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  • Mon, Jul 27 2009
  • 11:49 AM » Secondary Sources: Bernanke Reappointment, Federalism, Decoupling
    Published Mon, Jul 27 2009 11:49 AM by WSJ
    A roundup of economic news from around the Web. The New York Times opinion pages this weekend had a pro and con look at whether Ben Bernanke should be reappointed. Anna Schwartz isn’t impressed: “As Federal Reserve chairman, Ben Bernanke has committed serious sins of commission and omission — and for those many sins, he does not deserve reappointment.” Nouriel Roubini takes : “Mr. Bernanke deserves to be reappointed. Both the conventional and unconventional decisions made by this scholar of the Great Depression prevented the Great Recession of 2008-2009 from turning into the Great Depression 2.0.” James Surowiecki of the New York writes about the problems with state governments. “If you came up with a list of obstacles to economic recovery in this country, it would include all the usual suspects—our still weak banking system, falling house prices, overindebted consumers, cautious companies. But here are fifty culprits you might not have thought of: the states. Federalism, often described as one of the great strengths of the American system, has become a serious impediment to reversing the downturn.” Sébastien Wälti looks at the decoupling myth. “Have emerging market economies decoupled from advanced economies’ business cycles? This column, looking at emerging markets’ trend growth rates, argues that decoupling was always a myth and that globalization brings national business cycles closer together.” Compiled by
  • 11:02 AM » Bernanke Live: Fed Chairman Faces PBS Viewers
    Published Mon, Jul 27 2009 11:02 AM by WSJ
    After testifying at three congressional hearings in the past week, Ben Bernanke takes his show on the road tonight for a different kind of audience. Bernanke, seen here during congressional testimony, faces a different kind of audience in a town-hall meeting Sunday night. (Getty Images) The Federal Reserve chairman is in Kansas City, Mo., for a town-hall forum hosted by The NewsHour’s Jim Lehrer . The taped program will appear this week . But we’re here at the Federal Reserve Bank of Kansas City to bring it to you live on Real Time Economics. It’s pretty good timing for Mr. Bernanke. He has six months and five days left in his four-year term as chairman. In the coming months, President Obama will decide whether to reappoint Mr. Bernanke or choose someone else (that is, someone with Democratic credentials) to lead the central bank. The Fed chairman’s from the deep recession and his decisions ahead of it. At the same time, the Fed is who want the central bank’s power reined in after its extraordinary actions to keep the economy from falling into another depression. So the former professor has spent this year moving beyond the Fed’s usual forums. He appeared before the National Press Club in February, sat down for and to explain his actions and show he’s not afraid to take on public criticism. You also can see a rundown of the event on . An executive with The NewsHour was telling reporters the program’s goal for tonight. Then Mr. Bernanke stopped by to say hello before the forum started, so one reporter asked him his goal for the event. His answer: “My goal is to talk to people outside the Beltway to hear what they are thinking, and do the best I can to try to explain what’s happening in the economy.” Discussions to do the forum began in March after the “60 Minutes” program featuring Mr. Bernanke, said Robert Flynn, a spokesman for The NewsHour. Why Kansas City? “We wanted to be somewhere in the middle of the country, away from the coasts and away from Washington,” he said...
  • 10:47 AM » Leading Indicators Say “The End is Near”
    Published Mon, Jul 27 2009 10:47 AM by The Big Picture
    click for larger graphic via > I saved this from Saturday’s Off the Charts column by Floyd Norris: THE American recession appears to be nearing an end, but only after it has become the deepest downturn in more than half a century. The index of leading indicators, which signals turning points in the economy, is rising at a rate that has accurately indicated the end of every recession since the index began to be compiled in 1959. The index was reported this week to have risen for the third consecutive month in June, and to have risen at a 12.8 percent annual rate over those three months. Such a rise, pointed out Harm Bandholz, an economist with UniCredit Group, “has always marked the end of the contraction.” Mr. Bandholz said he expected that the National Bureau of Economic Research, the official arbiter of American economic cycles, would eventually conclude that the recession bottomed out in August or September of this year. Why isn’t the Conference Board ready to declare the recession over? The index of coincident indicators — now down for eight consecutive months (down 17 of the last 19 months). That indicator is often used by the National Bureau of Economic Research in making dating decisions, and its failure to stabilize is likely why we haven’t seen any declaration that the downturn is officially over yet. > Source: Floyd Norris NYT, July 24, 2009 http://www.nytimes.com/2009/07/25/business/economy/25charts.html
    Click Here to Read the Full Article

    Source: The Big Picture
  • 8:27 AM » Does new appraisal rule help or harm home buyers?
    Published Mon, Jul 27 2009 8:27 AM by Market Watch
    New rules aimed at making home appraisals more accurate are raising costs and prompting longer waits to get to the closing table, some in the mortgage industry say.
