GE Capital unit, CIT Group Inc. and others, individuals familiar with the matter said. Auto Makers Would Accept Strings on Aid Competition to get under TARP coverage is so high that . The heads of Detroit's three auto makers and the United Auto Workers union pleaded Thursday with Democratic congressional leaders to rush more government aid to their foundering companies, offering to accept conditions such as granting stock warrants to the government in return for capital, a person familiar with the discussions said. President-elect Barack Obama and some other Democrats have expressed support for proposals to double to $50 billion a previously authorized government-loan program aimed at helping...
    Click Here to Read the Full Article

    Source: feeds.feedburner.com
  • 8:42 AM » AIG: We Need More Money
    Published Sun, Nov 09 2008 8:42 AM by The Big Picture
    And so, more errors of these emergency bailouts begins: Once committed to the initial $85 billion dollars, what choice does nation have but to throw good money after bad. Down the rathole: AIG is asking the US government for a new bail-out less than two months after the Federal Reserve came to the rescue of the stricken insurer with an $85bn loan, according to people close to the situation. AIG’s executives were on Friday night locked in negotiations with the authorities over a plan that could involve a debt-for-equity swap and the government’s purchase of troubled mortgage-backed securities from the insurer. People close to the talks said the discussions were on-going and might still collapse, but added that AIG was pressing for a decision before it reports third-quarter results on Monday. AIG’s board is due to meet on Sunday to approve the results and discuss any new government plan, they added. The moves come amid growing fears AIG might soon use up the $85bn cash infusion it received from the Fed in September, as well as an additional $37.5bn loan aimed at stemming a cash drain from the insurer’s securities lending unit. AIG has drawn down more than $81bn of the combined $122.5bn facility. The company’s efforts to begin repaying it before the 2010 deadline have been hampered by its difficulties in selling assets amid the global financial turmoil. Un- frickin -believable . . . > Source: Francesco Guerrera FT, November 8 2008 00:36 http://www.ft.com/cms/s/0/1b1b2622-ad2c-11dd-971e-000077b07658.html
    Click Here to Read the Full Article

    Source: The Big Picture
  • Sat, Nov 8 2008
  • 9:28 AM » The Black Hole Gets Bigger: AIG Back for Yet Another Bailout
    Published Sat, Nov 08 2008 9:28 AM by Google News
    The Financial Times reports that AIG is up to its old tricks, back again to the trough for more money. Christmas The Iceland credit default swaps settlement is coming soon, you know. The worst is that AIG is pretending to act as if this is a negotiation as opposed to extortion. Get a load of this crap: AIG’s executives were on Friday night locked in negotiations with the authorities over a plan that could involve a debt-for-equity swap and the government’s purchase of troubled mortgage-backed securities from the insurer. Ahem, are they trying to help the government by coming up with a fig leaf? Are they assuming that everyone forgot the terms of the original loan? From the : The interests of taxpayers are protected by key terms of the loan. The loan is collateralized by all the assets of AIG, and of its primary non-regulated subsidiaries. These assets include the stock of substantially all of the regulated subsidiaries. The loan is expected to be repaid from the proceeds of the sale of the firm’s assets. The U.S. government will receive a 79.9 percent equity interest in AIG and has the right to veto the payment of dividends to common and preferred shareholders. The "interests of taxpayers are protected bit" now looks like a complete joke. The original loan was ALREADY secured by ALL of AIG's assets. Everything that could be hocked WAS ALREADY hocked. And the government has a 79.9% equity interest. So what is this talk of a debt for equity swap? The government doesn't want to go over 79.9%, then it has to consolidate the operations on its balance sheet. And it has the right of first refusal on everything else (the fact that it has all the assets as security means they cannot be sold unless the proceeds are remitted to the Fed. The mechanics ought to be that AIG gets some sort of waiver in order to complete a sale, but I am certain somewhere the lawyers have a procedure in mind, since it was understood from the get-go that AIG would repay the loan via...
