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  • Wed, Feb 18 2009
  • 9:30 AM » The Nationalization Train Has Left The Station
    Published Wed, Feb 18 2009 9:30 AM by
    The Financial Times is reporting and is sitting in the bar car next to Nouriel Roubini. The next stop is D.C. The US government may have to nationalise some banks on a temporary basis to fix the financial system and restore the flow of credit, Alan Greenspan, the former Federal Reserve chairman has told the Financial Times. In an interview with the FT Mr Greenspan, who for decades was regarded as the high priest of laissez-faire capitalism, said nationalisation could be the least bad option left for policymakers. ”It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,” he said. “I understand that once in a hundred years this is what you do.” Those who think Greenspan is the "high priest of laissez-faire capitalism" have holes in their heads. The very existence of the Fed and its micro-mismanagement of interest rates is in direct conflict with capitalism. The Fed directly setting interest rates is more like the failed policies of the Soviet Central Planners than anything remotely to do with capitalism. Greenspan's stance on free trade was the only major thing he got right in his entire tenure. So it's ironically fitting that free trade is one of the biggest things he is criticized about. Nationalize the Banks! We're all Swedes Now Matthew Richardson and Nouriel Roubini are arguing . The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it. As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically...
    Click Here to Read the Full Article

  • 9:29 AM » Prospects for the U.S. banking system
    Published Wed, Feb 18 2009 9:29 AM by
    Some thoughts on the extent of the problem and options for solution. (hat tip: ) offered an interesting perspective on the nature of the current problems facing the banking system. Hempton suggested that there are three different numbers we might use when speaking of the problem assets held by the banking system: (1) the loss that banks have already acknowledged or have made loan loss provisions for, which Hempton puts at around 10%; (2) the loss that banks would face if they had to sell the assets right now, which Hempton puts at 50% or $3 to $4 trillion in losses; (3) the loss that would actually be realized if the assets were held to maturity, which Hempton claims would be 25% or $1.5 to $2 trillion in losses. A question raised by those last two numbers is why buyers are only willing to pay 50 cents for something that's ultimately going to be worth 75. Hempton's explanation is if you buy the assets at 50 cents on the dollar, hold them 5 years over which you'll collect the interest on that portion of the assets that still represent performing loans, and then receive back 75 cents worth of principal, you'd basically be earning a 15% annual rate of return as compensation for the risk of holding these assets. As I understand it, Hempton is claiming that there is a probability distribution for what the true value of the assets held to maturity is going to be-- might be higher than 75 cents, might be lower than 75 cents, but with expected value of 75 cents. There's no question that risk premia at the moment are very high, but a figure of a 15% expected return seems hard to defend. The highest differential we've seen between Baa-rated and Aaa-rated bonds over the last century was 550 basis points in 1932. The spread fell from 340 basis points in December 2008 to 310 this January. Yield on Baa-rated bond minus yield on Aaa-rated bond, monthly averages, 1919-2009. Data source: FRED (, ). And of course you don't expect to receive 3.1% more on Baa...
    Click Here to Read the Full Article

  • 9:28 AM » Mr. President, We’ve Got A Foreclosure For You
    Published Wed, Feb 18 2009 9:28 AM by
    We’re aware that the president has a busy day planned in Phoenix today and that he wanted to see genuine Arizona foreclosures while he’s in town. He might not have time to shop around, so L thoughtfully dug up this little gem in Mesa for him to see: [MLS #4111966] L says of this property- The property sold in 1995 for $61,000. It was financed for $205,000 in 2006, and foreclosed on in 2007. It resold for $155,500 and foreclosed on again in 2009. Here’s the sales history- And the general state of the neighborhood: [ Gavels are foreclosures .] A couple of questions for you though Mr. President. First, look at the sales history on this house. How would you have saved the borrowers who bought this place. Next question- why would you?
    Click Here to Read the Full Article