  • 8:27 AM » S&P's 'Refined Criteria' for Rating CMBS Conduits
    Published Mon, Jul 27 2009 8:27 AM by Seeking Alpha
    submits: For those who have been following the saga of Standard & Poor’s abrupt change of heart on ratings of commercial mortgage-backed securities, below are the key sections of S&P’s changes in criteria. As the reported today “Confidence in the dysfunctional market for securities backed by commercial mortgages has been further dented after a rating flip-flop by Standard & Poor’s caused confusion.” The rating agency, which recently changed its criteria for large numbers of bonds backed by loans for shopping malls, office towers and other commercial property, upgraded bonds to triple A just days after those same bonds had been sharply downgraded.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:27 AM » NAHB delvers testimony on Hill: Appraisal and AD&C problems hampering housing recovery
    Published Mon, Jul 27 2009 8:27 AM by Google News
    July 23, 2009 - The National Association of Home Builders (NAHB) told Congress today that inappropriate appraisal practices and the acquisition, development and construction (AD&C) lending crisis that has choked off credit for home builders threaten to prolong the current housing and economic downturn. Testifying before the House Small Business Subcommittee on Finance and Tax, NAHB Chairman Joe Robson, a home builder from Tulsa, Okla., said these two issues “are placing enormous pressure on home builders’ bottom lines and, for many, endangering their ability to survive the economic downturn. Additional credit resources could be extremely helpful to them and other small businesses to bridge the divide and survive to the eventual economic recovery.” While there are several signs that the housing market may now be at or near bottom – new and existing home sales have stabilized, the inventory of unsold homes continues to fall and single-family housing starts have posted four consecutive monthly gains – Robson said the appraisal and credit crunch problems are headwinds that continue to buffet any significant housing recovery. “The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices and forestalling an economic recovery,” he said, citing a recent NAHB survey that found 26 percent of builders are losing sales because appraisals on their homes are coming in below the contract sales price. These appraisal practices are a major contributing factor to the current AD&C credit crisis. Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans. NAHB is calling on housing and federal financial regulators to adopt clear, concise regulatory guidelines that will allow appraisers to develop realistic valuations based on sales that are truly comparable...
  • 8:27 AM » Homeownership Society: All in Good Time
    Published Mon, Jul 27 2009 8:27 AM by CNBC
    Posted By: Many moons ago, like back in the George W. Bush administration, home ownership was all the rage. The "ownership society," some say, was the political impetus for the scandalous, irrational, negligent subprime lending that served to bring down the nation's economy. So as the mortgage market unwound, the homeownership rate fell, and all the politicians kept quiet, because that was the right thing; that was the necessary punishment for collective irresponsible behavior. Topics: | | Sectors: | MEDIA:
  • 8:27 AM » Countrywide Offers Help to Former Customers
    Published Mon, Jul 27 2009 8:27 AM by Realtor.Org
    Bank of America, which acquired Countrywide a few months ago, has started issuing checks to former customers who are eligible for foreclosure assistance.
  • 8:19 AM » Real Yields Highest Since 1994 To Aid Record Debt Sales
    Published Mon, Jul 27 2009 8:19 AM by Bloomberg
    The highest inflation-adjusted yields in 15 years are helping provide the Treasury with record demand at auctions as the U.S. prepares to sell $115 billion of notes this week. Treasuries are the cheapest relative to inflation since 1994 after consumer prices fell 1.4 percent in June from a year earlier. The real yield, or the difference between rates on government securities and inflation, for 10-year notes was 5.11 percent today, compared with an average of 2.74 percent over the past 20 years
  • 8:12 AM » Secretary Geithner’s China Strategy: A Viewer’s Guide
    Published Mon, Jul 27 2009 8:12 AM by Google News
    On Monday and Tuesday of this week, Treasury Secretary Geithner – and Secretary of State Clinton - meet with a . (Could someone please update the ? At 7am on Monday it still shows last week’s agenda). According to official previews (i.e., the apparent contents of background briefings given to wire services), the economic topics are China’s concerns about the value of the dollar (i.e., their investments in the U.S.) and the amount of debt that the U.S. will issue this year. This is absurd. China decided to accumulate over $2trn worth of reserves, most of which they are presumed to hold in dollars. No one compelled, suggested, or was even particularly pleased by their massive current account surplus (peaked at 11% of GDP in 2007, but still projected at 9.5% of GDP for 2009). We can argue about whether this surplus - arguably the largest on modern record for a major country – was intentional or the result of various policy accidents. Irrespective of underlying cause, any country that runs such a current account surplus is implicitly taking a great deal of currency risk – China was in effect deciding to take the biggest ever official long-dollar position. The idea that the US government should spend time reassuring them is somewhere between quaint and not good strategy. If China decides to now shift out of dollars, what would happen? Remember that the US left the world of fixed exchange rates and associated rigidities a long time ago – back in the early 1970s. The dollar would surely depreciate and inflation would likely rise. But who cares? A weaker dollar would help our exports. It’s not honorable for the issuer of a reserve currency to talk down its own exchange rate (hence the ), but if a third party leads a big sell-off, what can we do about it? Treasury’s concern is not really the value of the dollar – particularly as they would like a bit of inflation at this point; again, if it’s China’s fault that the real value of our debts falls, that might play (or spin) well...