  • 9:28 AM » Bloomberg v. The Fed
    Published Sat, Nov 08 2008 9:28 AM by themessthatgreenspanmade.blogspot.com
    This just in from ... Bloomberg. It appears that some inquiring minds want to know some of the particulars behind the recent government spending spree on toxic securities. Bloomberg Sues Fed to Force Disclosure of Collateral Bloomberg News asked a U.S. court today to force the Federal Reserve to disclose securities the central bank is accepting on behalf of American taxpayers as collateral for $1.5 trillion of loans to banks. The lawsuit is based on the U.S. Freedom of Information Act , which requires federal agencies to make government documents available to the press and the public, according to the complaint. The suit, filed in New York, doesn't seek money damages. ... Bloomberg News on May 21 asked the Fed to provide data on the collateral posted between April 4 and May 20. The central bank said on June 19 that it needed until July 3 to search out the documents and determine whether it would make them public. Bloomberg never received a formal response that would enable it to file an appeal. On Oct. 25, Bloomberg filed another request and has yet to receive a reply. Apparently the details Bloomberg seeks are Top Secret (I'm not kidding - go read the article) and if nothing else, probably somewhat embarrassing.
    Click Here to Read the Full Article

    Source: themessthatgreenspanmade.blogspot.com
  • 9:28 AM » FDIC: Two More Bank Failures Numbers 18 and 19 this year
    Published Sat, Nov 08 2008 9:28 AM by Calculated Risk Blog
    Franklin Bank, S.S.B., Houston, Texas, was closed today by the Texas Department of Savings and Mortgage Lending, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Prosperity Bank, El Campo, Texas, to assume all of the deposits, including those that exceeded the insurance limit, of Franklin Bank. ... As of September 30, 2008, Franklin Bank had total assets of $5.1 billion and total deposits of $3.7 billion. Prosperity Bank agreed to assume all the deposits, including the brokered deposits, for a premium of 1.7 percent. In addition to assuming all of the failed bank's deposits, Prosperity Bank will purchase approximately $850 million of assets. The FDIC will retain the remaining assets for later disposition. ... The FDIC estimates that the cost of today's transaction to its Deposit Insurance Fund will be between $1.4 billion and $1.6 billion. Security Pacific Bank, Los Angeles, California, was closed today by the Commissioner of the California Department of Financial Institutions, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Pacific Western Bank, Las Angeles, California, to assume all of the deposits of Security Pacific. ... As of October 17, 2008, Security Pacific had total assets of $561.1 million and total deposits of $450.1 million. Pacific Western agreed to assume all the deposits for a two percent premium. In addition to assuming all of the failed bank's deposits, Pacific Western will purchase approximately $51.8 million of assets. The FDIC will retain the remaining assets for later disposition. ... The FDIC estimates that the cost to the Deposit Insurance Fund will be $210 million.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • Fri, Nov 7 2008
  • 11:29 AM » Governor Schwarzenegger Proposes Loan Modification Freeze
    Published Fri, Nov 07 2008 11:29 AM by loanworkout.org
    California Gov. Arnold Schwarzenegger is imposing 90-day stays on foreclosures and encouraging lenders to modify existing home loans as a way of keeping people out of foreclosure as part of an economic stimulus package, state officials said on Wednesday. The Governor will ask lawmakers to back legislation on California home foreclosures as part of an [...]
    Click Here to Read the Full Article

    Source: loanworkout.org
  • 11:29 AM » Peter Schiff: ‘There is a major, major crisis coming’
    Published Fri, Nov 07 2008 11:29 AM by ml-implode.com
    Peter Schiff, president of Euro Pacific Capital Inc. and disciple of Austrian School economics, says “a major, major crisis is coming,” thanks to the government’s attempts to ‘fix’ the economy with giant bailouts. Well, he's been right so far.
    Click Here to Read the Full Article

    Source: ml-implode.com
  • 10:41 AM » Illegal Loan Modification Companies: Welcome to the hottest business since subprime!
