The jobs data settles that question.....
April 4 (Bloomberg) -- The U.S. lost jobs for a third consecutive month in March and the unemployment rate rose to the highest level since September 2005, pointing to an economy that may already be in a recession.
Payrolls shrank by 80,000, more than forecast, after a decrease of 76,000 in February that was more than initially reported, the Labor Department said today in Washington. The jobless rate rose to 5.1 percent from 4.8 percent.
Job losses have shaken consumer confidence, contributing to a weakening in spending that has almost stalled growth. The report reinforces forecasts that the Federal Reserve, whose Chairman Ben S. Bernanke this week acknowledged the economy may face a recession, will need to do more to prevent further deterioration.
Foreclosures aren't always kind to renters...
Nearly 80 Baltimore City apartment tenants have been evicted from their homes this year, all because the buildings they live in have been sold in foreclosure.
The evicted tenants often don't know about their building's plight until it's too late. Some even continue to pay rent to their former landlords, only to be evicted by new owners who claim their tenants haven't paid rent in months. As a group, according to one city official, the renters could soon emerge as the latest victims of the rising tide of mortgage foreclosures sweeping the nation.
"We kind of thought this was starting, but what we found out [was] we had more and more tenants calling to say, 'Hey, I'm being evicted,' " said Reginald Scriber, deputy commissioner for community services at the Baltimore City Housing Authority. "It was clear to me that the tenants didn't know their rights."
The red-hot housing market of just a few years ago turned many area residents into real estate investors, hoping to buy and quickly sell properties at a handsome profit in just a matter of months. When the market cooled, many of those investors were left with homes they couldn't sell, and they turned to the rental market to keep them afloat of their mortgages until the market picked up again.
I didn't know how generous banks could be........
April 4 (Bloomberg) -- Banks are so overwhelmed by the U.S. housing crisis they've started to look the other way when homeowners stop paying their mortgages.
The number of borrowers at least 90 days late on their home loans rose to 3.6 percent at the end of December, the highest in at least five years, according to the Mortgage Bankers Association in Washington. That figure, for the first time, is almost double the 2 percent who have been foreclosed on.
Lenders who allow owners to stay in their homes are distorting the record foreclosure rate and delaying the worst of the housing decline, said Mark Zandi, chief economist at Moody's Economy.com, a unit of New York-based Moody's Corp. These borrowers will eventually push the number of delinquencies even higher and send more homes onto an already glutted market.
It is all good....
Cramer gets Bernanke to wake up and cut rates.
Sub prime doesn't matter, yeah right....
Bear Stearns is fine, three days later it crashes
Another day, another loser bank....
PARIS — Credit Suisse, the Swiss banking giant, said Thursday that it expected to post its first quarterly loss since 2003 because of large write-downs and losses related to “intentional misconduct” at its trading desk.
In a statement, the Swiss bank said that it would write off $2.65 billion for the fourth quarter of 2007 and the first three months of 2008. Credit Suisse also restated its fourth-quarter net income lower to 540 million francs from the original estimate of 789 million francs, or $788 million. Profit for 2007 declined to 7.76 billion francs.
The anticipated loss at Credit Suisse, on the heels of its write-downs and its trading irregularities in light of the rogue trading case at Société Générale, added to questions about how banks worldwide were managing risk during the expanding credit crisis that stemmed from problems in the mortgage markets in the United States.
After the shake-down, the shake out begins....
March 20 (Bloomberg) -- Sacramento may eliminate up to 600 jobs in the city's first staff reductions in half a century, and the police and fire departments in the California capital may have their budgets cut by 20 percent. The culprit is the collapse of the U.S. housing market.
California, the birthplace of the subprime mortgage industry, is paying the highest price of any state as the housing meltdown persists. Its gross domestic product will drop 1.5 percent in the first half of 2008, the most in the U.S., analysts at Lexington, Massachusetts-based Global Insight Inc. estimate.
The state had the most foreclosure filings in the U.S. last year and the biggest fourth-quarter decline in prices, according to RealtyTrac Inc., an Irvine, California-based seller of data on defaults, and the Office of Federal Housing Enterprise Oversight in Washington.
Here is how the BBC over in England sees it. Hey, don't those English folks have their very own housing crisis? Whatever.....
