This Thread Is My Thread, This Thread is Your Thread: WE August 28-30, 2009

Well, it hasn't been a quiet week in Lake Wobegon.....

the Kid is being more than unusually difficult...her meds get boosted on Tuesday, and I doubt that I will survive until then. These quarterly injections are not strong enough, IMO...

Anyway, these are the continuing adventures of the economy Enterprise...no, that's not it either....(rummage, rummage)

Welcome to Weekend Economists, where we wade through the Big Muddy (Media) to find nuggets of golden wisdom in California, or the signposts of drowned American dreams in New Orleans, or the dust of plans gone bust in Oklahoma, or the green shoots in the burned out streets of Detroit. Yes, we are going full-steam into Americana, Depression style. And to entertain us on our way, we've got some gems from our rich collective past, like this one, sung by the immortal Bing Crosby:

http://www.youtube.com/watch?v=eih67rlGNhU

So many have done this song, it was hard to pick one version, but I will spare you the redundancy.

So, on to the news and analysis. Post them if you've got them! (Read them and weep).

They must have run out of banks in Georgia. Or money to bail them out. We'll check back periodically as the time zones shift to after hours...


I'm not sure if I know what to do instead!

Bradford Bank, Baltimore, Maryland, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Manufacturers and Traders Trust Company (M&T), Buffalo, New York, to assume all of the deposits of Bradford Bank...

As of June 30, 2009, Bradford Bank had total assets of $452 million and total deposits of approximately $383 million. In addition to assuming all of the deposits of the failed bank, M&T agreed to purchase essentially all of the failed bank's assets.

The FDIC and M&T entered into a loss-share transaction on approximately $338 million of Bradford Bank's assets. M&T will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $97 million. M&T's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Bradford Bank is the 82nd FDIC-insured institution to fail in the nation this year, and the second in Maryland. The last FDIC-insured institution closed in the state was Suburban Federal Savings Bank, Crofton, on January 30, 2009.

# # #

Mainstreet Bank, Forest Lake, Minnesota, was closed today by the Minnesota Department of Commerce, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Central Bank, Stillwater, Minnesota, to assume all of the deposits of Mainstreet Bank...

As of June 30, 2009, Mainstreet Bank had total assets of $459 million and total deposits of approximately $434 million. Central Bank will pay the FDIC a premium of 0.10 percent to assume all of the deposits of Mainstreet Bank. In addition to assuming all of the deposits of the failed bank, Central Bank agreed to purchase essentially all of the assets.

The FDIC and Central Bank entered into a loss-share transaction on approximately $268 million of Mainstreet Bank's assets. Central Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $95 million. Central Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Mainstreet Bank is the 83rd FDIC-insured institution to fail in the nation this year, and the second in Minnesota. The last FDIC-insured institution to be closed in the state was Horizon Bank, Pine City, on June 26, 2009.

They must have really drunk the Kool Aid for the real estate market as it is an heavily Republican area. Quite a few people must have gotten in on it, hence the failure.

Affinity Bank, Ventura, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Pacific Western Bank, San Diego, California, to assume all of the deposits of Affinity Bank...

As of July 10, 2009, Affinity Bank had total assets of $1 billion and total deposits of approximately $922 million. In addition to assuming all of the deposits of the failed bank, Pacific Western Bank agreed to purchase essentially all of the assets.

The FDIC and Pacific Western Bank entered into a loss-share transaction on approximately $934 million of Affinity Bank's assets. Pacific Western Bank will share in the losses on the asset pools covered under the loss-share agreement. The loss-sharing arrangement is projected to maximize returns on the assets covered by keeping them in the private sector. The agreement also is expected to minimize disruptions for loan customers...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $254 million. Pacific Western Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Affinity Bank is the 84th FDIC-insured institution to fail in the nation this year, and the ninth in California. The last FDIC-insured institution closed in the state was Vineyard Bank, National Association, Rancho Cucamonga, on July 17, 2009.

liquidation by inches. What a mess.

My error in addition...can't do numbers in the dark...

the FDIC. It could be kind of like the SMW front page -- how many banks closed, how much charged to the FDIC.