    Published Fri, Nov 07 2008 10:41 AM by loanworkout.org
    Homeowner Alert: “Typically, the scam started with a flyer sent to the homeowner and many of these mailers look as if they may come from their lender or even the government. But, they are coming from scammers.” Many of these mortgage brokers, loan officer and real estate agents literally make me sick. Not all of [...]
    Click Here to Read the Full Article

    Source: loanworkout.org
  • 10:40 AM » Shiller: ‘More tough times ahead for the US’
    Published Fri, Nov 07 2008 10:40 AM by The Big Picture
    On Australian TV: Source : Reporter: Kerry O’Brien Australian Broadcasting Corporation, Broadcast: November 04, 2008 http://www.abc.net.au/7.30/content/2008/s2410254.htm
    Click Here to Read the Full Article

    Source: The Big Picture
  • 10:40 AM » Wave of Redemptions Hits Hedge Funds
    Published Fri, Nov 07 2008 10:40 AM by feeds.feedburner.com
    Myron Scholes, the 1997 Noble Prize Winning Genius involved in the demise of Long Term Capital Management has done it again. . Platinum Grove Asset Management LP, the hedge-fund firm co-founded by Nobel laureate Myron Scholes, temporarily stopped investor withdrawals from its biggest fund after it lost 29 percent in the first half of October. The decline left Platinum Grove Contingent Master fund with a 38 percent loss this year through Oct. 15, according to investors. Funds employing a similar approach of exploiting differences in the value of related securities fell 14 percent last month and 30 percent this year, according to data compiled by Chicago-based Hedge Fund Research Inc. "The suspension is necessary given current market conditions,'' Ryebrook, New York-based Platinum Grove said in an e-mailed statement today. "Platinum Grove will use this period to consult with its investors and counterparties, determine their future intentions and manage the assets of the fund accordingly.'' Hedge funds are reeling from the worst financial crisis since the Great Depression, losing an average of 20 percent this year, according to Hedge Fund Research. A surge of investor redemptions forced firms such as Blue Mountain Capital Management LLC and Deephaven Capital Management LLC to freeze funds to stem the tide of withdrawals. Scholes, 67, winner of the 1997 Nobel Prize in economics, was a founding partner in Long-Term Capital Management LP, the hedge fund that lost $4 billion a decade ago after a debt default by Russia. He started Platinum Grove in 1999 with Chi-fu Huang, Ayman Hindy, Tong-sheng Sun, and Lawrence Ng, who had all worked at Long-Term Capital. Please see for a recap of the demise of Long Term Capital Management that rocked the world in 1998. In retrospect I should have saved the title "Genius Fails Again" for now. Man Group Has Record Drop Bloomberg is reporting . Man Group Plc, the largest publicly traded hedge-fund manager...
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    Source: feeds.feedburner.com
  • 10:40 AM » Queen Baffled by Credit Crisis
    Published Fri, Nov 07 2008 10:40 AM by Calculated Risk Blog
    From the Sydney Morning Herald: (hat tip Martin) The origins and effects of the crisis were explained to [the Queen] by Professor Luis Garicano, director of research at the LSE's management department ... Prof Garicano said afterwards: "The Queen asked me: 'If these things were so large, how come everyone missed them? Why did nobody notice it'?" Yeah! Hey, Hoocoodanode?!
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    Source: Calculated Risk Blog
  • Thu, Nov 6 2008
  • 3:48 PM » UK: Mortgage Lenders Refuse to Pass on Rate Cut as House Prices Plummet
    Published Thu, Nov 06 2008 3:48 PM by Calculated Risk Blog
    Earlier the BofE announced a dramatic rate cut, The Times reports: But apparently most lenders are not lowering mortgage rates: Britain's biggest mortgage lenders have ignored calls from the Government to pass on today's cut in interest rates to struggling homeowners. ... At midday, the Bank of England announced that the cost of borrowing would fall by 1.5 points to 3 per cent in an effort to shore up the economy and stave off a deep recession. The surprise cut took the base rate to its lowest level in more than half a century. As house prices plummet in the UK: British house prices fell by a record 15 per cent in the year to October as the country's deteriorating economy wiped £30,000 off the value of an average UK home. On a monthly basis, house prices fell by 2.2 per cent between September and October, according to Halifax, Britain's biggest mortgage lender.
