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  • Wed, Jan 6 2010
  • 7:40 AM » Loan Mods Not a Cure-All: Thank You, New York Times
    Published Wed, Jan 06 2010 7:40 AM by Seeking Alpha
    The New York Times reports that loan modifications for delinquent borrowers, after all:
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • Tue, Jan 5 2010
  • 7:27 PM » Unlimited Credit for Fannie, Freddie: A Backdoor Bailout?
    Published Tue, Jan 05 2010 7:27 PM by CNBC
    Unlimited Credit for Fannie, Freddie: A Backdoor Bailout?
  • 7:26 PM » GMAC headed for $5 billion loss
    Published Tue, Jan 05 2010 7:26 PM by CNN
    GMAC, the troubled finance company that last week scored a third government bailout, said Tuesday it expects to post a record fourth-quarter loss of $5 billion.
  • 7:26 PM » Cutting Mortgage Principal Decreases Defaults
    Published Tue, Jan 05 2010 7:26 PM by Realtor.Org
    A study by the Federal Reserve Bank of New York finds that borrowers were less likely to default when their balances were reduced along with their interest rates.
  • 7:26 PM » 2010 Outlook, Insurance Co. Capital Requirements
    Published Tue, Jan 05 2010 7:26 PM by www.fixedincomecolor.com
    Despite the best efforts of my 4 year old son on our flights from LA to Boston he has continued to keep his name off the no-fly list. However what he doesn’t know is that mom and dad are putting together their own list…… *Big rally in stocks on the first trading day, and closer to home we saw a thin trading volume rally in the ABX market which put us back very close to levels where the indices were trading 12 months ago. The markets came off their intra-day high to close up anywhere from 1 to 1.75 points in the senior classes. The cash bid wanted lists that traded yesterday also seemed to garner significant demand from both the street as well as end accounts. Speaking with one large fund yesterday and we were in agreement that the bulk of supply in the near term will come from street inventories that bulked up in Q4 ’09. We haven’t seen any significant shift out of ‘spread’ product however we think opportunities exist outside of the prime and alt super-senior cash-flows that tightened the most in ’09. You need to be willing to look at other MBS sectors, including but not limited to subprime, 2nd liens (fixed and heloc), FHA/VA, etc. This year’s performance will be much more about asset selection than it was in ’09.
    Click Here to Read the Full Article

    Source: www.fixedincomecolor.com
  • 7:10 PM » American Grow Less and Less Satisfied at Work
    Published Tue, Jan 05 2010 7:10 PM by WSJ
    Managing to avoid the unemployment line isn’t enough to keep Americans who still have jobs happy at work. A Conference Board survey of 5,000 U.S. households showed just 45% of respondents say they are satisfied with their jobs, down from 61% in 1987, the first year in which the survey was conducted. The drop in job satisfaction between 1987 and 2009 covers all categories in the survey, from interest in work (down 18.9 percentage points) to job security (down 17.5 percentage points) and crosses all four of the key drivers of employee engagement: job design, organizational health, managerial quality, and extrinsic rewards. The decline also spans all age groups. “These numbers do not bode well given the multigenerational dynamics of the labor force,” says Linda Barrington , a managing director at the Conference Board. “The newest federal statistics show that Baby Boomers will compose a quarter of the U.S. work force in eight years, and since 1987 we’ve watched them increasingly losing faith in the workplace.” Twenty years ago, some 60% of Baby Boomers was satisfied with their jobs. Today, that figure is roughly 46%. Lower job satisfaction over the past 20 years has come as more companies have dropped or cut pension benefits and asked employees to contribute more to health care. Meanwhile, wage growth has been relatively stagnant. Ironically, the two-decade decline in happiness has coincided with substantial increases in worker productivity. Gains in the tech sector have ensured that even as workers become more unhappy, they have become more productive.
  • 7:10 PM » “All Serious Economists Agree”
    Published Tue, Jan 05 2010 7:10 PM by Google News
    The most remarkable statement I heard at the American Economics Association meeting over the past few days came from an astute observer – not an economist, but someone whose job involves talking daily to leading economists, politicians, and financial industry professionals. He claims “all serious economists agree” that Too Big To Fail banks are a huge problem that must be addressed with some urgency. He also emphasized that politicians are completely unwilling to take on this issue. On this point, I agree – but is there really such unanimity among economists? I ran his statement by a number of top academics over the past day and – so far – it holds up. But this may just reflect the kinds of people I meet. Still, it is an interesting claim that stands until refuted – send or post details of serious people (in economics or elsewhere) who currently think Too Big To Fail Is Just Fine (other than people in government or big banks, of course). By Simon Johnson
  • 3:22 PM » Fitch Downgrades 'Scratch and Dent' RMBS Deals
    Published Tue, Jan 05 2010 3:22 PM by ftalphaville.ft.com
    Here’s something that might have escaped your radar during Christmas week — a mass downgrade of so-called `Scratch and Dent’ RMBS deals by ratings agency Fitch.