  • 9:27 AM » MBIA splitting off muni insurance business
    Published Wed, Feb 18 2009 9:27 AM by Market Watch
    NEW YORK (MarketWatch) -- Bond insurer MBIA Inc. said Wednesday that it is splitting its municipal bond insurance business off from its business insuring troubled structured finance products.
  • 9:27 AM » Recession will be worst since 1930s: Greenspan
    Published Wed, Feb 18 2009 9:27 AM by Reuters
    NEW YORK (Reuters) - Former U.S. Federal Reserve Chairman Alan Greenspan said on Tuesday the current global recession will "surely be the longest and deepest" since the 1930s and more government rescue funds are needed to stabilize the U.S. financial system.
  • Tue, Feb 17 2009
  • 5:35 PM » Treasury says bank lending still resilient
    Published Tue, Feb 17 2009 5:35 PM by Reuters
    WASHINGTON (Reuters) -- Banks receiving bailout money from the federal government are continuing to make new loans and refinance existing ones to both consumers and businesses, the U.S. Treasury Department said on Tuesday.
  • 4:00 PM » Homeowners' rallying cry: Produce the note
    Published Tue, Feb 17 2009 4:00 PM by Washington Post
    ZEPHYRHILLS, Fla. -- Kathy Lovelace lost her job and was about to lose her house, too. But then she made a seemingly simple request of the bank: Show me the original mortgage paperwork.
    Click Here to Read the Full Article

    Source: Washington Post
  • 4:00 PM » Government provides $429M to 29 more banks
    Published Tue, Feb 17 2009 4:00 PM by Washington Post
    WASHINGTON -- The government has provided $429 million to 29 banks in the latest batch of investments under the $700 billion financial industry bailout program.
    Click Here to Read the Full Article

    Source: Washington Post
  • 4:00 PM » The Fed: Deflation now key risk, Bullard says
    Published Tue, Feb 17 2009 4:00 PM by Market Watch
    A possible bout of deflation, or a general decline in prices, is now a key risk facing the economy, says James Bullard, the president of the St. Louis Fed Bank.
  • 2:26 PM » Obama To Check Out Phoenix East Valley Foreclosures
    Published Tue, Feb 17 2009 2:26 PM by
    President Barack Obama plans to get a firsthand look at Mesa’s sour real estate market before his speech on fixing the nation’s housing crisis Wednesday at Dobson High School. The president is expected to visit a Mesa neighborhood before the speech at Dobson High, according to Rep. Harry Mitchell, D-Ariz. Mitchell did not know which neighborhood Obama would be going to, or what he had planned there. But the congressman said his office was told by White House staff that Obama’s desire to see a neighborhood hard hit by foreclosures played into the selection of Dobson High as the venue for the president’s speech. I can think of some areas that were harder hit than the Dobson High area myself, but I suppose you only need one foreclosed home in the background for a photo-op. I wonder if this will help market whatever REO he stands in front of. I can see the listing, " As seen on national TV with President Obama ". If it does help, I suspect it will be one of the few helpful things that this new housing program actually accomplishes.
    Click Here to Read the Full Article