The credit crunch has hit the US economy hard. From Wall Street to Main Street, loans that looked rock-solid a year ago now look shaky. And the US central bank, the Federal Reserve, is throwing away the rule book to contain the effects. Kevin Logan of Dresdner Kleinwort, one of the less gloomy New York economists, summarises the state of play as the credit crunch has spread to different types of assets as follows: "We're all sub-prime now".
The Fed did cut its main interest rate on Tuesday for the sixth time since September - by three quarters of one percentage point, to 2.25%. This means that interest rates are now very close to going negative in real terms - once inflation is taken into account. But amid the drama of the past few weeks, it almost seems par for the course. Whether it's rate cuts or special funding arrangements for Wall Street, the more the Fed does, the more the markets seem to need.
This is not the end, and maybe in even the end of the beginning....
As Bear Stearns careened toward its eventual fire sale to JPMorgan Chase last weekend, the cost of protecting its debt, through an instrument called a credit default swap, began to rise rapidly as investors feared that Bear would not be good for the money it promised on its bonds. Not familiar with credit default swaps? Well, we didn't know much about collateralized debt obligations (CDOs) either — until they began to undermine the economy. Credit default swaps, once an obscure financial instrument for banks and bondholders, could soon become the eye of the credit hurricane. Fun, huh?
The CDS market exploded over the past decade to more than $45 trillion in mid-2007, according to the International Swaps and Derivatives Association. This is roughly twice the size of the U.S. stock market (which is valued at about $22 trillion and falling) and far exceeds the $7.1 trillion mortgage market and $4.4 trillion U.S. treasuries market, notes Harvey Miller, senior partner at Weil, Gotshal & Manges. "It could be another — I hate to use the expression — nail in the coffin," said Miller, when referring to how this troubled CDS market could impact the country's credit crisis.
Credit default swaps are insurance-like contracts that promise to cover losses on certain securities in the event of a default. They typically apply to municipal bonds, corporate debt and mortgage securities and are sold by banks, hedge funds and others. The buyer of the credit default insurance pays premiums over a period of time in return for peace of mind, knowing that losses will be covered if a default happens. It's supposed to work similarly to someone taking out home insurance to protect against losses from fire and theft.
I have to find the youtube version of Cramer's "don't be stupid" call on Bear Stearns. Who is looking stupid now...
Hopefully your financial portfolio didn’t include stock in Bear Stearns, but it might have if you had listened to CNBC’s Jim Cramer. After it was announced March 16 that J.P. Morgan Chase & Co. (NYSE:JPM) was purchasing Bear Stearns Cos. (NYSE:BSC) for $2 a share, the stock plummeted over 80 percent at the open of trading on March 17
There will be blood.....
NEW YORK - With a deal in place to save Bear Stearns from bankruptcy, the company's shares traded above the offer price Monday even as investors began turning a critical eye to other investment banks amid worries about how far the credit contagion could spread.
Despite the weekend agreement for JPMorgan Chase & Co. to buy Bear Stearns for a fraction of its value last week, worries that other banks had sizable exposure to troubled credit markets sent global markets tumbling. The uncertainty was evident on Wall Street, where the Dow Jones industrials sank by more than 100 points.
At Bear Stearns' 47-story headquarters in midtown Manhattan, many employees said they still couldn't believe that the nation's fifth-largest investment bank is — essentially — out of business. Employees said there was no meeting to inform employees about what was happening.
"It's my first job out of school. I thought it was a big company — it would be good experience," said Ki Byung, who works for a division of Bear Stearns. "Now after a couple of months something like this happens."
It is just one big headline grabbing gesture after another. It is as if the External relations department was making monetary policy.
WASHINGTON — Hoping to avoid a systemic meltdown in financial markets, the Federal Reserve on Sunday approved a $30 billion credit line to engineer the takeover of Bear Stearns and announced an open-ended lending program for the biggest investment firms on Wall Street.
In a third move aimed at helping banks and thrifts, the Fed also lowered the rate for borrowing from its so-called discount window by a quarter of a percentage point, to 3.25 percent.
The moves amounted to a sweeping and apparently unprecedented attempt by the Federal Reserve to rescue the nation’s financial markets from what officials feared could be a chain reaction of defaults.
