This is obviously just an anecdote, but Dennis Pflueger is living in one of two houses that are occupied on his block, and that only because he was given a year to live there rent free as a sales inducement.
This is going to get Dennis Pfluegervery ugly.
Read Mike Morgan’s essay The World’s Grandest Ponzi Scheme Unravels.
He makes Nouriel Roubini, and for that matter me, look like Panglossian optimists, though he does appear to be a short seller, which means that pessimism is his job.
I’ve shown this scare chart, but it’s time to show it again:
Pleasant Dreams.
Specifically the news from the FDIC, which almost always chooses to act after the close of business on Friday.
Well, this Friday, they seized First Priority Bank. Sun Trust will be taking over the deposits.
Additionally, they warned four banks that they did not have enough liquidity. They were ordered to, “raise more capital, expand their loss allowances and better oversee and diversify their loan portfolios.”
This time, it’s commercial mortgage back securities, and the default rate is about 4%, but this number is expected to quadruple if the economy slows down significantly.
Let’s note that this is commercial property, the stuff that’s supposed to be largely recession proof that we are talking about here:
Such a scenario corresponds “to the negative predictions currently offered by commercial real estate experts”, analysts at Fitch wrote. This would happen if the economy suffered a similar downturn to 1991, and assumes that the value of properties covered by the deals falls by 25 per cent, and cash flow from rents by 15 per cent.
The higher defaults under such a slowdown compares with a historical default rate of 7.9 per cent, and with the milder scenario that Fitch thinks is more possible of 0.8 per cent economic growth and a 13.7 per cent rate of default.
It would cause non-investment grade bonds – B and BB rated CMBS – to suffer loss rates of 100 per cent and 95.9 per cent, respectively. Meanwhile, 30.6 per cent of the lowest-rated investment grade bonds – BBB rated – would experience losses, while loss severities would rise to 37.9 per cent from an historical average of 33.5 per cent.
The data suggest that recently issued CMBS may fall victim to inflated property values and weaker underwriting standards experienced at the height of the US property boom in 2006 and 2007, as well as the weaker economy. Those bonds make up about 49 per cent of the outstanding CMBS market of more than $800bn. The survey covers all Fitch-rated bonds issued during those two years, making up 74 deals worth $217.3bn. That was about 60 per cent of all CMBS issued during the period.
These numbers are apocalyptic.
Yesterday, I wrote about a 5.7 billion write-down that Merril was taking on CDOs.
It turns out that the numbers, which showed them getting 22¢ on the dollar are completely bogus. They took an even bigger haircut than reported.
Nouriel Roubin has the details, but the cliff notes version is:
Their face value is $30.6 billion, so this figures to a 5.5¢ on the dollar worst case.
Less than 2 weeks ago, Merrill Lynch declared huge quarterly losses, and now they are planing another $5.7 billion write down on CDOs (Collateralized Debt Obligations)
So many shoes have dropped at Wall Street that these companies resemble centipedes.
Care of Barry Ritholtz’s The Big Picture
Now for the really scary part: Shadow Inventory. The glut of homes for sale is likely much larger than reported. Inventory counted by the Realtors group only includes foreclosures that have been listed on the multiple listings service. The enormous number of REOs, auction properties, defaults and foreclosures not listed ARE NOT IN THIS DATA.
Ouch. Note that as foreclosures sore, this shadow inventory will become a larger part of the total inventory.
And the number is getting bigger, because they are picking up homes twice as fast as they are selling them.
On a related note, it appears that you can pick up a 3br in Flint, MI for $5,000 (the number of zeros are correct)…That’s a depressed community.
Specifically, where he relates what he said on a Bloomberg TV Interview, where he says that he expects the worst financial crisis cince the Great Depression and worst U.S. recession in decades.
No surprise to me, or his other regular readers, but if you don’t read RGE Monitor regularly, it’s a must read.
I think he’s right, though he may be too optimistic.
He predicted the housing/credit/insurance bubble collapse, but was actually more optimistic that reality.
Ye’, Angelo “The Tanned One” Mozilo’s other project IndyMac bank has been seized by the FDIC. It is the second largest bank failure ever.
Note that IndyMac was not subprime lender, they did “Alt-A” loans which are the bottom end of the prime market.
We will be seeing more of this.
Rex Nutting, the Market Watch Washington Bureau Chief says that the implosion of Fannie Mae and Freddie Mac is a certainty.
Why does he see it as a certainty? Because Bush and His Evil Minions™ don’t see it happening.
Other Things that Bush and His Evil Minions™ never expected:
To quote Bender the robot, “We’re boned”.
Houses lost to foreclosure in the first half of 2008, as opposed to the first half of 2007, where 145,696.
That’s a 136% increase.
The nation’s 7th largest mortgage lender is no longer classified as “well capitalized”, and it appears to be unable to raise additional capital. As a result regulators are pressuring them to shrink their loan business, and they have laid off half their staff
Indymac currently has a Texas ratio* of 140%, where a number at or above 100% means likely failure
Note that Indymac was cofounded by the “Tanned One” Angelo Mozilo, who also founded countrywide financial. He’s just the gift that keeps on giving.
*Quoting wiki, “The Texas ratio is a measure of a bank’s credit troubles, developed by Gerard Cassidy and others at RBC Capital Markets. It is calculated by dividing the value of the lender’s non-performing loans by the sum of its tangible equity capital and loan loss reserves.”
One constant is that the big players get to keep their mansions and limos, and the little guys get screwed.
That’s the year over year price decline in house prices in Las Vegas.
If even one out of 100 of the folks who have purchased homes in Las Vegas in the last year, this real estate ain’t local.
Freddie Mac fell 18 percent and Fannie Mae 16 percent after a Lehman Brothers analysts said that they would have to raise more than $75 billion.
They are both down more than 60% so far this year.
Normally, I don’t follow stock, but if they do indeed need to raise capital to stay solvent, then they will have…you got it…sell stock for said capital.
The rule, FAS 140, is intended to make sure that companies don’t keep “under performing assets “(translation: worthless crap) in “off-balance sheet entities” (translation: embezzlement and fraud).
The deal to take Penn National private just foundered on the shoals of the credit crunch.
If commercial real estate is falling in Manhattan, it’s falling everywhere.
In this case, it appears that subleases are a large part of the drop.
As a result of concerns about the accuracy of the London Interbank Offered Rate, it appears that a number of financial institutions are casting about for an alternative metrid.
This is big, because it reflects the fact that even the most mundane, and until recently rock solid, standards of the financial industry are no longer reliable, which is why money is not flowing, and is unlikely to flow.
This appears to be a slow motion car wreck that we are watching in the financial markets.