  • 2:26 PM » Fed Looks to Expand Shrinking List of Primary Dealers
    Published Tue, Feb 17 2009 2:26 PM by The Big Picture
    Primary Dealers February 17, 2009 The Federal Reserve is reportedly in negotiations to expand its shrunken list of Primary Dealers. Who are these firms? What do they do? Why are they important? Each day the Federal Reserve enters financial markets to adjust the amount of Federal Funds (deposit balances of banks with the Federal Reserve) outstanding to keep the rate on overnight Federal Funds close to the target rate set by the Federal Open Market Committee. It does so by either buying or selling short-term US Treasury bills or by engaging in repurchase agreements or reverse repurchase agreements in which the Fed agrees to sell and then buy back, or buy and then sell back, Treasury securities to counterparties at a specified time in the future (eg. overnight, three days, twenty eight days, etc.). These transactions are conducted by the Open Market Desk, which executes transactions on behalf of the FOMC through the SOMA or System Open Market Account. The Desk and SOMA are housed at the Federal Reserve Bank of New York, although technically they are not part of the bank. In fact, two of the past three presidents of the NY Fed were managers of the Open Market Desk – Bill McDunough and Bill Dudley (though you don’t have to be named Bill to hold that position). Every business day morning, the Desk staff first prepares an estimate of the amount of reserves the banking system will need that day, in conjunction and in consultation with the Treasury and Federal Reserve Board staff in Washington, DC. That proposed program is shared on a phone call at about 9:10 AM with the Board staff, the Desk staff, and one of the voting Federal Reserve Bank presidents on the FOMC. A number of factors affect the size of the program for the day. This includes (a) estimates of float for the day (checks and electronic payments in process of collection but not yet cleared through the system), (b) Treasury disbursements of funds for the day, (c) transfers out of Treasury Tax and Loan Accounts...
    Click Here to Read the Full Article

    Source: The Big Picture
  • 12:37 PM » Equifirst to Halt Lending Operations
    Published Tue, Feb 17 2009 12:37 PM by
    Equifirst announced today that effective immediately, it will be ceasing lending operations. Going forward, the Charlotte, North Carolina-based mortgage lender will no longer accept applications for “any type of Mortgage Loan product.” “EquiFirst will continue to process any completed Mortgage Loan application and will notify the submitting Broker of the status of such Mortgage Loan application upon [...]
    Click Here to Read the Full Article

  • 12:28 PM » Recession and bank worries slam Wall Street
    Published Tue, Feb 17 2009 12:28 PM by Reuters
    NEW YORK (Reuters) - Stocks tumbled on Tuesday as investors confronted fresh signs that the recession is worsening and worried that efforts to stabilize the beleaguered financial system may not prove sufficient.
  • 12:05 PM » Bank Leverage Stats, 12/31/08
    Published Tue, Feb 17 2009 12:05 PM by
    "GE is the scary one. I mean, is Timmy Geithner going to stress test them too? I’m pulling balance sheet data from their quarterly earnings release, which doesn’t offer any detail on shareholders’ equity. I’m assuming that the published equity figure of $104.7 billion includes the $3 billion preferred investment that Warren Buffett announced on October 1st. I’m deducting that amount from tangible common equity in order to get GE’s leverage ratio. If I have that incorrect, hopefully a better-informed reader will let me know."
    Click Here to Read the Full Article