    Click Here to Read the Full Article

    Source: ftalphaville.ft.com
  • 2:13 PM » Meredith Whitney Cuts Goldman Sachs Estimates Again
    Published Tue, Jan 05 2010 2:13 PM by CNBC
    Meredith Whitney Cuts Goldman Sachs Estimates Again
  • 2:13 PM » Stopping Counter-Productive Mortgage Mods and Foreclosure Abatements
    Published Tue, Jan 05 2010 2:13 PM by Google News
    “The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis. We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.” -Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund I have some good news and some bad news for you:
  • 1:07 PM » Economist Argues Fed Debt Purchases Boost Lending
    Published Tue, Jan 05 2010 1:07 PM by WSJ
    As economists begin to tweak their models and paradigm to account for the surprising virulence of the recent financial crisis, Harvard University ’s is offering an justification for what Federal Reserve Chairman Ben Bernanke calls “credit easing” — the Fed’s purchase of trillions of dollars worth of Treasury debt and mortgage-backed securities. It is, Shleifer argued at a presentation at the American Economic Association in Atlanta, the best way to get banks to resume lending. In a crisis, the price of securities — mortgate-backed, Treasury debt, packages of loans, etc. — fall to fire sale prices, well below fundamental values, he says. Banks with the wherewithal to make new loans or buy securities that prefer to buy securities because the opportunity for profit is so tempting. (See Goldman Sachs and J.P. Morgan Chase profits from securities trading in the recent quarter.) “Because asset prices are out of whack,” he said, “injecting capital into banks doesn’t restart lending.” Banks simply use the money “to buy underpriced securities… to speculate.” “Financing of new investment by banks [via lending to business] is always competing with speculation. If speculation is more attractive, it is going to draw the attention of banks,” he argued. The solution: The Fed or the government should buy a lot of securities, so many of them that the price rises and the banks no longer find them attractive for speculation and lend instead. (Of course, those banks who hold securities before the Fed or government intervene will benefit from rising prices.) Shleifer said massive purchases of securities by the Fed isn’t targeted on an individual institution — a plus, he says — and he said the purchases work best if they are highly rated securities rather than removing toxic assets from the banks’ books, as the Bush Treasury initially proposed. , a Yale University economist, criticized the Shleifer argument, observing, among other things, that there are many reasons that banks, particularly...
  • 1:06 PM » Why Should Banks Loan When They Can Play the Yield Curve?
    Published Tue, Jan 05 2010 1:06 PM by Seeking Alpha
    submits: As shown in the graph below, courtesy of , the latest figures from the St. Louis Fed show that commercial and industrial lending is still declining. The dilemma is that U.S. banks can borrow for almost nothing and lend money to the government by buying 10-year Treasury Notes and 30-year Treasury Bonds with yields of 3.8% and 4.6% respectively.
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 12:36 PM » FDIC Issues List of Banks Examined for CRA Compliance
    Published Tue, Jan 05 2010 12:36 PM by www.fdic.gov
    Press Release FDIC Issues List of Banks Examined for CRA Compliance FOR IMMEDIATE RELEASE January 5, 2010 Media Contact: David Barr (202-898-6992) The Federal Deposit Insurance Corporation (FDIC) today issued its list of state nonmember banks recently evaluated for compliance with the Community Reinvestment Act (CRA). The list covers evaluation ratings that the FDIC assigned to institutions in October 2009. The CRA is a 1977 law intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations. As part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Congress mandated the public disclosure of an evaluation and rating for each bank or thrift that undergoes a CRA examination on or after July 1, 1990. A consolidated list of all state nonmember banks whose evaluations have been made publicly available since July 1, 1990, including the rating for each bank, can be obtained from the FDIC's Public Information Center, located at 3501 Fairfax Drive, Room E-1002, Arlington, VA 22226 (877-275-3342 or 703-562-2200), or via the Internet at . A copy of an individual bank's CRA evaluation is available directly from the bank, which is required by law to make the material available upon request, or from the FDIC's Public Information Center. ### Attachment: Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 8,099 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations. FDIC press releases and other information are available on the Internet at , by subscription electronically (go to ) and may also be...