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    Source: Calculated Risk Blog
  • 3:48 PM » Seniors Going In Reverse
    Published Thu, Nov 06 2008 3:48 PM by feeds.feedburner.com
    Have you seen Robert Wagner recently? Chances are you have and he’s been talking about reverse mortgages. Reverse mortgages have been touted as a solution for cash strapped seniors allowing them to keep and live in their home while still enjoying a comfortable lifestyle. Comfort has lately taken a back seat to surviving the current economic chaos. Reverse mortgages can help seniors weather some financial disruptions. On November 1, lower origination fees and higher loan limits were introduced on Home Equity Conversion Mortgages (HECMs), the federally insured reverse mortgage program. HECMs account for most (99 percent) of the reverse mortgages being made today although only an estimated 1 percent of those eligible for the program are participating, according to the . With traditional mortgage lenders in serious trouble, property and home values tumbling and the stock market unlikely to reclaim the heights of even 2007, seniors are increasingly finding themselves in financial difficulties. According to report “” from AARP, 58 percent of those surveyed did not think they were saving enough for retirement. Eighty-three percent of those who don’t think they are saving enough for retirement indicate that after paying bills there isn’t enough money left over to save. In fact, 56 percent of surveyed workers over age 45 say they have found it more difficult to pay for basic needs (food, gas, medication, etc.) and 45 percent report having difficulty paying for utilities (heating, cooling, phone service, etc.). Data recently released from Golden Gateway Financial, a comprehensive resource for senior, boomers and those approaching retirement, and reported by further defines the situation: - The average national existing forward mortgage debt during the 3 rd quarter of 2008 was 50 percent higher that the national average of $219,321. - Seniors self-reported a 4.5 percent decline in home values during the 3 rd quarter compared to the 1 st quarter of 2008. - The average age of those...
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    Source: feeds.feedburner.com
  • 1:43 PM » Las Vegas Sands may Default
    Published Thu, Nov 06 2008 1:43 PM by Calculated Risk Blog
    When it comes to overbuilt hotel and commercial space ... and high rise condos too ... Las Vegas is the poster child of bubble credit excess! From Bloomberg: Las Vegas Sands ... said in a regulatory filing today that it ... doesn't expect to meet a maximum leverage ratio covenant in the fourth quarter ... That would trigger defaults that might force the company to suspend development projects and ``raise a substantial doubt about the company's ability to continue as a going concern.'' ... Las Vegas Strip casino gambling revenue slid 6.7 percent this year through August, on track for its biggest annual decline on record, as airlines cut back capacity and consumers, battling declining home values, job losses and the worst financial crisis since the Great Depression, spent less.
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    Source: Calculated Risk Blog
  • 1:43 PM » Election Fun is over, Back to Economic Reality
    Published Thu, Nov 06 2008 1:43 PM by feeds.feedburner.com
    Another guest post from MG Dungan who went from Wharton to Wall St. to real estate to Blown Mortgage. Economies worldwide are in recession and it’s getting worse. The momentum on the downside is too strong and the losses too pervasive to expect bailouts or interest-rate cuts to have more than a temporary effect. At best, government can slow down the rate of decline or perhaps delay a crash, but at a great future cost. In the US, what started out as a housing problem in a few states has now become a full-fledged recession, with a majority of states (30) now in or dangerously close (19) to recession. The single exception is Alaska, according to Moody’s Economy.com. Just in case you thought there might be a way out by moving to a state where prospects are better, it won’t work this time. Mark Zandi, chief economist at Economy.com told ABC News recently. “One of the unique features of this downturn is how broad-based it is regionally.” Jobs According to ADP’s National Employment Report released November 5, “Nonfarm private employment decreased by 157,000 jobs from September to October 2008 on a seasonally adjusted basis.” Keep in mind that the economy must create 150,000 jobs per month to absorb new entrants in the workforce. Friday’s official figures are expected to show unemployment at 6.1%. October’s employment loss was driven by the goods-producing sector, which declined by 126,000 jobs, a 23rd consecutive monthly decline. The manufacturing sector lost another 85,000 jobs. These losses were compounded by a loss of service-related jobs, which fell by 31,000, the first loss in the service-providing sector since November 2002, according to ADP. The estimated change in employment from August to September 2008 was revised down to a decrease of 26,000 from a decrease of 8,000. Not only is that quite the revision, but it’s an indication of what to expect when October’s figures are revised. Service Sector The Institute for Supply Management, a trade group of purchasing executives...