  • Sun, Jul 26 2009
  • 7:48 PM » Preemptive Defaults
    Published Sun, Jul 26 2009 7:48 PM by Google News
    Many consumers, trapped in a whirlpool of debt, interest payments, and fees spiraling out of control, finally see the light of preemptive defaults and elect to walk away. Please consider the New York Times article . Those on the front lines of the debt industry say there is a small but increasingly noticeable group of strapped consumers who are deciding they will simply stop paying. After loading up on debt eagerly provided by the card companies during the boom times, these people now find themselves trapped in an endless cycle where they are charged interest on interest and fees upon fees while the lenders get government bailouts. They are upset — at the unyielding banks and often at their free-spending selves — and are pre-emptively defaulting. They could continue to pay for a while longer but instead are walking away. “You reach a point where you embrace the darkness of default,” said Adam Levin, chairman of the financial products Web site Credit.com. “They’ve done the math on their account and they’re very angry,” said Corey Calabrese, a Fordham Law student who is an administrator of the school’s walk-in clinic for debtors at Manhattan Civil Court. Public sentiment is on their side, she added: “For the first time, Americans are no longer blaming the borrower but are looking at the credit card companies.” According to a Quinnipiac University poll in February, 62 percent of those polled blamed lenders “who loaned the money to people who may not be able to pay it back.” Only a quarter blamed homeowners. Like many who default, Ms. Birks first asked her credit card company to lower her 19 percent interest rate. No dice, Bank of America responded. After she tried to get the bank’s attention by skipping a payment, it immediately raised her rate to 25 percent. As Ms. Birks’ debt swelled, so did a sense of injustice mingled with helplessness. Ms. Birks asked Bank of America about a settlement this spring. Since her account was up to date, she was told she didn’t qualify....
  • Fri, Jul 24 2009
  • 3:57 PM » NAR UPDATE: FHFA and GSEs Act on HVCC Concerns
    Published Fri, Jul 24 2009 3:57 PM by Google News
    To: All REALTORS® From: Charles McMillan, 2009 NAR President Re: UPDATE: FHFA and GSEs Act on HVCC Concerns Dear Fellow REALTOR®, I am writing to you with an important update on NAR’s efforts to address ongoing problems with recent changes to appraisal rules. As a direct result of my recent meetings with the New York Attorney General’s office, the Federal Housing Finance Agency, and Fannie Mae, both Freddie Mac and Fannie Mae this week issued new guidance to all lenders on the Home Valuation Code of Conduct. The alert clarifies two very important points that we raised in our meetings with officials. First, it states that lenders should use appraisers who have clear experience in the geographic area. Second, it clarifies that appraisers are not prohibited from talking to real estate agents. In addition to this guidance, both Fannie Mae and Freddie Mac recently posted extensive Qs and As on their respective web sites, based on information that NAR provided when the code was first adopted in May. We have posted links to all of this information at: . Although this is certainly a step in the right direction, more still needs to be done to address problems with the HVCC. NAR will continue to push for a moratorium on the Code, and I will continue to meet with industry partners and officials to convey our concerns. Thanks to all REALTORS® who have shared experiences and concerns with us. Once again, you have proven that we are the “Voice for Real Estate,” and I am proud to serve as your 2009 President. Sincerely, Charles McMillan, CIPS, GRI 2009 NAR President
  • 3:56 PM » Agencies Release Revisions to Interagency Questions and Answers and Proposed New Questions Regarding Flood Insurance
    Published Fri, Jul 24 2009 3:56 PM by Google News
    The federal bank, thrift, credit union, and Farm Credit System regulatory agencies today released and requested public comment on several new ones. The supersedes the 1997 interagency questions and answers document and supplements other guidance or interpretations issued by the agencies and the Federal Emergency Management Agency (FEMA). The Interagency Questions and Answers Regarding Flood Insurance (2009) consists of 77 questions and answers, which were revised based in part on comments received during the public comment period. The agencies are also proposing for public comment five new questions and answers on determining insurable value in calculating the maximum limit of coverage available for the particular type of property and the timing of force placement of required flood insurance by lenders. After receiving and considering public comment on the five new proposed questions and answers, the agencies intend to incorporate them into the Interagency Questions and Answers Regarding Flood Insurance (2009). The Federal Deposit Insurance Corporation, Federal Reserve Board, National Credit Union Administration, Office of the Comptroller of the Currency, Office of Thrift Supervision, and Farm Credit Administration invite comment on the five proposed questions and answers and, more generally, on other issues and concerns regarding compliance with the federal flood insurance statutes and regulations. Comments specific to the proposed questions and answers regarding determination of insurable value and force placement of required flood insurance are requested by September 21, 2009. The Federal Register notice is attached with instructions on how to submit comments.