  • 12:35 PM » Barney Frank: Mandatory Principal Write-Downs Unrealistic
    Published Tue, Jan 05 2010 12:35 PM by Google News
    Associated Press While various housing analysts, and the are calling for more aggressive loan modifications that write down borrowers’ loan balances, principal write-downs can’t be mandated by policymakers, Rep. Barney Frank said on CNBC on Tuesday morning. Rep. Frank, who chairs the House Financial Services Committee, reiterated his support for giving bankruptcy judges the power to modify mortgages in so-called . Passing bankruptcy-overhaul legislation would be the fairest way to reduce loan balances, he said, because it would require borrowers must pay some price—in this case, by going through bankruptcy. The House approved bankruptcy legislation last year, but the measure couldn’t secure enough votes in the Senate. There’s no easy or fair way to mandate principal write-downs without otherwise requiring borrowers to suffer some hardship, said Rep. Frank. “What do you then say to the individual who says, ‘Wait a minute, we’re equally circumstanced. I’ve got the same mortgage she’s got. I’ve been more prudent. I’m not in distress; she is. Why does she get the reduction?’” he said. While it would be “OK” to encourage principal reductions “on a voluntary basis with even some pressure” from policymakers, Rep. Frank said there’s just no way to create a loan modification program that mandates write-downs. “One, I don’t know what criteria you would put in to mandate it. What would we say in the law? What level of distress qualifies you? How would we prevent you from sort of getting yourself into distress?” he said. The Massachusetts Democrat also reiterated his support for a measure that would lend money from the Troubled Asset Relief Program, or TARP, to borrowers who have fallen behind on their mortgages due to unemployment. Rep. Frank said it was important to distinguish between people who had mortgages that they should never had taken out and that probably weren’t ever going to be repaid and those who had fallen behind simply because they had lost their jobs. “There’s...
  • 12:35 PM » Reduce Homeowners' Mortgage Payments: Lockhart
    Published Tue, Jan 05 2010 12:35 PM by CNBC
    Reduce Homeowners' Mortgage Payments: Lockhart
  • 8:25 AM » Bank Lobbying Abetted Mortgage Mess, IMF Says
    Published Tue, Jan 05 2010 8:25 AM by dealbook.blogs.nytimes.com
    Large U.S. banks who lobbied heavily were more likely to practice risky lending, and see their shares perform relatively poorly, the International Monetary Fund said in a study.
    Click Here to Read the Full Article

    Source: dealbook.blogs.nytimes.com
  • 8:19 AM » Unofficial Problem Bank List Change Summary
    Published Tue, Jan 05 2010 8:19 AM by Calculated Risk Blog
    Commentary from surferdude808: Since August 7, 2009, each week an has been posted to Calculated Risk. The Unofficial Problem Bank List is an attempt to mirror the number of problem banks the FDIC reports each quarter. The FDIC does not disclose the institutions on its Problem Bank List and CAMELS ratings are confidential. For the most part, institutions on the FDIC Problem Bank List have a CAMELS rating of 4 or 5. Normally, problem institutions or those with a CAMELS rating of 4 or 5 are subject to a safety & soundness formal enforcement action by their respective primary federal supervisor (Federal Reserve, FDIC, OCC, or OTS). Since the last crisis, much to the consternation of the federal supervisory agencies, they are required to make all formal enforcement actions public. Historically, there is a high positive correlation between a safety & soundness formal enforcement action and a CAMELS rating of 4 or 5. This relationship is the basis for the Unofficial Problem Bank List, which is comprised of institutions operating under a safety & soundness formal enforcement action, and some institutions that have made public announcements that lead us to believe a formal enforcement action is likely. With the passage of the year, we thought it would be of interest to analyze how the Unofficial Problem Bank List has changed since it was first published. The list had 389 institutions on August 7, 2009 and it finished the year at 575. During the past five months, there have been 277 additions and 91 deletions. There are four ways to be removed from the list – failure, voluntary dissolution, merger with another institution (without FDIC assistance), or improvement in condition whereby the action is terminated. Of the 91 deletions, 74 are from failure, 9 are from termination of the enforcement action, and 8 are from an unassisted merger. Of the 389 institutions on the August 7, 2009 list, 325 are still on the January 1, 2010 list as 64 were removed because of failure...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 8:18 AM » 2010 Predictions From Shiller, Blinder, Rajan and More
    Published Tue, Jan 05 2010 8:18 AM by WSJ