Which comment offers no segue into my thoughts this week-end on why we have to stop thinking we can persuade the goobers -- those in and out of government -- of their stupidity. There is no bipartisanship, there is no cooperation, there is no compromise. AND THERE NEVER WILL BE.

They comprise roughly 25% of the electorate and they are hard-wired to oppose everything progressive. And that's because they do not accept ANY of the core progressive beliefs.

1. You cannot reason with them on the basis of "equal rights" or "equal opportunities" because they don't believe in it. They do not believe all people are created equal. They believe the rich are better by right of God's blessing. It's not even a matter of their faith that someday they will be rich and want to enjoy the benefits of low taxes. That's secondary. They believe in the divine rights of the rich, and the duty of the non-rich to be happy in their station because that's where God wanted them to be.

2. You cannot reason with them on the basis of compassion for the poor and less fortunate. They believe the poor and less fortunate are poor and less fortunate because God wants them to be that way. To alter that status quo is to go against God's grand design.

Does this mean that most of the hoi polloi on the right consciously accept this? Maybe and maybe not. But I suspect that if you tried to engage one of them, or a dozen of them, or a hundred of them, in serious political conversation, you would find that their comments indicate they support those two core beliefs of the far right.

They do not reason from facts to conclusions; they accept the conclusions they're given and assume the facts are there. http://www3.interscience.wiley.com/journal/122260824/abstract?CRETRY=1&SRETRY=0 Presenting them with new facts does not affect them; facts don't matter. Facts never have.

They cannot deal with change; it makes them uncomfortable, fearful. They don't like strangers, anyone who isn't just like them; it makes them uncomfortable. They don't like uncertainty, not knowing that things are going to always be the same; it makes them uncomfortable. They do like strong leaders who tell them what to do; it makes them comfortable. http://en.wikipedia.org/wiki/Right-wing_authoritarianism gives a simplified version of Bob Altemyer's online-published "The Authoritarians," for those lurkers who may not be familiar with the full work, which is available FREE at http://home.cc.umanitoba.ca/~altemey/

Like spoiled toddlers, the far right lets out a squeal whenever anything doesn't go their way, and most especially when they are frightened. They are easily frightened. And they are also easily manipulated by those who take advantage of them: the dominating Authoritarians.

Unfortunately, too many Democrats in high elected office have not learned one of the basic rules of parenting: If you give in every time the kid cries, you're going to end up with one helluva spoiled brat. And the longer you give in, the harder it's going to be to stop.

Good parenting is exactly like good governing: Maintaining order but bringing the child up to be self reliant, independent, and able to function in polite society.

I'm sure we all have friends or relatives -- or children -- who have gone the ultra-permissive route with their children. Buffy screams in the store until Mommy buys her the toy. This goes on in every store, about every toy. It makes no difference whether Buffy needs the toy or not, whether Mommy can afford the toy or not: to keep the child quiet, the toy is bought. How long do you think it takes the kid to learn to exploit this? And how long does it take before merely screaming isn't enough and buffy resorts to threats? If you don't give me what I want I'll hit you, or I'll burn the house down, or I'll kill you.

Instead of standing up to the Authoritarian leaders of the far right -- the Dick Armeys and the Tom DeLays, the Dick Cheneys and the Richard Perles, the Glenn Becks and the Michael Savages, the Rush Limbaughs and the Rick Warrens, the Ann Coulters and the Phyllis Schlaflys, the Mark Sanfords and the Troy Newmans, the Steven Andersons and the James von Brunns -- the progressive left has abandoned its own principles in order to placate the spoiled brats. It's all in the name of compromise and co-operation, bipartisanship and reconciliation. That's the name -- the NAME -- but the beast is still a slavering monster that does not care about anything but its own individual salvation.

It cares about no one and nothing else.

Erling Jorstand knew it forty years ago. (The Politics of Doomsday: Fundamentalists of the Far Right, Abingdon Press, 1970.) The leaders of the far right were manipulating the politicians, NOT THE OTHER WAY AROUND. It was never a case of the politicians pandering to the fundies for votes; it was the fundies finding ways to subvert/convert the politicians and those in other, non-elected positions of power. Throughout the cold war, it was the threat of communism: businessmen were eager to fight anything that threatened their wealth and influence, and they were thereby recruited by the religious right.