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    Source: feeds.feedburner.com
  • 10:07 AM » Five Key Quotes from PMI about Mortgages and Subprime
    Published Thu, Nov 06 2008 10:07 AM by Seeking Alpha
    From (PMI)
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    Source: Seeking Alpha
  • 10:06 AM » Brad Setser Begs to Differ With Nouriel Roubini on China
    Published Thu, Nov 06 2008 10:06 AM by Google News
    Brad Setser and Nouriel Roubini have collaborated in research and publishing on currencies but since are working independently. Roubini issues a grim outlook for China (""). A cornerstone of Roubini's analysis was that China was export-dependent and exports are falling fast: Note that China is an economy is structurally dependent on exports: net exports (or the trade balance surplus) are close to 12% of GDP (up from 2% earlier in the decade) and exports represent about 40% of GDP. Real investment in China is about 45% of GDP and, leaving aside the part of this investment that is housing and infrastructure spending, about half of this capex spending goes towards the production of new capital goods that produces more exportable goods. So, with the sum of exports and investment representing about 80% of GDP, most of Chinese aggregate demand depends on its ability to sustain an export based economic growth. The trouble –however – is that the main outlet of Chinese exports – the U.S. consumer – is now collapsing for the first time in two decades. Setser characteristically is more measured, and (while not naming Roubini) takes issue with the notion that China is as beholden to exports as Roubini maintains (note he clearly regards net rather than gross exports as the relevant metric): There has long been a rather sterile – at least in my view - debate over how much exports contributed to China’s recent growth. It has long been clear that: a) Most of China’s growth didn’t come from exports. It couldn’t. Net exports almost never generate 10% growth on their own. b) The absolute size of the contribution of net exports to China’s growth was large. In 2005, 2006 and 2007 net exports added between 2 and 3 percentage points to China’s growth. When net exports added close to 3 percentage points to the United States growth in the second quarter, no one argued that the contribution to US growth from net exports was small. ....The World Bank expects that net exports will...
  • 10:05 AM » Is Wall Street Pay Falling Far Enough?
    Published Thu, Nov 06 2008 10:05 AM by Google News
    The New York Times, writing from the industry town, tells us "," tries to make the case that the calls for scalps deeper pay cuts are overdone: The first clues are emerging that Wall Street pay will plummet this year — but perhaps not enough to satisfy the financial industry’s critics. Bonuses, which soared to record heights in recent years, could drop by 20 to 35 percent across the industry, according to a private study to be released on Thursday. Bonuses for top executives could plunge by 70 percent. But to some, those figures, from the consulting firm Johnson Associates, demand the question: Why should Wall Street executives get any bonuses at all? Banks’ profits have plunged, and the government is spending hundreds of billions of dollars to shore up the industry and prevent its problems from dragging down the economy. A report on Wednesday from the New York State Assembly said Wall Street bonuses could tumble 41.3 percent next year, which could further widen a budget deficit.... In an interview on Wednesday, Mr. Cuomo suggested that even 70 percent declines for top executives might not be enough, given a financial blowup that culminated in a $700 billion federal rescue for the industry. Many critics, Mr. Cuomo among them, contend that outsize pay encouraged bankers to take outsize risks in the first place. The crisis that followed led to the bankruptcy of Lehman Brothers, the emergency sales of Bear Stearns and Washington Mutual and federal rescues for the insurance giant American International Group and the mortgage companies Fannie Mae and Freddie Mac. “Given this economic situation, how do you justify any performance bonus at all, is my initial point,” Mr. Cuomo said. Bankers and traders have been rewarded for taking risks that Wall Street clearly failed to manage. “When you incentivize that type of behavior, you shouldn’t be surprised when you find very risky, overly creative, short-term, highly leveraged products,” he said. Mr. Cuomo added that he...