    The American Economic Association ’s annual conference was held in Atlanta over the last few days. Some of the top economists in the country were in attendance. Here are some of their predictions for 2010: Robert Shiller, Yale University: “Strategic default on mortgages will grow substantially over the next year, among prime borrowers, and become identified as a serious problem. The sense that ‘everyone is doing it’ is already growing, and will continue to grow, to the detriment of mortgage holders. It will grow because of a building backlash against the financial sector, growing populist rhetoric and a declining sense of community with the business world. Some people will take another look at their mortgage contract, and note that nowhere did they swear on the bible that they would repay.” Edward Glaeser, Harvard University: “Construction levels will stay low and my best guess is that housing prices — the 20 city Case-Shiller average — will be within 5% of current level, one side or the other.” Alan Blinder, Princeton University: “U.S. interest rates will go up across the board. Probably more at the long end than the short end.” Michael Feroli, J.P. Morgan Chase: “We’ll have above-trend growth, low inflation, and the fed on hold through 2010″ Don Ratajczak, Morgan Keegan: “The odds of a double dip have gone from 1-in-3 to 1-in-5.” Anil Kashyap, University of Chicago: “The Democratic Party of Japan will be in a shambles. The economic program in Japan will be a complete mess by December.” Raghuram Rajan, University of Chicago: “There’s going to be a lot more noise made about China and its exchange rate. I won’t stick my neck out farther than that.”
  • 8:17 AM » Personal Bankruptcy Filings Rising Fast
    Published Tue, Jan 05 2010 8:17 AM by WSJ
    Overall, personal bankruptcy filings hit 1.41 million last year, up 32% from 2008, the highest level of consumer-bankruptcy fillings since 2005.
  • 8:16 AM » BofA CEO Expects 'Long, Slow Recovery'
    Published Tue, Jan 05 2010 8:16 AM by WSJ
    Bank of America's new CEO Moynihan said he expects the beginning of his tenure running the bank to be marked by a "long, slow recovery."
  • 8:15 AM » Bernanke in Atlanta
    Published Tue, Jan 05 2010 8:15 AM by krugman.blogs.nytimes.com
    Where regulation really needs to focus is on making the financial system less fragile.
    Click Here to Read the Full Article

    Source: krugman.blogs.nytimes.com
  • 8:14 AM » MORTGAGES; Brokers Tested on Proficiency
    Published Tue, Jan 05 2010 8:14 AM by www.nytimes.com
    IN recent months, loan officers around the country have begun taking federally mandated licensing exams, which many in the industry consider beneficial for borrowers in the long run. According to the Conference of State Banking Supervisors, which oversees the testing, 31 percent of the roughly 10,000 people who took the national test from July 30 to Nov. 30 failed it, and about 27 percent did not pass the state-specific component.
    Click Here to Read the Full Article

    Source: www.nytimes.com
  • 8:13 AM » Fed's Governor Elizabeth Duke on CRE Outlook
    Published Tue, Jan 05 2010 8:13 AM by Google News
    From : Unfortunately, the outlook for commercial real estate is much less favorable. Hit hard by the loss of businesses and employment, a good deal of retail, office, and industrial space is standing vacant. In addition, many businesses have cut expenses by renegotiating existing leases. The combination of reduced cash flows and higher rates of return required by investors leads to lower valuations, and many existing buildings are selling at a loss. As a result, credit conditions in this market are particularly strained. Commercial mortgage delinquency rates have soared. According to our October survey of senior loan officers, banks continued to tighten standards on CRE loans and, presumably in light of the poor economic outlook for the sector, appear to have been reluctant to refinance maturing construction and land development loans. In addition, the CMBS market has only just recently seen its first activity in a year and a half. In this environment, a turnaround in CRE is likely to lag the improvement in overall economic activity. However, compared with the situation in the early 1990s, the problems in this sector now appear to be due largely to poor business fundamentals rather than widespread overbuilding, suggesting that the performance of the CRE sector will gradually begin to improve as the economy continues to strengthen.
  • 8:12 AM » Did You Know: Primary Residence and Second Home
    Published Tue, Jan 05 2010 8:12 AM by Google News
    Did you know that the median price of second homes was $143,500, compared to $186,000 for primary homes?
  • 8:11 AM » Did You Know: Household Income of First-Time and Repeat Buyers
    Published Tue, Jan 05 2010 8:11 AM by Google News
    Did you know that, despite the downturn, incomes didn't change much between 2007 and 2008 among first-time and repeat buyers?