  • 3:56 PM » Best Practices: Appraisals - Freddie Mac Single-Family Guide Bulletin 2009-18 Highlights Requirements and Best Practices for Sound Mortgage Underwriting
    Published Fri, Jul 24 2009 3:56 PM by Google News
    Although Freddie Mac has seen improvements in credit quality over the last few months, we are still seeing a number of deficiencies in the underwriting process. To address this concern, we are issuing to help you enhance your underwriting processes and controls, and mitigate the risk of defaults and repurchases. With this Guide Bulletin, we are announcing changes to our underwriting requirements, providing additional guidance and emphasizing existing requirements for underwriting a borrower and appraisals, and sharing underwriting best practices that will help strengthen the quality of the mortgages you deliver to Freddie Mac. Today's Guide Bulletin is aligned with our efforts to work with you to rebuild a strong mortgage finance system. By promoting responsible lending standards that withstand market fluctuations, we can work to ensure that you and your borrowers are successful throughout the entire life of a mortgage. The revised underwriting requirements announced in today's Guide Bulletin are effective for all mortgages with applications dated on or after October 1, 2009 , and settlement dates on or after January 1, 2010. While the new requirements are not effective until October, we strongly recommend that you begin underwriting mortgages with these new requirements to help strengthen your origination processes and enhance the quality of the mortgages you deliver to Freddie Mac. We encourage you to thoroughly review the Bulletin to learn more about the requirement changes and best practices. Underwriting appraisals. We recognize the challenges that current market conditions pose in connection with determining accurate property values. To help you address these challenges, we strongly recommend that you become familiar with our appraisal requirements detailed in Guide Chapter 44 and the best practices outlined in today's Bulletin. Our reminders include information about selecting qualified appraisers, maintaining qualified staff to underwrite appraisals...
  • 3:56 PM » Q2: Homeowner Vacancy Rate Declines, Rental Vacancy Rate at Record High
    Published Fri, Jul 24 2009 3:56 PM by Calculated Risk Blog
    This morning the Census Bureau the homeownership and vacancy rates for Q2 2009. Here are a few graphs ... Click on graph for larger image in new window. The homeownership rate increased slightly to 67.4% and is now at the levels of Q2 2000. Note: graph starts at 60% to better show the change . The homeownership rate increased in the '90s and early '00s because of changes in demographics and "innovations" in mortgage lending. The increase due to demographics (older population) will probably stick, so I expect the rate to decline to the 66% to 67% range - and not all the way back to 64% to 65%. The homeowner vacancy rate was 2.5% in Q2 2009. This is the lowest vacancy rate since mid-2006, but still very high. A normal rate for recent years appears to be about 1.7%. This leaves the homeowner vacancy rate about 0.8% above normal, and with approximately 75 million homeowner occupied homes; this gives about 600 thousand excess vacant homes. The rental vacancy rate increased to a record 10.6% in Q2 2009. It's hard to define a "normal" rental vacancy rate based on the historical series, but we can probably expect the rate to trend back towards 8%. According to the Census Bureau there are close to 40 million rental units in the U.S. If the rental vacancy rate declined from 10.6% to 8%, there would be 2.6% X 40 million units or about 1.04 million units absorbed. These excess units will keep pressure on rents and house prices for some time.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 3:47 PM » FHFA Comments on HVCC
    Published Fri, Jul 24 2009 3:47 PM by FHFA
    The Home Valuation Code of Conduct (Code) announced by Fannie Mae and Freddie Mac (Enterprises) in December 2008 was developed after a long period of public input and was deployed on May 1, 2009, after a four-month transition period. The Code expanded on existing Enterprise appraisal standards, seeking to redress problems that contributed to the current mortgage crisis and to improve the quality of the mortgage loans they purchase.
  • 3:42 PM » Is the Fed About to Lose On “Systemic Risk” Legislation?
