HAGERSTOWN, Md. -- A fired Fannie Mae contract worker pleaded not guilty Friday to a federal charge he planted a virus designed to destroy all the data on the mortgage giant's 4,000 computer servers nationwide.

The government's efforts to combat the worst financial crisis since the 1930s can be divided into three phases.

Banks are looking for a second chance to dump some toxic waste from their balance sheets on the hope that the Obama administration will set up a "bad bank" to buy massive amounts of their troubled assets.

From Bloomberg: (hat tip Sam) David Simon [Chief Executive Officer, Simon Property Group Inc., the biggest U.S. shopping mall owner] ... said the company doesn’t plan to begin construction on new projects or major redevelopments in 2009 and there will be little new U.S. retail construction for years to come. “The new development business is dead for a decade,” Simon said on today’s call. “Maybe it’s eight years. Maybe it’s not completely dead. Maybe I’m over-dramatizing it for effect.” In Q3, investment in U.S. malls was at a $33 billion annual pace, but that includes renovations (there are always renovations). Still I'd expect mall investment to decline in half or more by the end of 2009. I'll have more on mall investment in a few days (when the supplemental GDP data is released).

Posted By: My last blog post Banks Sitting On An Inventory Time Bomb set off quite a stir among readers, and I think it bears more reporting. Topics: | | | Sectors: |

DAVOS, Switzerland (Reuters) - Top executives meeting in Davos say the bonus culture that drove financial investments on Wall Street faces a major overhaul as bankers humbled by the financial crisis prepare to curb excessive pay.

Click here to see photos of the former Washington, D.C., home of John Edwards. Washington Fine Properties John Edwards’ former home Washington home hits the market with an asking price of $9.95 million. The former North Carolina senator bought the four-story townhouse in 2002 for $3.8 million and sold it in December 2006 as he started his campaign for the 2008 Democratic presidential nomination. Paul and Terry Klaassen, co-founders of Sunrise Assisted Living, a firm that houses and cares for the elderly in Virginia, bought the home for about half the current asking price and have since renovated it. () Actor Nicolas Cage cuts the price on his Los Angeles house to $19.75 million. The house, which Mr. Cage first listed in October 2006, was once home to singers Dean Martin and Tom Jones. . () Hollywood producer Brian Grazer takes his Los Angeles house off the market. He had listed the property for $27.5 million more than a year ago. Michael Smith, who is currently decorating President Barack Obama’s White House quarters, designed the interiors. () Adam Duritz of the band Counting Crows lists his Beverly Hills home for $8.25 million. The six-bedroom, six-and-a-half-bathroom house includes a private screening room, a pool and a spa. () Antivirus software creator John McAfee cuts the price of his four-bedroom, five-bathroom home in Hawaii from $4.9 million to $3.7 million. The newly constructed house is 5,796 square feet and is located on 5.3 acres. () Former New England Patriot quarterback Drew Bledsoe cuts the price on his home in Westlake, Texas’s gated Vaquero community to $1.625 million. He bought the property new for $1.7 million in 2005. He listed the house a year ago. Mark Teixeira, now of the New York Yankees, delisted his $5.75 million one-acre property, also in Vaquero, after putting it on the market last February. () A home for Hollywood’s elderly will have to close by the end of the year due to financial problems. () Arizona home builder Five Star Development...

Per CNBC: She's dubbing the "Bad Bank" part of the good bank / bad bank idea being floated the HTML clipboard "Bank Asset Repository Fund", or BARF for short. Catchy name. LOL

Ohio Attorney General Richard Cordray has filed a lawsuit against two Cincinnati-based foreclosure rescue companies accused of failing to deliver on their promises to save consumers from foreclosure. The suit, filed in the Hamilton County Court of Common Pleas, charges Foreclosure Assistance USA, Inc. (FA USA) and American Foreclosure Professionals, Inc. (AFP) with several violations of Ohio consumer protection law.

BOSTON (MarketWatch) -- Morgan Stanley and Goldman Sachs Group Inc. are reportedly considering more job cuts as the once-mighty investment banks adapt to much leaner times on Wall Street.

From Ruth Simon at the WSJ: (hat tip ShortCourage) Nearly $750 billion of option adjustable-rate mortgages, or option ARMs, were issued from 2004 to 2007, according to Inside Mortgage Finance ... Rising delinquencies are creating fresh challenges for companies such as Bank of America Corp., J.P. Morgan Chase & Co. and Wells Fargo & Co. that acquired troubled option-ARM lenders. ... As of December, 28% of option ARMs were delinquent or in foreclosure, according to LPS Applied Analytics ... An additional 7% involve properties that have already been taken back by the lenders. ... Just over half of subprime loans were delinquent, in foreclosure, or related to bank-owned properties as of December. The nearly $750 billion of option ARMs issued from 2004 to 2007 compares with roughly $1.9 trillion each of subprime and jumbo mortgages in that period. Nearly 61% of option ARMs originated in 2007 will eventually default, according to a recent analysis by Goldman Sachs ... If 61% of the $750 billion in Option ARMs default, and with a 50% loss severity, the losses to lenders will be about $225 billion - far less than for subprime, but still a huge problem. The key problem with Option ARMs is that they were used as affordability products, mostly in California and Florida, because buyers couldn't qualify for fixed rate mortgages or even regular ARMs. It should have been no surprise that most borrowers chose the negatively amortizing option; it was the only one they could afford!