  • 12:05 PM » Ratings Cut for Mortgage Insurers
    Published Tue, Feb 17 2009 12:05 PM by Calculated Risk Blog
    Tanta used to joke "It's not a real estate bust until a mortgage insurer goes down". Of course Triad went down last year ... From the WSJ: (ht Shnaps) Ratings on MGIC Investment Corp. and Radian Group Inc. were cut Friday several notches to junk status because of what Moody's called deterioration in their franchise value, the likelihood of sustained losses for several years and substantially limited access to capital. Moody's said MGIC's losses in the past year are putting "meaningful capital strain" on the company, which could breach maximum statutory risk to capital guidelines in the next 12 to 18 months without additional capital injections. It downgraded the insurance-financial-strength ratings of MGIC units seven notches to Ba2, or slightly speculative, and MGIC's senior-debt ratings seven notches to B2, or speculative. ... The rating agency also cut the insurance-financial-strength ratings of Radian's mortgage-insurance units seven notches to Ba3 and the insurance unit's insurance-financial-strength rating six notches to B1. The mortgage insurers were cut out of the worst deals (lucky for them!), because Wall Street happily securitized 100% financing with 2nds and no MI. But the losses are still piling up.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 11:34 AM » Obama to detail mortgage relief plan on Wednesday
    Published Tue, Feb 17 2009 11:34 AM by Market Watch
    In its latest effort to stem the financial crisis, the Obama administration plans to announce details about a $50 billion program to modify mortgages for troubled homeowners on Wednesday in a hard-hit suburb of Phoenix, Arizona.
  • 10:47 AM » William Black: "There Are No Real Stress Tests Going On"
    Published Tue, Feb 17 2009 10:47 AM by Google News
    By way of background, William Black is a former senior bank regulator, best known for his thwarted but later vindicated efforts to prosecute S&L crisis fraudster Charles Keating. He is currently an Associate Professor of Economics and Law at the University of Missouri - Kansas City. More germane for the purpose of this post, Black held a variety of senior regulatory positions during the S&L crisis.He managed investigations with teams of examiners reporting to him, redesigned how exams were conducted, and trained examiners. Via e-mail, he has confirmed our suspicions about the bank stress tests announced by Treasury Secretary Timothy Geithner: they simply cannot be adequate, given the number and experience of the staff, and perhaps as important, their relationship with the banks (see detailed comments below). I also asked him about the fact that bank examiners examine banks (duh) and would not have much (any?) experience in the capital markets operations or sophisticated products that the big investment bank, now banks, participated in. Goldman and Morgan Stanley ought to be subject to these exams; Citi, JP Morgan, and Bank of America have large capital markets operations. These firms are where the biggest risks and exposures lie. Do the examiners what to look for in a even the low-risk operations, like repo desks, much the less derivatives and proprietary trading books? He agreed (as presented below) that it was a near certainty that this was beyond their skill level. Now this begs the question: why has the Treasury Secretary set in motion an obviously bogus process? It suggests the result is pre-ordained. One possibility is that even a very quick and dirty look at many of the big banks' books will reveal them to be in very bad shape. In fact, the inadequate staffing could be part of the private conversation: "You know we didn't send in enough bodies to do this right, and even using your numbers, which we can assume in some cases will be flattering...
  • 10:32 AM » Trump casino group in bankruptcy
    Published Tue, Feb 17 2009 10:32 AM by CNN
    Trump Entertainment Resorts, the casino operating group, filed for Chapter 11 bankruptcy protection, according to court documents filed Tuesday in Camden, N.J.
  • 10:31 AM » 'Vanilla' Mortgages Will Save Banks: Ex-Lloyds Chairman
    Published Tue, Feb 17 2009 10:31 AM by CNBC
    Posted By: If governments refrain from interfering, and banks' earnings power continues to be significant, "the prospect for the banks over a longer period will be good", former Lloyds TSB chairman Sir Brian Pitman said Tuesday. Topics: | | | | | | | | | | | | | Sectors: | Companies:
  • 10:31 AM » Getting your hands on some green ... stimulus
    Published Tue, Feb 17 2009 10:31 AM by CNN
    If you want to green-up your home - and get the government to kick in for part of the bill - now may be the time to do it, thanks to the stimulus.
  • 10:31 AM » Financial Crisis: “Silver Bullets” for Toxic Mortgages?
    Published Tue, Feb 17 2009 10:31 AM by
    The Obama Administration is floating a proposal that would allow the government to directly buy more loans from servicers of mortgage-backed securities With the financial crisis quickly becoming President Obama's primary burden, his Administration has intensified its efforts to stem the rising tide of foreclosures in order to solve the root cause of the difficulties. On Feb. 11, Treasury Secretary Timothy Geithner and Shaun Donovan, Secretary of the Housing & Urban Development Dept., met with community groups and key stakeholders in the banking industry to gauge support for a potential program that would allow the government to directly buy whole loans from servicers of mortgage-backed securities (MBS) in order to modify them—and keep more borrowers in their homes.
    Click Here to Read the Full Article