  • 8:10 AM » Manhattan Real Estate Now ‘Reasonable,’ Whatever That Means
    Published Tue, Jan 05 2010 8:10 AM by Google News
    The weather in Manhattan may be in deep freeze, but the real estate market continues to thaw. With prices falling–co-ops hit 2005 levels–buyers are pounding the (frozen) pavement hunting deals. Median prices were down nearly 15% from a year ago. The average price per square foot fell 17%. Buyers defied the typical seasonal slowness and pounced, sending closings soaring by nearly 50% from a year earlier, according to fourth-quarter data from brokerage The Corcoran Group and . Several market reports expected Tuesday detail a once high-flying market trying to recover from a housing crash and credit-crisis paralysis. While homes are taking longer to sell, there are early signs of improvement: Properties are receiving multiple bids, less inventory is hitting the market and, in the latest quarter, fewer sellers cut prices. International buyers, absent for much of last year, are returning. “I just can’t deny the improvement that we’ve had,” says Noah Rosenblatt, a broker and publisher of .com, a blog focused on Manhattan real estate. “There’s been so much action…The risk of systemic failure has been priced out of the market.” The closings boost is expected to continue for several months, fueled by increasing buyer confidence as the economy shows improvement, interest rates remain low and the government dangles a tax credit to first-time and move-up buyers. But the market faces headwinds that could reverse recent improvement, including the risk of mortgage rates climbing, mounting unemployment and the expiration of the tax credit, which was extended from November until April. Credit standards, meanwhile, remain tight–particularly for those looking to get a “jumbo” mortgage–making it hard for even some willing buyers to close deals. The market’s lower end benefited from the credit in the fourth quarter, as affordability increased for those long priced out of the market. Properties under $500,000 made up nearly a quarter of total sales, up from 15% a year ago, according to Corcoran...
  • 8:09 AM » NY Fed: Most Successful Mortgage Modifications Reduce Borrowers’ Principal
    Published Tue, Jan 05 2010 8:09 AM by Google News
    Borrowers who receive loan modifications that reduce loan balances and not simply interest rates are far less likely to re-default on their loans, according to a from the Federal Reserve Bank of New York. While modifications that reduce monthly payments are far more likely to succeed than those that don’t result in lower monthly payments, how that reduced monthly payment is achieved matters, too, according to the study. The Fed study is the latest to suggest that principal write-downs are more successful in avoiding re-defaults. Modifications that write down loan balances “can double the reduction in re-default rates achieved by payment reductions alone,” the study says. The findings could have big implications on the government’s current loan modification effort, which focuses on offering incentives to borrowers and loan servicers, which collect and manage loan payments, to reduce monthly payments by lowering interest rates and extending the loan term. (Although, the modification program doesn’t preclude principal forbearance or forgiveness on the part of banks, and borrowers who succeed in keeping up with their reduced payments can receive further incentives towards reducing their loan balance.) But the program has been off to a slow start, and there’s considerable uncertainty heading into the new year over whether the program will be able to meet its ambitious goals to offer modifications to three to four million troubled homeowners. The paper finds that principal reductions are more successful at avoiding re-defaults because they reduce negative equity and give the borrower a greater incentive to keep current on the loan. A loan modification that only reduces the interest rate, meanwhile, “creates an in-place subsidy to the borrower leading to a lock-in effect. That is, the borrower receives the subsidy only if he or she does not move.” The paper takes a hypothetical borrower with a home that is worth around $30,000 less than the $200,000 mortgage on the home. In...
  • 8:09 AM » Foreclosures Weigh on Home Appraisals
    Published Tue, Jan 05 2010 8:09 AM by Realtor.Org
    High volumes of foreclosure sales are causing difficulties in getting accurate appraisals of non-forclosure homes in the same neighborhood.