After a weekend of intense negotiations, the Federal Reserve approved a $30 billion credit line to help JPMorgan Chase acquire Bear Stearns, one of the biggest firms on Wall Street, which had been teetering near collapse because of its deepening losses in the mortgage market.
In a highly unusual maneuver, Fed officials said they would secure the loan by effectively taking over the huge Bear Stearns portfolio and exercising control over all major decisions in order to minimize the central bank’s own risk.
Nice interview of Krugman on the crisis
(Fortune Magazine) -- If there is any word that captures the mood in the economy right now, it's uncertainty, along with shadings of bafflement and distrust. We have never seen a credit crisis quite like this. What's next?
It is not exactly news, but some think this slowdown could be the worst in a generation.
BOCA RATON, Florida (Reuters) The United States is in a recession that could be "substantially more severe" than recent ones, National Bureau of Economic Research President Martin Feldstein said on Friday. "The situation is very bad, the situation is getting worse, and the risks are that it could get very bad," Feldstein said in a speech at the Futures Industry Association meeting in Boca Raton, Florida.
"There's no doubt that this year and next year are going to be very difficult years." NBER is a private sector group that is considered the arbiter of U.S. business cycles. Feldstein is also a Harvard economics professor and former economic advisor to President Ronald Reagan.
Answering questions from the audience, Feldstein said the downturn could be the worst in the United States since World War Two. Feldstein said the federal funds rate, the Federal Reserve's benchmark lending rate, is headed down to 2 percent from the current 3 percent.
There is no crisis in farming. From the the Kansas City Star....
Greg Moe strolled out of the Sprint Center, bought a large beer in a plastic cup and waded through the crowd in the Kansas City Live area. The 57-year-old Iowa farmer still couldn’t believe he was here, in Kansas City, spending his money on the Big 12 basketball tournament.
Yes, these are rare boom times for those Midwesterners who work the land. “Corn and soybean prices are at or near record prices,” he said as he sipped his drink and paused to look around at hundreds of other fans. “There’s a lot of optimism from that. So we thought we’d come down and enjoy the big-city life of Kansas City.”
All last week, that meant doling out dollars Moe wouldn’t have had in years past, when the prices for the soybeans and corn he grows outside Moorland, Iowa, weren’t where they are today — high enough to make you think America’s breadbasket has turned into America’s ATM.
“This is my first Big Eight or Big 12 tournament, and I’ve wanted all my life to come to this,” Moe said. “Times are good on the farm, but they’ve been challenging in the past for farmers. And they will be again. So we’re here now, while we can, enjoying this.”
It’s their presence — and their money — that economists say will help boost profits for events like this tournament and offer places like Missouri a buffer against recession. The tournament was expected to bring 35,000 out-of-town visitors to Kansas City and make a $15 million impact on the local economy.
The great 2008 walkway is well underway. There is no shame in foreclosure anymore.
Foreclosure used to be a last resort, something that hard-pressed homeowners would scrimp and plead to avoid. But as the subprime lending crisis sweeps up millions of borrowers nationwide, some are deliberately choosing foreclosure as an early option.
As their home values tumble and their mortgages rise, these "walk away homeowners" decide to cede their houses to their lenders.
"It's throwing good money away after bad" to pay an escalating mortgage on a home that's plunging in value, said Army Sgt. 1st Class Nicklaus Skaggs of Vacaville. He and his wife, Tishara, stopped paying their mortgage in February. They signed up with a new company called You Walk Away to help guide them through the multi-month foreclosure process.
The couple paid $455,000 for their Vacaville home almost three years ago, shortly after Nicklaus Skaggs returned from a year in Iraq. Now the home's value has dropped to $290,000. Their adjustable-rate mortgage, which started at about $3,000 a month, has reset twice, climbing to about $4,000.
They have no regrets about their decision."I feel like the pressure has lifted off my shoulders; before I was trapped," said Nicklaus Skaggs, 40, an earnest man who plans to retire from the Army in two years, after completing 20 years of service.
Although, Bear Stearns is no more, the NY times has some interesting observations on the now dead bank....