  • 10:18 AM » Obama Plan on Housing Said to Push on Lenders
    Published Tue, Feb 17 2009 10:18 AM by CNBC
    President Obama’s plan to reduce foreclosures will include a mix of government inducements and new pressure on lenders to reduce monthly payments, the New York Times reports.
  • 8:28 AM » Crunch Time for Detroit as Deadline Looms
    Published Tue, Feb 17 2009 8:28 AM by
    General Motors will file what is expected to be the largest restructuring plan of its 100-year history on Tuesday, seeking to justify its use of a $13.4 billion loan package from the federal government. With its access to the government lifeline possibly at risk, G.M. executives have been locked in intense negotiations Monday with leaders [...]
    Click Here to Read the Full Article

  • 8:13 AM » Wal-Mart's profit beats expectations
    Published Tue, Feb 17 2009 8:13 AM by Reuters
    NEW YORK (Reuters) - Wal-Mart Stores Inc on Tuesday posted a quarterly profit that beat Wall Street expectations, helped by strong U.S. sales at its namesake discount stores.
  • 7:00 AM » Why you can't get a loan
    Published Tue, Feb 17 2009 7:00 AM by CNN
    Bankers say they are lending but try telling that to consumers having difficulty getting approved for mortgages, credit cards or auto loans.
  • 6:59 AM » Stock futures signal drop; eyes on Wal-Mart
    Published Tue, Feb 17 2009 6:59 AM by Reuters
    (Reuters) - Stock index futures pointed to a lower open on Wall Street on Tuesday, as the market reopens after a long holiday weekend, with investors bracing for quarterly results from retail behemoth Wal-Mart .
  • 6:58 AM » Stocks poised to plunge
    Published Tue, Feb 17 2009 6:58 AM by CNN
    Stocks are poised to open significantly lower on Tuesday, as investors worry that the new stimulus plan - expected to be signed into law later in the day - won't help breathe new life into the economy.
  • 6:57 AM » Final score: $8,000 for homebuyers
    Published Tue, Feb 17 2009 6:57 AM by
    There's a nice windfall for some homebuyers in the economic stimulus bill awaiting President Obama's signature on Tuesday.
    Click Here to Read the Full Article

  • 6:56 AM » Asia stocks hit by economic fears, risk aversion
    Published Tue, Feb 17 2009 6:56 AM by Market Watch
    Asian stocks suffered losses Tuesday, with financials such as Industrial Bank of Korea and Mitsubishi UFJ Financial Group sliding on concerns the global economic crisis is deepening and recovery could take longer than previously expected.
  • 6:55 AM » Governments must coordinate better to fight crisis: IMF
    Published Tue, Feb 17 2009 6:55 AM by Reuters
    PARIS (Reuters) - Governments must coordinate better to fight the global economic crisis as national remedies are proving ineffective, International Monetary Fund chief Dominique Strauss-Kahn said on Tuesday.
  • 6:55 AM » U.S. oil falls toward $36 on demand concerns
    Published Tue, Feb 17 2009 6:55 AM by Reuters
    SINGAPORE (Reuters) - U.S. oil prices fell toward $36 a barrel on Tuesday as bleak economic indicators in Asia returned focus to the worldwide oil demand slump.
  • 6:55 AM » Aiding ‘Underwater’ Mortgages
    Published Tue, Feb 17 2009 6:55 AM by The Big Picture
    I will reserve comment until I read the details of the plans when they are released Wednesday. But in the WSJ, we read: “Economists and government officials say the country’s economic woes can’t be fixed until the downward spiral of foreclosures and falling home prices come to an end. Devising a plan that helps without rewarding banks for making bad loans or costing too much has proven hard for both the Bush and Obama Treasury Department. One contender would reduce Americans’ home-mortgage payments, people familiar with the discussions said, possibly through a cut in the interest rate, the costs of which would be shared by the government and mortgage servicers. As part of a new national standard for modifying loans, government officials would make such a plan available to people who are still current with their payments but in danger of defaulting.” Loan mods seem to be the key idea: • Fannie and Freddie loan-modification holds monthly housing payments to 38% of pretax income. Possible change? New formula takes this down to 31%; • Help underwater homeowners — who owe more than their houses are now worth — to refinance; • Allow judges to modify mortgages during bankruptcy proceedings; • Voluntary temporary halt on foreclosure; • Possible Bank of America, J.P. Morgan Chase and Citigroup temporary moratoriums for owner-occupied residences. • Mortgages securitized to investors won’t be included in the moratorium; • Citigroup foreclosure moratorium eliminates some restrictions; • J.P. Morgan’s new moratorium would last through March 6 and only includes loans owned by the bank — about 25% of the $1.5 trillion in mortgages J.P. Morgan services. • Bank of America’s moratorium lasts through March 6 and includes mortgages owned by the bank and its Countrywide mortgage unit. Of course, none of this addresses the key issues: Too many people live in homes they cannot afford, purchased with loans they cannot service. Oh, and home prices are STILL too high by historical metrics. ....
    Click Here to Read the Full Article