  • 8:09 AM » Fed Economist: Housing Is a Lousy Investment
    Published Tue, Jan 05 2010 8:09 AM by WSJ
    Before the housing bust, Americans tended to think their homes were their best and most important investments –- a view promoted by Washington policy makers who made home ownership a top priority. Karen Pence, who runs the Federal Reserve’s household and real estate finance research group, argues at the American Economic Association’s meetings this week that homes are actually a terrible investment. Putting aside the fact that home prices have fallen dramatically, she says several factors make homes a lousy investments: It is an indivisible asset. If you own stocks and bonds and suddenly need a little cash, you can sell some of your stocks or bonds but not all. With a home, on the other hand, “you can’t just slice off your bathroom and sell it on the market.” It is undiversified. You can buy stocks or bonds in industries or countries all over the world. A home is a bet on one single neighborhood. Transaction costs are very high when you buy or sell a home because of real estate agent fees, mortgage fees and moving costs. It is asymmetrically liquid, meaning it’s easy to get money out when home prices are going up. (You just take out a bigger mortgage.) But it’s hard to take money out when prices are going down because refinancing becomes more difficult. Put another way, the leverage that you have in your house with a large mortgage means your investment does well in good times but could be lousy in bad times. It is highly correlated to the job market, meaning that home prices in a neighborhood tend to rise when the job market is improving in the area and fall when the job market is worsening. This means that your main financial asset provides the smallest cushion to you when you might need it most. Maybe Washington policy makers shouldn’t work so hard to promote ownership with mortgage interest deductions and other federal subsidies to homeowners. Ms. Pence has been a Washington renter for many years. Ironically, though, she says she’s considering buying a house herself...
  • 7:53 AM » Krugman: 30% to 40% Chance of 2010 Recession
    Published Tue, Jan 05 2010 7:53 AM by Calculated Risk Blog
    From Bloomberg: (ht many thanks!) “[A recession] is not a low probability event, 30 to 40 percent chance,” [Paul] Krugman said today in an interview in Atlanta, where he was attending an economics conference. “The chance that we will have growth slowing enough that unemployment ticks up again I would say is better than even.” On the recession probabilities, I think Professor Krugman is warning policy makers about complacency, similar to his Monday column: . My guess is the U.S. will see sluggish growth in 2010, but will avoid a recession. However I do think the unemployment rate ticking up from the current 10% is a high probability event.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • Mon, Jan 4 2010
  • 5:05 PM » Construction Spending Declines in November
    Published Mon, Jan 04 2010 5:05 PM by Calculated Risk Blog
    Through November construction spending has followed the expected script for 2009: a likely bottom for residential construction spending, and a collapse in private non-residential construction. Residential construction spending was off slightly in November, and is now only 5.8% above the bottom earlier in 2009. I expect some residential spending growth in 2010, but the increases in spending will probably be sluggish until the large overhang of existing inventory is reduced. Non-residential appeared flat in November, but that was only because of a downward revision to October spending. The collapse in non-residential construction spending continues ... Click on graph for larger image in new window. The first graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted. Residential construction spending decreased in November, and nonresidential spending continued to decline. Private residential construction spending is now 62.9% below the peak of early 2006. Private non-residential construction spending is 22.5% below the peak of October 2008. The second graph shows the year-over-year change for private residential and nonresidential construction spending. Nonresidential spending is off 22.5% on a year-over-year (YoY) basis. Residential construction spending is still off 22.2% from a year ago, but the negative YoY change is getting smaller. For the first time since the housing bust started, nonresidential spending is off more on a YoY basis than residential. Here is the report from the Census Bureau:
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 2:17 PM » Fed's Duke on Economic Outlook
    Published Mon, Jan 04 2010 2:17 PM by Calculated Risk Blog
    From Fed Governor Elizabeth Duke: In my view, the outlook for economic activity depends importantly on our ability to build on the progress to date in improving the operation of financial markets and restoring the flow of credit to households and businesses. Although household wealth has received a boost from the gains in the stock market over the last nine months and from the stabilization in house prices, household balance sheets remain weak . In 2009, household income received some temporary support from the tax cuts and transfer payments enacted with the fiscal stimulus package and from the extensions of unemployment insurance. Over the coming year, households should begin to see gains in income associated with an improvement in the labor market, and the drag on spending from past declines in real net worth should ease. As their income and balance sheets improve, consumers should have better access to credit. Favorable trends in income and employment should also bolster consumer confidence, although one risk I see to the outlook for household spending is the possibility of a rise in the personal saving rate as consumers choose to shore up their balance sheets rather than spend. While good in the long run, increased saving means consumers are providing less of a short-run boost to the economy. The outlook for homebuilding will depend critically on the continuation of the uptrend in the demand for housing that began in early 2009. I anticipate that low mortgage rates and house prices that are still very low compared with the recent past will continue to provide important support for demand. And a shift in expectations from falling house prices to modest appreciation should encourage buyers to invest in houses. That said, the headwinds in housing and mortgage markets remain relatively strong and are likely to restrain the pace at which the residential construction sector recovers. Many of the existing homeowners who face payment problems are having trouble restructuring...