    Published Fri, Jul 24 2009 3:42 PM by The Big Picture
    It is really fascinating to see how much people underestimate the political staying power of technocrats such as FDIC Chairman Sheila Bair and SEC Chairman Mary Schapiro. I get the distinct feeling that some senior members of the media, analysts and the banking community, still don’t see the ladies as serious players. If you bother to look at the Players’ Roster of American politics, it is clear that the ladies are very much in the ascendancy in Washington, both in government and in the lobbyist community. Consider the movement in terms of legislation on regulatory reform. The ebb and flow of the debate is headed very much in the direction of collective, shared authority for determining when a TBTF bank or, more specifically, a non-bank company such as AIG needs restructuring. This goes directly contrary to the Geithner proposal to give this function to the Fed. Bair’s comments here about why giving the sole authority to the Fed or any single agency is a bad approach are instructive: “The macro-prudential oversight of system-wide risks requires the integration of insights from a number of different regulatory perspectives — banks, securities firms, holding companies, and perhaps others. Only through these differing perspectives can there be a holistic view of developing risks to our system. As a result, for this latter role, the FDIC supports the creation of a Council to oversee systemic risk issues, develop needed prudential policies and mitigate developing systemic risks. In addition, for systemic entities not already subject to a federal prudential supervisor, this Council should be empowered to require that they submit to such oversight, presumably as a financial holding company under the Federal Reserve — without subjecting them to the activities restrictions applicable to these companies.” By making such decisions collective, inter-agency processes, the tendency at the Fed for cults of personality a la the “Greenspan doctrine” to guide decision making will be largely...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 3:41 PM » Commercial vs Residential Real Estate
    Published Fri, Jul 24 2009 3:41 PM by The Big Picture
    Historically, Commercial Real Estate lags Residential by about 2 years. Here is what the past 10 years look like: > > Source: Rolfe Winkler Reuters, July 23rd, 2009 http://blogs.reuters.com/rolfe-winkler/2009/07/23/the-cre-disaster-comparing-with-residential/
    Click Here to Read the Full Article

    Source: The Big Picture
  • 3:40 PM » Bulls and Bears Playing Chicken?
    Published Fri, Jul 24 2009 3:40 PM by www.minyanville.com
    Greetings from Big Day Friday in New York where today and this rally as a whole has gotten to a point where bulls and bears are challenging on another to the “Chickie Races” ala Rebel Without a Cause. We have bears -- lousy with quite logical causes but a ton of losing trades on their books and we have bulls -- endlessly cocky as they are with any rally but with hopelessly thin arguments for their positioning: “The market says I’m right." As is the case with most good arguments “the market says I’m right” is hard to battle ...
    Click Here to Read the Full Article

    Source: www.minyanville.com
  • 3:40 PM » Geithner Wants Bank Reform by Year-End
    Published Fri, Jul 24 2009 3:40 PM by WSJ
    Geithner called on lawmakers to complete a revamp of the financial regulatory system by the end of the year.
  • 3:40 PM » Moody's Says Risk Governance at Many Big Banks Still Lacking
    Published Fri, Jul 24 2009 3:40 PM by Seeking Alpha
    submits: Moody’s thinks corporate risk governance is still lacking at many large banks. In a Special Comment, Moody’s said there is significant room for improvement in the risk governance of many large banks and added that it will be looking closely at the issue in determining bank credit ratings. Moody’s singled out () , and () as exceptions, with all three banks having a powerful Chief Risk Officer reporting to the CEO and the Board. By contrast the CROs at Barclays (), Goldman Sachs () and HSBC () report to the CFO. Santander also leads in the frequency of risk committee meetings at 120, followed by at 45.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 12:34 PM » Keepin' It Real Estate: Why Housing Prices Are Essentially Meaningless
    Published Fri, Jul 24 2009 12:34 PM by www.minyanville.com
    It took the Wall Street Journal an entire survey to prove what readers of this column have known for months: The housing recovery as it plays out will be a localized event varying greatly city to city neighborhood to neighborhood street to street. The Journal God bless them compiled housing data to compare inventory changes months supply price drops unemployment and default rates across 28 US metro areas. Unsurprisingly bubble markets like Las Vegas Phoenix and Miami look particularly horrid whereas areas like Dallas (which avoided much of the housing mania) and cities like Charlotte and Seattle (which are just ...
    Click Here to Read the Full Article

    Source: www.minyanville.com
  • 10:45 AM » Home Vacancy Rate Fell to 2.5% in Second Quarter
    Published Fri, Jul 24 2009 10:45 AM by CNBC
  • 10:45 AM » CIT Amends Debt Offer to Attract Creditors
    Published Fri, Jul 24 2009 10:45 AM by CNBC
  • 9:43 AM » Stock Traders Find Speed Pays, in Milliseconds
    Published Fri, Jul 24 2009 9:43 AM by www.nytimes.com
    It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.
    Click Here to Read the Full Article

    Source: www.nytimes.com
  • 8:43 AM » FASB Considering Requiring All Financial Assets Be Marked at Fair Values
    Published Fri, Jul 24 2009 8:43 AM by Seeking Alpha
    submits: This is a huge deal. FASB is considering requiring all financial assets be valued at fair values on balance sheets. Hat tip Andrew. (notice my highlighting in bold): The scope of the FASB’s initiative, which has received almost no attention in the press, is massive. All financial assets would have to be recorded at fair value on the balance sheet each quarter, under the board’s tentative plan .