Socialism is anathema to the "muscular" Christianity preached by the fundamentalists. Theirs is an economic doctrine as well as a theological one, and that's the piece that's missing in so much of the discussion. They do not want equal opportunity; they want only the opportunity God gives them by showering them with wealth and power. A "free market" means God is free to favor whomever he wishes, and regulations would attempt to hinder His largesse.

It is, indeed, an attempt to use religion as justification for greed, as well as an attempt to use religion as a grab for personal power.

There is no christianity in such a religion; it is an economic theory, if it is anything at all.

But it has manifested itself, from the almost benign "far right" that Jorstad studied in the 1960s to the malignant monster Jeff Sharlet exposes in 2008's "The Family," in horror after horror after horror.

In many threads on many subjects, we've talked about the traditions that are so slow to die, from misogyny to homophobia to racism, etc. And while it's comforting to think that the proponents of those despicable ideologies are dying off -- we'll never again have to deal with Strom Thurmond or Jesse Helms or Jery Falwell -- we need to remember that they all leave behind their spiritual descendants. Falwell is gone, but now we have Steven Anderson. Thurmond is gone, but we have Sarah Palin. Overt racism and bigotry may be legislated out of existence, but they aren't gone -- because there are still people who believe in them. To rely on the law is to rely on a shadow that may or may not be there when we need it.

This is why the fundamentalists are able to hide behind their two favorite elements of the Constitution: the First and Second amendments. Freedom of speech and freedom of religion, backed by the right to own and carry as many loaded firearms as they wish to carry and to carry them into any and every place they wish to carry them, unfettered by any regulations or limitations or licensing requirements.

They do not come into any political discussion with any idea of seeking a compromise. Whether it's the nutcase sitting in the next booth at the coffee shop, ranting and raving about how Obama is gonna come and take all his guns away; or the nutcase driving through the Basha's parking lot in a pick-up truck covered with painted slogans like "Hang All in Congress" and "Taxes + Taxes + Taxes + Taxes = Death!!"; or the nutcase in the US Senate who says he has no intention of compromising on a socialist health care package -- THEY ARE NOT ABOUT TO COMPROMISE. NO WAY, NO HOW. NEVER.

That's why any attempt to reason with them is guaranteed to fail. These are people who will may say they are appalled by the atrocities of Hitler and Pol Pot, but they will still admire anyone who "does what's necessary." They have no quarrel with torture, because it is never about the other guy; it's always about me/mine/us/ours.

I see in a headline on DU LBN that the (or some) Filipinos are demanding the US get out of Mindinao. I didn't read the article; the point to me was a reminder of how staunchly the US defended the dictator Marcos and his wife Imelda's astonishing collection of shoes. Thousands of pairs of shoes. And "we" had no problem with that, offering them refuge when their people booted them out. And in that same moment I thought of the hundreds, perhaps thousands of impoverished Filipinas who make shoes like Nikes but cannot afford to buy them in their own country.

The fundamentalists do not have a problem with this. It is God's plan -- and especially it is God's plan for America. They want America to rule the world, not as a democracy but as a "muscular" christian theocracy.

They do not care about your 401(k); that's up to Jesus.
They do not care about the environment; that's up to Jesus.
They do not care about peace or war; war is good if it's for Jesus.

They do not care about us, and it is long past time that we stopped caring about them.


Tansy Gold

Every word a gem.

It's not that I forgot to do the journal thing.

This is something I've been *thinking* about for several weeks, and I'm only just beginning to put it into coherent written form. I don't know where it starts and I don't know where it ends.

As I may have said before, I wrote a paper for a poli sci/soc class back in fall of 2000 on the links between the religious right and elections. Much of the information available to me then suggested that groups like the Moral Majority had little real effect on election outcomes. However, most of the information was statistical, based on post-election surveys. There wasn't a whole lot that addressed the actual issues.

Now, after the eight years of the boooshies, after 9/11 and two endless wars, I think there's more going on than people realized. Jeff Sharlet's work on The Family certainly reveals much more than earlier works on the various fundamentalist entanglements with politics. I still have Neiwert's "The Eliminationists" to read, and several others.

But what I think has happened is that there's been too much compartmentalization in analysis, and far too little synthesis.