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 2:17 PM » California to "aggressively seek new federal assistance"
    Published Mon, Jan 04 2010 2:17 PM by Calculated Risk Blog
    From Wyatt Buchanan at the San Francisco Chronicle: California's political leaders, who are facing the daunting challenge of closing an estimated $20.7 billion budget deficit this year, are looking to Washington for help. Just don't call it a bailout. ... "No one is looking for a bailout. We're looking for an investment," [Senate President Pro Tem Darrell Steinberg] said ... On Friday, Schwarzenegger will release his initial budget proposal for the next fiscal year, and the Legislative Analyst's Office already has called on state leaders to "aggressively seek new federal assistance" to help close the projected deficit. As the article notes, California sends far more to Washington D.C. then they receive (they are 43rd on the list of states) - we will probably hear more of that argument. Hey - it is an investment, not a bailout!
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 2:17 PM » Krugman: Beware the Blip
    Published Mon, Jan 04 2010 2:17 PM by Calculated Risk Blog
    From Paul Krugman at the NY Times: The next employment report could show the economy adding jobs for the first time in two years. The next G.D.P. report is likely to show solid growth in late 2009. There will be lots of bullish commentary ... Such blips are often, in part, statistical illusions. But even more important, they’re usually caused by an “inventory bounce.” ... Unfortunately, growth caused by an inventory bounce is a one-shot affair unless underlying sources of demand, such as consumer spending and long-term investment, pick up. Which brings us to the still grim fundamentals of the economic situation. ... There can’t be a new housing boom while the nation is still strewn with vacant houses and apartments left behind by the previous boom, and consumers — who are $11 trillion poorer than they were before the housing bust — are in no position to return to the buy-now-save-never habits of yore. ... A boom in business investment would be really helpful right now. But it’s hard to see where such a boom would come from: industry is awash in excess capacity, and commercial rents are plunging in the face of a huge oversupply of office space. Can exports come to the rescue? ... But the deficit is widening again, in part because China and other surplus countries are refusing to let their currencies adjust. So the odds are that any good economic news you hear in the near future will be a blip, not an indication that we’re on our way to sustained recovery. A couple months ago I suggested a few possible and downside risks to the 2010 outlook, and I suppose the most likely upside surprise would come from consumer spending. As Dr. Yellen noted in November: "Consumers have surprised us in the past with their free-spending ways and it’s not out of the question that they will do so again." Note: I wrote that post when we though Q3 GDP growth was 3.5%, and I expected Q4 to be about the same. Since Q3 was revised down substantially, I now expect more of a transitory...
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    Source: Calculated Risk Blog
  • 2:17 PM » PIMCO's McCulley: Three Major Issues for 2010
    Published Mon, Jan 04 2010 2:17 PM by Calculated Risk Blog
    From PIMCO's Paul McCulley: The first issue is the peg between the Chinese yuan and the U.S. dollar, which essentially gives us a one-size-fits-all monetary policy in a very differentiated world. Progress, or lack of progress, on this issue could lead to several outcomes. If China were to let its currency appreciate, it could regain a degree of monetary policy autonomy and a better ability to manage the risk of overheating and asset price inflation. Another outcome, however, is that China refuses to let the yuan appreciate, essentially maintaining too easy of a monetary policy for itself and the developing countries that shadow Chinese policies. This would create bubble risk, particularly for assets such as emerging market (EM) equities and commodities. The second major uncertainty is what will happen when the Fed completes its mortgage-backed securities (MBS) buying programs. We know that it will have an unfriendly effect on the interest rate markets, but we don’t know the magnitude , because it’s too hard to isolate the supply and demand dynamics between fundamentals and the stimulus programs. ... The third uncertainty is any change in the Fed’s pre-commitment language, which is currently committed to keeping the fed funds rate exceptionally low for an “extended period.” We don’t think the Fed is going to tighten any time in 2010 , but long before the FOMC (Federal Open Market Committee) actually does the deed, it will have to change its language. That could very well happen in 2010, and there is genuine uncertainty over how quickly and strongly the market will anticipate a tightening process. Our gut feeling is that the moment the Fed changes any one of its words, it’s going to be a very unpleasant experience, because the marketplace has very little patience and a very big imagination. The most important book at the Fed right now is a thesaurus, and it’s probably sitting on top of Paul Samuelson’s Foundations of Economic Analysis . emphasis added Professor Krugman...