    Source: The Big Picture
  • Mon, Feb 16 2009
  • 4:02 PM » Community Banker: Break Up Big Banks
    Published Mon, Feb 16 2009 4:02 PM by Calculated Risk Blog
    "The money is going to sit on the sidelines until [regulators] announce they’re going to do something with these [big banks]. Nobody is going to put fresh capital into the banking business when your major competitor is going to be continuously bailed out by the United States government with more and more money.” Rusty Cloutier, the president and CEO of MidSouth Bank From Diana Golobay at Housing Wire: Rusty Cloutier, the president and CEO of MidSouth Bank, recently told major news outlets that “[c]oncentration is a bad thing” and called for the feds to break up the “miserable eight” largest banks that, he said, control 60 to 64 percent of the country’s assets, restoring competition to the banking industry and restoring investor confidence in the system. This is an excellent point. Most of the big banks can't raise capital because investors are afraid of nationalization preprivatization. And small banks can't raise capital because investors are concerned that their competitors (the large banks) will be continuously bailed out by the government.
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
  • 11:06 AM » How the Crash Will Reshape America
    Published Mon, Feb 16 2009 11:06 AM by
    So how do we move past the bubble, the crash, and an aging, obsolescent model of economic life? What’s the right spatial fix for the economy today, and how do we achieve it? The solution begins with the removal of homeownership from its long-privileged place at the center of the U.S. economy. Substantial incentives for homeownership (from tax breaks to artificially low mortgage-interest rates) distort demand, encouraging people to buy bigger houses than they otherwise would. That means less spending on medical technology, or software, or alternative energy—the sectors and products that could drive U.S. growth and exports in the coming years. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth. The measures that prop up this demand should be eliminated. If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem. And while homeownership has some social benefits—a higher level of civic engagement is one—it is costly to the economy. The economist Andrew Oswald has demonstrated that in both the United States and Europe, those places with higher homeownership rates also suffer from higher unemployment. Homeownership, Oswald found, is a more important predictor of unemployment than rates of unionization or the generosity of welfare benefits. Too often, it ties people to declining or blighted locations, and forces them into work—if they can find it—that is a poor match for their interests and abilities. As homeownership rates have risen, our society has become less nimble: in the 1950s and 1960s, Americans were nearly twice as likely to move...
    Click Here to Read the Full Article

  • 10:40 AM » Bank failures: 13 in 2009
    Published Mon, Feb 16 2009 10:40 AM by CNN
    Closures in Nebraska, Florida, Illinois and Oregon bring the number of bank failures to 13 this year as the financial crisis continues to roll.
  • 10:39 AM » Fed Chief's Boyhood Home Is Sold After Foreclosure
    Published Mon, Feb 16 2009 10:39 AM by WSJ
    DILLON, S.C. -- Travis Jackson walks through his modest ranch house, admiring the kitchen's built-in spice rack and the red-oak floors. He draws back the curtains, and sunlight illuminates the pride on his face. The young banker just bought Federal Reserve Chairman Ben Bernanke's childhood home at a foreclosure sale.
  • 10:37 AM » Lender sues Michigan sheriff for halting foreclosures
    Published Mon, Feb 16 2009 10:37 AM by
    "I will not allow one more family to be put out of their home in Wayne County until I am satisfied they have been afforded every option they are entitled to under the law to avoid foreclosure," Evans said in a statement.
    Click Here to Read the Full Article