(Reuters) - Fannie Mae reached an agreement to work with one of its former critics, Neighborhood Assistance Corp of America, to prevent foreclosures by reworking home mortgages to make them easier to afford, the Wall Street Journal said.

From CNBC: Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included. ... The Wall Street Journal said government officials had discussed spending $1 trillion to $2 trillion to help restore banks to health, citing people familiar with the matter. ... The government would not necessarily have to spend the full $4 trillion to buy the assets. If it follows the model used in a Federal Reserve program to support consumer and small business loans, the government could potentially put up just 10 percent of the total. We need more details ...

"Finally something that we can all get behind: Don't pay your bills. It's not my idea, although it has appeal. It's the Fed's and it's the cornerstone of the new Homeownership Preservation Policy. To qualify for aid, the homeowner must be at least 60 days past due on his or her mortgage payments. (This program is for mortgages acquired from Bear Stearns and AIG rescues. Another program begun in December 2008 required that the homeowner be 90 days late.) At the same time, the mortgagee must be able to make a reduced monthly payment, therefore, must have some income, presumably a job. The having a job part might be tough; the missing two payments part, easy."

Market research company iEmergent expects the FHA to be a major player in the mortgage market this year, according to their 2009 forecast released today. The company currently forecasts 1.4 million owner-occupied FHA purchase loans in 2009, representing total purchase volume of $245.9 billion. When you factor in refinance transactions, that number could be as high as [...]

Posted By: Reuters U.S. mortgage companies increased their use of loan modifications in foreclosure prevention efforts to a record level in December, an industry group said on Thursday. Topics: | | | |

From Davos, Switzerland, Nouriel Roubini and Robert Shiller were on Bloomberg this morning talking about the outlook for the U.S. banking system and the global economy. Click to play in a new window After reiterating his view that most of the U.S. banking system is insolvent, Nouriel suggests we proceed directly to nationalizing what's left and Shiller mostly agrees. Then an ambulance goes by and Bloomberg's Erik Schatzker wonders whether that's another bank being taken the hospital (that's the still you see above - both having a good gallows humor chuckle). What's kind of remarkable about this interview is that Roubini and Shiller, both early seeers of the financial troubles we are now in the midst of, think that we should be able to just fix the banks, stop the foreclosures, provide even more massive stimulus, and then carry on with basically the same system in place. Shiller says, "the fundamental problem is, unless we restore confidence, we're going to be in a situation where, when you stop the fiscal stimulus, we come right back down." It's as if it doesn't really matter that the most massive financial bubble in the history of the world has just met its pin. Instead of rethinking what got us to this point and whether now would be a good time to consider the bigger picture (e.g., the nature of our monetary and credit system, what passes for "sound economic" growth, etc.), it's all about bigger shovels to extricate ourselves from the hole we've dug. Amazing ... a form of cognitive dissonance for even the smartest economists. Here's a related and the video is below: 00:00 Roubini: most U.S. banks "insolvent," losses 00:58 Roubini: nationalization, "near depression" 01:28 Shiller: credit market, favors "Bridge Banks" 03:06 Shiller, Roubini: U.S. economic policy, risks 04:31 Shiller: banking regulation, agency control 05:31 Roubini: cooperation on regulation, change 06:37 Roubini...

Morgan Stanley said Thursday that its hard-to-value, or level 3, assets rose 17%, to $86.2 billion at the end of its fourth quarter from $73.7 billion a year earlier. In its annual report with the Securities and Exchange Commission, the financial-services company said the level 3 assets represented 27% of assets measured at fair value. Also, Morgan Stanley said it reclassified about $17.3 billion in debt - including residential and commercial mortgage-backed securities - to level 3 from level 2 in fiscal 2008.

submits: I have been maintaining for a long time (particularly in the ), that the key to the bottoming process in the economy is and the key to housing prices is inventory. While housing prices continue to fall, Tuesday offered the first glimpse of hope on the inventory front in a long time. In the graphic below ( click to enlarge ), I have captured the months of supply of housing inventory since 1963. Note that the December data show the biggest drop in housing inventories in 28 years.

DAVOS, Switzerland (Reuters) - JPMorgan Chase & Co has "plenty of capital" and wants governments to stop talking about nationalizing banks, its CEO said on Thursday.