WHAT are the consequences of a world in which regulators rescue even the financial institutions whose recklessness and greed helped create the titanic credit mess we are in? Will the consequences be an even weaker currency, rampant inflation, a continuation of the slow bleed that we have witnessed at banks and brokerage firms
Stick around, because we’ll soon find out. And it’s not going to be pretty.
Agreeing to guarantee a 28-day credit line to Bear Stearns, by way of JPMorgan Chase, the Federal Reserve Bank of New York conceded last Friday that no sizable firm with a book of mortgage securities or loans out to mortgage issuers could be allowed to fail right now. It was the most explicit sign yet of the Fed’s “Rescues ‘R’ Us” doctrine that already helped to force the marriage of Bank of America and Countrywide.
But why save Bear Stearns? The beneficiary of this bailout, remember, has often operated in the gray areas of Wall Street and with an aggressive, brass-knuckles approach. Until regulators came along in 1996, Bear Stearns was happy to provide its balance sheet and imprimatur to bucket-shop brokerages like Stratton Oakmont and A. R. Baron, clearing dubious stock trades.
And as one of the biggest players in the mortgage securities business on Wall Street, Bear provided munificent lines of credit to public-spirited subprime lenders like New Century (now bankrupt). It is also the owner of EMC Mortgage Servicing, one of the most aggressive subprime mortgage servicers out there.
Bear’s default rates on so-called Alt-A mortgages that it underwrote also indicates that its lending practices were especially lax during the real estate boom. As of February, according to Bloomberg data, 15 percent of these loans in its underwritten securities were delinquent by more than 60 days or in foreclosure. That compares with an industry average of 8.4 percent.
Let’s not forget that Bear Stearns lost billions for its clients last summer, when two hedge funds investing heavily in mortgage securities collapsed. And the firm tried to dump toxic mortgage securities it held in its own vaults onto the public last summer in an initial public offering of a financial company called Everquest Financial. Thankfully, that deal never got done.
... the day of reckoning draws closer....Red China is about to pull the plug on the US.
Until recently, it appeared that Bear Stearns (NYSE: BSC) had one investor still happy with putting money into the investment bank. That would be China's CITIC Securities. The capital would have given the firm a relationship with a large U.S. financial company. It has some real strategic value.
Over the weekend, CITIC sent a message that was the equivalent of saying "goodbye and good luck" According to Reuters, CITIC stated, "We cannot guarantee reaching a final agreement in the future."
While the news should not surprise anyone, it may just be the tip of the iceberg for U.S. banks and brokerages. Overseas financial institutions have been willing to put money into U.S. firms to get joint ventures in place. Sovereign funds have sent out checks to troubled Wall Street operations because they feel that when the U.S. economy turns, the equity they have purchased will rise in value.
The debacle at Bear Stearns may change much of that. The perception of the risk of putting money into U.S. financial companies may have doubled.
.....from 2005....
For the last several years as housing prices have increased all across the country we have heard incessant warnings from analysts and commentators that Americans are becoming irrationally exuberant in snapping up new homes at ever-higher prices.
The "housing bubble," as it is now called, may be about to pop, the same doomsayers predict. Paul Krugman of the NYTimes, one of the worst prognosticators in the business with a Ph.D. in economics, now sees sure signs of the bubble leaking air, or "hissing," as he terms it, because homes that not long ago were selling in 24 hours after they came onto the market are now sitting there for two or three weeks before being snapped up!! Holy Smokes!!
Of course we should be reaching a new equilibrium in housing prices, but unless Greenspan & Company drive interest rates up in order to induce a housing recession, there really is nothing to worry about.
Every now and then in this "free space" I provide for my memos on the margin and Supply-Side University lessons, I reprint a letter I have previously sent to my Wall Street clients, who pay me as much as $25,000 per year, not including bonuses, for the independent research Polyconomics provides. I'm sure my clients will not mind me sharing my June 15 letter with you -- as they know I am doing my best to influence our government policy makers to follow my advice. As far as I know, Poly has been the only outfit in the business that has correctly identified the reasons for the several trillion dollar increase in real property dollar prices in recent years. If you noticed, on the left side of this website, there is a new box advertising the client newsletter we have for ordinary people, at an affordable cost. Check it out
Hey! You've won a ride back to the top
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