Crude oil peaked at $99.29/bbl, and the Euro is at $1.4831:€1.0000.
Absent a major weather event, I don’t see much movement over the Thanksgiving weekend, but they are both close to crossing their respective psychological barriers.
Category: Economy
To Funny for Words…Subprime Edition
Congress Reviewing Bill to Allow Bankruptcy Judges Review Terms of Mortgage Loans
Brad Miller (D-NC) and Linda Sanchez (D-Ca) have proposed legislation in the house, and there appears to be a push for this in the Senate.
It is anticipated that this could reduce foreclosures by 2 million.
One of the wierd things that I discovered in reading this is that, Judges already have this power for “Vacation homes, farms and investment properties.”
But not for principal homes…Weird.
If this passes, it may save the mortgage industry from itself.
One Good Thing From the Credit Mess
Private equity firms are being pressed to give out more information about how they operate.
If this gets written into statute or regulation, it would be a good thing.
People to Put Up Against the Wall When the Revolution Comes
This would be the Wall Street pukes who have engineered the housing bubble, and are now NOT reaping the consequences of its deflation.
Wall Street firms are planning record bonuses of $34 Billion this year.
That money, split among about 186,000 workers at Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest U.S. securities firms paid $36 billion to employees last year.
What happened to pay for performance?
Almost 1/5 of Home Sales in Orange County are Distressed
A distressed property is either foreclosed or short sold (sold for less than it is worth). In Orange County, almost 20% of home sales are of distressed homes.
At some point, buyers are going to start expecting distressed asset prices, and then the home market plummet even more.
Oil Spikes, Dollar Falls
Oil is above $95/bbl, and there talk of switching denomination to the Euro, which peaked today at $1.4804:€1.000, though it’s currently at 1.4785.
I think that we will be seeing stagflation sooner rather than later.
Freddie Mac Has Multibillion Dollar Loss, Scrambles for Capital
Freddie Mac announces 2 billion dollar loss, and is looking at a capital crunch. It’s considering cutting its dividend, selling preferred stock, or cutting some of its mortgage holdings to meet US reserve requirements.
FWIW, Credit Suisse says that the losses might hit $5 billion.
Renters Look to Congress for Forclosure Relief
Something that I hadn’t thought about before, but when a property is foreclosed on, renters are frequently evicted. As a result, renter protection was included in the House mortgage reform act, and Chris Dodd has proposed the same in the Senate.
Generally the protections come in the form of requiring purchasers continue leases of for 6 months following foreclosure.
Considering that about more than 10% of all foreclosures are non-owner occupied, and as the Times notes, “This figure probably underestimates the problem, according to the association, because buildings receive tax benefits if they are registered as owner-occupied”, we could see well in excess of 100,000 tenant evictions.
Remember When I Said That Bear Stearns Would Be Gone in a Year?
We have a little story about the relative success of Goldman Sachs as compared to the other investment banks. What interests me is this quote:
Money soothes a lot of concerns, of course, and Goldman has had plenty to spread around. Through the third quarter, Goldman’s $16.9 billion compensation pool — the money it sets aside to pay its employees — was significantly bigger than the entire $11.4 billion market capitalization of Bear Stearns.
So Bear Stearns’ market cap is less than Goldman’s payroll for just 3 months.
If they don’t go down, they will be bought out. It’s just a matter of time before the big fish eat the little fish, and as I predicted at the beginning of August, Bear Stearns will be one of the small fishes.
The Economic Gods Must Be Cramming in Preparation of the Thanksgiving Holiday
So here are some economic updates.
First, it appears that the first major bank casualty of the housing bust is upon, Northern Rock, a bank which is responsible for about one in five mortgages in the UK. They have apparently been done in by a 1930s style run on the bank. They got some temporary liquidity through a £24 Billion (about $US 50 Billion) loan from the land of England, but it still appears that they are headed for liquidation, with the Tory shadow of the chancellor of the exchequer* George Osborne asking that, “The chancellor had not explained how taxpayers would get their money back.” The testimony of the CEO of Northern Rock, is more concerning though:
He told the Treasury Select Committee that the bank had planned how it would cope with a 40% fall in house prices.