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 8:42 AM » The Wall Street Rally: Watch Your Wallets
    Published Fri, Jul 24 2009 8:42 AM by robertreich.blogspot.com
    Been Down So Long It Seems Like Up To Me , the precocious 1966 novel by the late Richard Farina, defined the late 1960s counterculture. The stock market rally that's pushed the Dow Jones Industrial Average back above 9000 for the first time since early January could be given the same title, and it might well come to define the much-wished-for financial recovery. What's pushing the stock market upward? Mainly, unexpectedly positive second-quarter corporate profits. But those profits aren't being powered by consumers who have suddenly found themselves with a lot more money in their pockets. The profits are coming from dramatic cost-cutting -- including, most notably, payroll cuts. If a firm cuts its costs enough, it can show a profit even if its sales are still in the basement. The problem here is twofold. First, such profits can't be maintained. There's a limit to how much can be cut without a business eventually disappearing -- becoming, in effect, a balance sheet in space. Secondly, when businesses slash payrolls to show profits, consumers end up with even less money in their pockets to buy the things businesses produce. Even if they hold on to their jobs, they're likely to fear that they won't have the jobs for long, which causes them to retreat even further from the malls. Most companies that have reported earnings so far have surpassed analyst's estimates, but that only means that earnings have been less bad than analysts had feared. According to the chief investment officer at BNY Mellon Wealth Management, if the companies that haven't yet reported earnings show the same pattern a the companies that have reported so far, overall corporate earnings will have dropped 25 percent over the past year. That may not be as much of a drop as analysts had expected, but it's still awful. Operating income for companies in the S&P 500 that have reported so far has been almost 29 percent lower than last year, more than 80 percent lower...
    Click Here to Read the Full Article

    Source: robertreich.blogspot.com
  • 8:41 AM » Guest Contribution: The Invisible Hand Isn’t Broken
    Published Fri, Jul 24 2009 8:41 AM by WSJ
    The free market has gotten a bad rap, but the invisible hand was never meant to be completely unfettered, writes Steven G. Medema , professor of economics at the University of Colorado Denver and the author of “.” The current economic crisis has led to any number of calls for us to rethink the market system. The meltdown in the financial sector, it is argued, constitutes proof that Adam Smith’s “invisible hand” cannot do the trick. But people may want to think twice before leaping to the ostensible safety of the state. Adam Smith might say the current crisis is proof the market works. The idea that the self-interested behavior could be good for the economy did not originate with Smith, but he provided the theoretical ammunition for this view and remains the historical figure with whom it is most closely associated. Smith’s view of things was that businessmen do indeed pursue their self-interest, but that such behavior can redound to the best interests of society as a whole — higher national wealth, lower goods prices for consumers, etc. — if that self-interested behavior is encased within a competitive market environment. This, of course, is Smith’s famous “invisible hand” argument, which has been championed by some as an argument for minimalist government and derided by others as a myth that has been disproved by events. But as convinced as Smith was of the utility of the market for promoting economic growth attended by benefits that extend across the population, he was not a champion of unfettered markets. Smith wrote at a time when various government schemes of protection established monopolies across the economy, which generated higher prices for consumers at the same time that they enriched the narrow classes of protected businessmen. He advocated the competitive process as an alternative to that system. Smith saw an important role for the state within the market process. He was well aware that the unfettered pursuit of self-interest had many pitfalls associated...
  • 8:41 AM » Minimum Wage Hike Means More Recession?
    Published Fri, Jul 24 2009 8:41 AM by CNBC
    A federal minimum wage increase that takes effect Friday could prolong the recession, some economists say, by forcing small businesses to lay off the same workers that the pay hike passed in better times was meant to help.
  • 8:41 AM » Shadow Housing Inventory? Only the Banks Know
    Published Fri, Jul 24 2009 8:41 AM by CNBC
    Posted By: Today's relatively good news from the National Association of Realtors only added to the posse of positives in housing data. Sales are up for the third straight month, prices, while down, are not as far down as last month, and housing starts rose unexpectedly in June after builder confidence posted a gain as well. So what's bothering me? Inventory. Topics: | | Sectors: | MEDIA:
  • Thu, Jul 23 2009
  • 6:27 PM » A Look Inside Fed’s Balance Sheet — 7/23/09 Update
    Published Thu, Jul 23 2009 6:27 PM by WSJ
    You need to upgrade your Flash Player The Fed’s balance sheet shrunk in the latest week to $2.024 trillion from $2.057 trillion. Direct-bank lending fell under $300 billion for the first time since September 2008, while last week’s $2 billion jump in central-bank liquidity swaps was more than erased by this week’s $22 billion decline. The makeup of the balance sheet continued to shift out of emergency facilities and into Treasurys, agency debt and mortgage-backed securities. The Fed started a program in March to ramp up such acquisitions in order to push down long-term interest rates low. The holdings of all three debt classes increased in the latest week, but purchases of mortgage-backed securities soared, rising by $19 billion to $535 billion, more than a quarter of the total balance sheet. In an effort to track the Fed’s actions, Real Time Economics has created an interactive graphic that will mark the expansion of the central bank’s balance sheet. Every Thursday afternoon, the chart will be updated with released by the Fed. In an effort to simplify the composition of the balance sheet, some elements have been consolidated. Portfolios holding assets from the Bear Stearns and AIG rescues have been put into one category, as have facilities aimed at supporting commercial paper and money markets. The direct bank lending group includes term auction credit, as well as loans extended through the discount window and similar programs. Central bank liquidity swaps refer to Fed programs with foreign central banks that allow the institutions to lend out foreign currency to their local banks. Repurchase agreements are short-term temporary purchases of securities from banks, which are looking for liquidity and agree to repurchase them on a specified date at a specified price. Click and drag your mouse to zoom in on the chart. Clicking the check mark on categories can add or remove elements from the balance sheet.