  • 10:36 AM » Citi issues statement on mortgage foreclosure moratorium
    Published Mon, Feb 16 2009 10:36 AM by
    Today's announcement expands on Citi's current foreclosure moratorium in which Citi does not initiate or complete a foreclosure sale on any eligible borrower where Citi owns the mortgage, the borrower is seeking to stay in the home, which is his or her primary residence, is working in good faith with Citi and has sufficient income for affordable mortgage payments. "Since the start of the housing crisis in 2007, Citi has worked successfully with approximately 440,000 homeowners to avoid potential foreclosure on combined mortgages totaling approximately $43 billion. Last year, Citi kept approximately four out of five distressed borrowers with mortgages serviced by Citi in their homes."
    Click Here to Read the Full Article

  • 10:36 AM » Companies Paring Exposures to Risky Counterparts
    Published Mon, Feb 16 2009 10:36 AM by Google News
    As much as some optimists would like to find evidence of recovery, it is far more likely that the US will see a further deterioration in economic activity. We have not yet seen much in the way of bankrupticies and debt restructuring. Until this sort of thing becomes sadly routine, the bottom is not yet nigh. One sign that conditions are worsening is that major companies are cutting their exposures to business partners they deem to be in peril. This is a corporate version of the paradox of thrift. While this activity may seem laudable as far as each actor is concerned, it will have the effect of pushing some enterprises over the edge. And those failures feed the downspiral of activity and psychology. From the : The world’s biggest companies are terminating contracts with customers they fear will collapse, a report will show on Monday in a sign of the turmoil spreading through global supply chains. Of the 337 international corporates surveyed by accountancy firm Ernst & Young, most of which turn over more than $10bn a year, the majority said important customers were in financial distress and were taking longer to pay than usual. A quarter said one or more key customers had gone into bankruptcy while almost on in ten said suppliers had gone out of business. As a result, a third of the companies surveyed have stopped trading with customers they perceived as high risk. John Murphy, global managing partner of markets at Ernst & Young, said managers would have to scrutinise the health of even ultra-safe trading partners very carefully. “A company’s risk profile can change almost overnight,” he said.
  • 10:36 AM » House "Deal of the Week"
    Published Mon, Feb 16 2009 10:36 AM by Calculated Risk Blog
    The North County Times has a feature called "Deal of the Week". This week the deal is interesting for several reasons: See: (sorry, wrong link initially) The featured property is a one-bedroom, one-bath, 700-square-foot condominium in Escondido (inland north county San Diego). In 2006, during the bubble, the unit sold for $191,000, and in December 2008 - after foreclosure, the unit sold for $52,000. That is almost 73% off the peak price! A few key points: In 2006, the unit was bought with no money down. Two months ago the buyer paid all cash. From no money down to all cash; near the opposite extremes of financing! Note: "near" because during the bubble, some buyers actually received cash out at closing with financing of 105% LTV or greater. These units currently rent for close to $900+ per month (although I suspect rents will decline in this area). Even figuring in HOA fees, taxes, maintenance, insurance, vacancy and other expenses, this unit has to be generating a nice return for the investor. The unit sold for $45,900 in 1979 (Yes, 1979). I checked with Zach from the NC Times, and he said he confirmed the 1979 price with the assessor's office. Zach told me other units in the building sold for $40,500 in 1984, so maybe the '79 price was a little high (that was near the peak of a housing bubble too, so a 10% decline from '79 to '84 might be reasonable). Over almost 30 years (1979 to Dec 2008) the price increased 13%. Annualize that return!
    Click Here to Read the Full Article

    Source: Calculated Risk Blog
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