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    Source: Calculated Risk Blog
  • 2:17 PM » What Bernanke Didn't Say
    Published Mon, Jan 04 2010 2:17 PM by Calculated Risk Blog
    Note: Here is . From Fed Chairman Ben Bernanke: And reports on the speech: From the WSJ: From the NY Times: Dr. Bernanke said that monetary policy (a low Fed Funds rate) was probably not to blame for the housing bubble, and he used data from other countries to make this argument: "the relationship between the stance of monetary policy and house price appreciation across countries is quite weak". He suggested the primary cause was the lack of effective regulation associated with non-traditional mortgage products. I noted earlier that the most important source of lower initial monthly payments, which allowed more people to enter the housing market and bid for properties, was not the general level of short-term interest rates, but the increasing use of more exotic types of mortgages and the associated decline of underwriting standards . That conclusion suggests that the best response to the housing bubble would have been regulatory, not monetary. Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates. Moreover, regulators, supervisors, and the private sector could have more effectively addressed building risk concentrations and inadequate risk-management practices without necessarily having had to make a judgment about the sustainability of house price increases. emphasis added Here are his two slides about exotic mortgages: Click on graph for larger image in new window. Slide 7 also shows initial monthly payments for some alternative types of variable-rate mortgages, including interest-only ARMs, long-amortization ARMs, negative amortization ARMs (in which the initial payment does not even cover interest costs), and pay-option ARMs (which give the borrower considerable flexibility regarding the size of monthly payments in the early stages of the contract). These more exotic...
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    Source: Calculated Risk Blog
  • 2:16 PM » 2009 Performance Review of Major U.S. Bank Stocks
    Published Mon, Jan 04 2010 2:16 PM by Seeking Alpha
    submits: The 2009 performance of thirteen large US bank stocks is listed below: Bank Ticker 2009 Returns US Bank USB -9.20% BB&T BBT -3.10% Bank Of America BAC 2.10% Citibank C -50.50% JPMorgan Chase JPM 19.70% PNC Bank PNC 9.70% Suntrust STI -30.60% Regions Financial RF -31.90% Fifth Third Bank FITB 18.50% Bank of New York Mellon BK 0.50% State Street STT 10.80% KeyCorp KEY -33.80% Wells Fargo WFC -6.80% The worst performer was Citibank (), which lost 50%. Despite being bailed out by the tax payers with billions of dollars Citi, did not recover like its peers. Citibank stock is now cheaper than the cost of a McDonald’s value meal.
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    Source: Seeking Alpha
  • 2:15 PM » 2010 Housing Outlook: Kicking the Can Down the Road
    Published Mon, Jan 04 2010 2:15 PM by Seeking Alpha
    submits: According to Economy.com, about one-third of all home owners with a mortgage have outstanding mortgage debt that is more than the value of their home. They are underwater. As Elizabeth Warren made very clear to Treasury Secretary Timothy Geithner at a Congressional Oversight Panel hearing, modifying mortgages by decreasing the interest rate instead of reducing the outstanding debt is merely kicking the can down the road. The defaults are pushed away for awhile, only to resurface later as the borrowers become overwhelmed or decide to rent instead of opting for ownership. Indeed, the housing boom was fed by "kicking the can down the road." The Option ARM recast problem may explode in 2010 and 2011. These mortgages were not meant to be recast. Instead, the mortgages were designed to be refinanced, either through a sale (ostensibly at a profit) or more traditional mortgage at low rates where further home appreciation could be withdrawn by the owner. With one-third of all home mortgages now underwater, according to Economy.com, the likelihood increases of the Option ARM issue reaching the end of the road in the next two years.
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    Source: Seeking Alpha
  • 2:14 PM » Mortgage Modification Failure
    Published Mon, Jan 04 2010 2:14 PM by Seeking Alpha
    submits: An article New Year's day by Peter S. Goodman in The New York Times ( discusses the Obama administration $75 billion MHA (Making Home Affordable) program. Bottom line, according to Mr. Goodman: It's an abject failure. He cites opinions of some economists and real estate experts that it has actually done more harm than good. Some of the specific points:
    Click Here to Read the Full Article

    Source: Seeking Alpha
  • 2:13 PM » Manufacturing posts best showing since 2006
    Published Mon, Jan 04 2010 2:13 PM by Reuters
    NEW YORK (Reuters) - The U.S. manufacturing sector grew at its fastest pace in nearly four years in December, its fifth consecutive month of expansion, adding to hopes of economic improvement in 2010.
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