But it had not planned how to respond if its ability to borrow dried up.
“What wasn’t stress-tested was the event deemed implausible – of the global markets freezing up overnight,” he said.
“The rapid and long-lasting closure of the global markets was not stress-tested,” he added.
Basically, we have a world capital market that resembles juggling, and if you lose one ball, others follow.
On top of this, we have a new home builders survey that is positively grim. The current outlook remains at a record low, but the 6 month outlook looks grim.
On the more macro level, we have Countrywide shares plunging as the insurance rates it must pay on its loans jumped by 30 % (!), both Fannie Mae and Freddie Mac taking major hits because about the security of their mortgages (here and here), and Citigroup faces $15 billion write down in addition to having the good fortune of Goldman Sacks downgrading them to “sell” from “neutral”.
In consumer spending, auto sales could hit 15-year low.
*It’s an artifact of the parliamentary system that the minority party has a shadow cabinet, which is there to keep the various minister’s feet to the fire.
My Heart Bleeds Borscht* for These Gonniffs
Oh Dear!!! Some Wall Street pukes at the center of the mortgage debacle may find their bonuses cut in half.
The hardest hit will be the salespeople dealing with mortgage-backed securities, according to Options Group director Eric Moskowitz. Their average bonus will be about $1 million compared with $2 million last year.
Only a million dollar bonus???? Cry me a river.
*This is sarcastic. I feel no sympathy.
†This means “thief” in Yiddish, which is largely archaic German. It is from the Hebrew ganov, and you find the term “gnof” in Chaucer, meaning “churl” or “peasant” generally, which probably has the same Hebrew roots.
Bank of America Purchases $2 Billion in Preferred Countrywide Stock
This is a bailout. Bank of America will purchase $2 billion worth of preferred Countrywide stock yielding 7.3%, and that can be converted into common stock at $18 per share. It should be noted that Countrywide is currently selling at $26.19, up 20% from before the infusion purchase.
This is a juxtaposition of desperation on the part of Countrywide and vulture opportunism on the part of BoA.
Honestly, I think that they will end up losing money on this.
Industrial Production Tanks
Largest drop in 9 months.
Nouriel Roubini: Hard Landing in the Economy
To be fair to Dr. Roubini, he has been predicting this for a while, but now the numbers, and the assesments of other economists are catching up.
Truth be told, I believe that the recession has already started, at least for the majority of the population, who lost a lot in the 2001 recession, and have recovered very little, if at all, since.
Federal Reserve Prints $47 Billion and Gives it to Bankers
It’s the biggest infusion of currency into the US banking system since just after 911.
I do not believe that further inflation of the bubble will make said bubble’s collapse less destructive.
House Passes Mortgage Reform
291-127, with all the Bush Dogs, and in fact all the Democrats, supporting it.
It will make mortgages harder to get, which will depress the housing market, but the loans in question are those that never should have been made in the first place.
Being Forced to Price Radioactive Toxic Waste at Market Values
Sometimes, someone writes something that captures the totality of a situation in just a few words. In this case, it is my favorite bear, Nouriel Roubini on FASB 157, which, as I’ve mentioned before, requires more stringent evaluations of exotic financial instruments.
It really is forcing people to price assets that they thought had value, but are now viewed with the enthusiasm of a radioactive toxic waste sandwich.
Sounds like a job for Troma Films.
Merrill Chose Different CEO After Candidate Demands Full Accounting
Un-dirtyword-bleievable.
Merrill Lunch had a new CEO selected, but they chose someone else because he wanted a full accounting of the subprime losses.
This says something about the general level of ethics in US financial markets, and it is not good.
Housing Contageon Infects Commercial Real Estate
The decrease in commercial/multifamily lending activity during the third quarter was driven by decreases in originations for most property types. When compared to the third quarter of 2006, the overall decrease included a 31 percent decrease in loans for office properties, a 20 percent decrease in loans for retail properties, an 18 percent decrease in loans for hotel properties, an 8 percent decrease in loans for industrial properties, as well as a 149 percent increase in loans for health care properties and a 14 percent increase in loans for multifamily properties.
So the things that increased were our tremendously inefficient health care system, and apartments for people who are no longer buying homes.