  • 10:04 AM » Regulation or manipulation of the mortgage market - where’s the line?
    Published Thu, Nov 06 2008 10:04 AM by feeds.feedburner.com
    A guest post by Chris Hynes, an indpenedent financial writer. Now that election season for the presidential candidates has officially concluded, voters will be looking forward to some sort of meaningful resolution to the issues facing our economy, particularly in the housing sector. In the final weeks of the campaign, both candidates have called for relief to be given to homeowners, rather than corporations. This kind of populism goes far with voters, with Obama’s agenda clearly making the biggest impression. However, the idea of , or smacks of a government attempt to control the market, rather than to regulate it. However you interpret the meanings of these proposals, they will allow the new president to take the side of the homeowners, rather than the much-maligned bankers. Ironically, the first real step to provide assistance to homeowners since early last year, when the and 4 were announced, comes from those same corporations who have born the brunt of public criticism. The Wall Street Journal reported today that . The article reports that JP Morgan Chase will begin a massive program to shore up its mortgage portfolio by modifying, rather than foreclosing on loans made to borrowers who are unable to keep up with payments. Other banks are likely to follow suit. Bank of America is mentioned in the article as having two loan modification programs ready to be implemented, largely as a result of their purchase of CountryWide Financial. This could represent a turning point in the crisis for several reasons. First, it affirms the notion that the free-market is in fact capable of some degree of self-regulation, given the right incentives. Make no mistake; these behemoth institutions did not suddenly develop a propensity for selfless charity. The modification programs will be used in a way that is best for their bottom line, ensuring that they take the least possible loss on their loans and that the liabilities on their balance sheets are limited. However, with all eyes on...
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    Source: feeds.feedburner.com
  • 10:03 AM » Main Street Recession Watch: ADP Report on Employment
    Published Thu, Nov 06 2008 10:03 AM by www.econbrowser.com
    Further evidence that the small business segment of the economy is undergoing stress. From the : [Joel] Prakken added, "This month's employment loss was driven by the goods-producing sector which declined 126,000 during October, its twenty-third consecutive monthly decline. The manufacturing sector marked its twenty-sixth consecutive monthly decline, losing 85,000 jobs. These losses were compounded by an employment decline in the service-providing sector of the economy which fell by 31,000, the first loss in the serviceproviding sector recorded by the ADP Report since November of 2002." "Large businesses, defined as those with 500 or more workers, saw employment decline 41,000, while medium-size companies with between 50 and 499 workers declined 91,000. Employment among small-size businesses, defined as those with fewer than 50 workers, declined 25,000. This is the first outright decline in small business employment reported by the ADP Report since November of 2002, and the largest percentage decline since the economy was emerging from recession in early 2002 ," said Prakken. Here is a graph breaking down the employment declines. And here is a figure depicting the implications for the nonfarm payroll employment figures, keeping in mind the loose correlation between the ADP numbers and NFP numbers. I think Prakken's last point regarding the downturn in small business employment is of substantial interest as policymakers consider options going forward -- and not only because it puts to rest the dichotomy between Wall Street and Main Street. The appropriate policies depend, in part, upon the reasons for why employment is declining -- credit crunch vs. recession. Obviously both are probably at work, but the proportions are of importance. To the extent the credit crunch is the main issue, the Fed and Treasury need to continue their effort to loosen up lending, and at the minimum reduce the likelihood of financial institution bankruptcies. The last...
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    Source: www.econbrowser.com
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