  • 6:27 PM » Bloomberg's Weil on Proposed New FASB Mark-to-Market Initiative
    Published Thu, Jul 23 2009 6:27 PM by Calculated Risk Blog
    From Jonathan Weil at Bloomberg: (ht James, Michael) The scope of the FASB’s initiative, which has received almost no attention in the press, is massive. All financial assets would have to be recorded at fair value on the balance sheet each quarter, under the board’s tentative plan. This would mean an end to asset classifications such as held for investment, held to maturity and held for sale, along with their differing balance-sheet treatments. Most loans, for example, probably would be presented on the balance sheet at cost, with a line item below showing accumulated change in fair value, and then a net fair-value figure below that. For lenders, rule changes could mean faster recognition of loan losses, resulting in lower earnings and book values. I'll believe it when I see it! And on how this would apply to CIT: [CIT] said in a footnote to its last annual report that its loans as of Dec. 31 were worth $8.3 billion less than its balance sheet showed. The difference was greater than CIT’s reported shareholder equity. That tells you the company probably was insolvent months ago, only its book value didn’t show it. And for those looking for a market graph: Click on graph for larger image in new window. This graph is from Doug Short of (financial planner): "Four Bad Bears". Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 4:53 PM » More REMICs: Say What?
    Published Thu, Jul 23 2009 4:53 PM by Seeking Alpha
    submits: REMICs are R eal E state M ortgage I nvestment C onduits. A Financial Times article today by Tracy Alloway, entitled "Re-Remic-ing the Talf" (), discusses problems arising because of degrading credit ratings (and likely further ratings downgrades) for existing CMBS (Collateralized Mortgage Backed Securities). In addition to residential mortage based securities, CRE (Commercial Real Estate) securities are now experiencing higher defaults, with most especting many more to follow.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 4:53 PM » Commercial Mortgage Portfolios and America's Banks: Is the Sky Falling?
    Published Thu, Jul 23 2009 4:53 PM by Seeking Alpha
    submits: The story of “Chicken Little” and his famous proclamation was originally thought to be one of Aesop’s Fables but really got its start in early Africa. The main tenet can also be traced to Gautama Buddha’s time (600 BC) although the latter tale uses a hare and a lion. Regardless of the exact provenance, the moral is the same; keep the exaggeration to a minimum and always look on the bright side. Given then, that most have us have heard this story at least once in our lives and have passed it on, possibly multiple times, it is not a stretch to think that it has had some impact on our outlook.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 4:22 PM » Real Estate: Commercial and Residential Prices
    Published Thu, Jul 23 2009 4:22 PM by Calculated Risk Blog
    Here is a comparison of the and the Case-Shiller composite 20 index. Notes: Beware of the "Real" in the title - this index is not inflation adjusted - that is the name of the company (an unfortunate choice for a price index). Moody's CRE price index is a repeat sales index like Case-Shiller. Click on graph for larger image in new window. CRE prices only go back to December 2000. The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes). This shows residential leading CRE (although we usually talk about residential investment leading CRE investment , but in this case also for prices), and this also shows that prices tend to fall faster for CRE than for residential. There has been some of the “de-stickification” of house prices in areas of heavy foreclosure activity. Price behavior for foreclosure resales is probably similar to CRE because there is no emotional attachment to the property. But prices in bubble areas like coastal California, with little foreclosure activity, will probably exhibit more stickiness and decline, in real terms, over a longer period than the high foreclosure areas.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 4:22 PM » More on Existing Home Inventory
    Published Thu, Jul 23 2009 4:22 PM by Calculated Risk Blog
    Here is another graph of inventory. This shows inventory by month starting in 2004. Inventory in June 2009 was below the levels in June 2007 and June 2008 (this is the 5th consecutive month with inventory levels below 2 years ago) and almost down to the levels of June 2006. It is important to watch inventory levels very carefully. If you look at the 2005 inventory data, instead of staying flat for most of the year (like the previous bubble years), inventory continued to increase all year. That was one of the key signs that led me to call the top in the housing market! Note: there is probably a substantial shadow inventory – homeowners wanting to sell, but waiting for a better market - so existing home inventory levels will probably stay elevated for some time. There are also reports of REOs being held off the market, so inventory is probably under reported. The second graph shows the year-over-year change in existing home inventory. Prices will probably continue to fall until the months of supply reaches more normal levels (closer to 6 months compared to the current 9.4 months), and that will take some time. However this trend of declining year-over-year inventory levels is a positive for the housing market (while remembering the shadow inventory)
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 4:22 PM » Financial Profits and Rising Debt Era
    Published Thu, Jul 23 2009 4:22 PM by The Big Picture
    Last week, we looked at the . Here’s another variation of the chart showing, looking at 2 differing periods –pre-1981 and post-1981. Note that as debt rises, so too did financial firm profits. Low Debt Era vs Rising Debt Era GMO chart via
    Click Here to Read the Full Article

    Source: The Big Picture
  • 12:45 PM » Federal Reserve proposes significant changes to Regulation Z (Truth in Lending) intended to improve the disclosures consumers receive in connection with closed-end mortgages and home-equity lines of credit
    Published Thu, Jul 23 2009 12:45 PM by Federal Reserve
    Federal Reserve proposes significant changes to Regulation Z (Truth in Lending) intended to improve the disclosures consumers receive in connection with closed-end mortgages and home-equity lines of credit
    Click Here to Read the Full Article

    Source: Federal Reserve
  • 9:23 AM » Can Japan Avoid Another Lost Decade?
    Published Thu, Jul 23 2009 9:23 AM by Google News
    Today, following the release of our and outlooks, we present another preview from the updated 2009/10 RGE Monitor Global Economic Outlook, which will be available by the end of next week to subscribers. This week we focus on Japan, which will not only underperform the U.S. and EU economically in 2009, but also faces political uncertainty. National , scheduled for the end of August, are quite likely to bring some changes to Japanese economic policy, and could also hold ramifications for the U.S. dollar. RGE Monitor expects the pace of Japanese economic contraction to ease from the sharp decline of Q1 2009, but the road to recovery will be long and bumpy. Inventory restocking is coming to an end and rising could curtail a nascent recovery in consumer demand. Meanwhile, public spending is constrained by soaring public debt, and Japan’s export-oriented model of growth seems increasingly unsustainable, given the degree to which deleveraging is stifling external demand from the U.S. and Europe. Japan's Lost Decade might thus be more aptly called its “Lost Decades.” The sharp economic slowdown of the early 1990s culminated in a recession in 1998-1999, only to be followed by almost another decade of recessions and paltry growth. Being the most trade-dependent of major industrialized nations, Japan suffered the worst GDP contraction among these countries in Q1 2009, and is on track to perform the worst of the G3 in 2009. Aggregate demand slid precipitously and deflation took hold once again, despite massive fiscal spending and monetary expansion. RGE projects Japan's will persist through 2009, then give way to gradual recovery in 2010. Feeble Aggregate Demand Though the pace of economic contraction has slowed since Q1 2009, the inventory-driven rebound in and will at best make for stabilization at low levels, rather than a strong economic expansion. Japan's recovery will hinge on external demand from the U.S. and Europe--the main final consumers of Japanese goods...
  • 9:12 AM » Bernanke: CRE May Pose Risk
    Published Thu, Jul 23 2009 9:12 AM by Calculated Risk Blog
    From Bloomberg: Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market. ... It “may be appropriate” for the government and Congress to consider “fiscal” steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today ... “As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices -- and so, more pressure on commercial real estate,” Bernanke said yesterday. “We are somewhat concerned about that sector and are paying very close attention to it. We’re taking the steps that we can through the banking system and through the securitization markets to try to address it.” A few key CRE stories this month: From Dow Jones: Commercial real-estate prices fell 7.6% in May ... The indexes are down 29% from a year ago and 35% from their October 2007 peak. From Reuters: "It appears as though we may have not yet reached the bottom of this construction downturn," AIA Chief Economist Kermit Baker said. " Architecture firms are struggling and concerned that construction market conditions will not even improve ... next year ." From Bloomberg: Construction spending on offices, retail centers and hotels is likely to fall 16 percent this year and 12 percent in 2010, more than previously forecast, the American Institute of Architects said. ... Hotel construction is likely to decline 26 percent this year and 17 percent in 2010, the institute said. Industrial spending is forecast to dip 0.8 percent this year and 28 percent in 2010, according to the report. "[W]e do not foresee a recovery in the retail sector until late 2012 at the earliest." Victor Calanog, director of research for Reis on Retail CRE "It's bad. It's decaying...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
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