When I first read "Holy Blood, Holy Grail" back in about 1983 or so, one thing that stuck with me was the ability of the authors to pull together a lot of different threads to weave their story. They made this very clear in the narrative, and even if everything in it is fiction (which it is), the lesson wasn't lost on me: if the picture isn't making sense, step back and get a wider perspective.

So The Family is all about consolidating power in places where it already exists, no matter how evil it is, and so they want the estate tax repealed permanently because economic power should also be concentrated, dei gratia . We haven't looked at this, we haven't even considered it. The motives for the political right to destroy the system never quite made sense, because we saw them as being in control. But maybe they aren't. And maybe they aren't really the enemy.

All of which is yet another journal entry, I suppose, because in essence I'm just thinking aloud here. But it's also something I have to think about before I go quite that far.

Know what I mean?


Peace,


Tansy Gold

I admire your writing, you express what so many of us are feeling.
Thanks Tansy_Gold!

http://www.nakedcapitalism.com/2009/07/why-big-capital-markets-players-are.html

John Kay comes perilously close to nailing a key issue in his current Financial Times comment, "Our banks are beyond the control of mere mortal" in that he very clearly articulates the problem very well but then draws the wrong conclusion:


The problem is Kay is applying traditional managements structures to investment banking, Even though these entities may have substantial retail arms and bank charters, the area that poses the management challenge is the capital markets businesses. And he makes a dangerous, erroneous assumptions: that mere mortals, meaning generalists, can run these businesses. That is bogus.

What makes capital markets businesses different from any other form of enterprise I can think of is the amount of discretion given of necessity to non-managerial employees, meaning traders, salesmen, investment bankers, analysts. In pretty much any other large scale business, decisions that have a meaningful bottom line impact (pricing, new sales campaign, investment decision) are deliberate affairs, ultimately decided at a reasonably senior level. The discretion that customer-facing staff have in pretty much any business in limited. At what level does someone have the authority to negotiate a contract? And even then, how many degrees of freedom do they have?

By contrast, think how many decisions traders and salesmen in capital market firms make in a day, and their potential bottom line impact (though experiment: how much damage could a truly vindictive trader do in a day or a week, if he decided to blow up his employer?) Investment bankers work over longer time frames, and like many normal businesses, have a lot of things routinized so as to make them more efficient, but it also limits their latitude (standard forms for many types of client agreements, standard pitch book formats, etc). However, unlike "normal" businesses, a frequent activity in investment banking is creating new products, often in a very ad-hoc way, with teams with relevant skills thrown together to try to push something through. The politics are often sharp-elbowed, but people are too pragmatic to let turf issues interfere with getting a new deal launched).

The approach for managing these businesses in the days of partnerships, when the owners were personally liable for losses, was to have small units with partners running them who knew the business and could oversee it properly. Effectively you had four layers: associate/analyst (the college kids, the analysts, did pretty much the same stuff the associates did, who usually had MBAs, except the MBAs got to go to client meetings more often), VPs, and partners, but some of the more senior partners were department heads in units that also had partners (who'd manage either people on their desks, if traders of salesmen, or if in investment banking, had accounts and various VPs and associate types working on each client). But those department heads had also grown up in the business, and were still active in it. Heads of significant departments in turn would be on an executive committee, a part-time role.

The problem with this model is it starts to come under strain when the partner group gets too large. And OTC markets have strong network effects, so having bigger market share confers a competitive advantage. And now there are high minimum scale requirements for being in the business. You need to be in all major times zones with a pretty broad product array. all kinds of back office support, all kinds of IT for risk management, communications, position management...

So the scale of operation required to be competitive is too large for it to be managed by player-coaches who had deep expertise, and like the Dimon example, were more expert than the people working for them. But the normal corporate/commercial banking management structure, with more managerial layers, and the top brass having broader spans of control, was devised in earlier stages of industrial organization, when you had factories or service business with a great deal of routinization of worker and middle manager tasks. Traditional commercial banks are on the same factory format. They handle large volumes of very simple, standard transactions with a high degree of control and oversight. That's a big reason why it took commercial banks over 15 years to make meaningful headway against investment banks. Although regulations were an issue, the bigger barrier was the radical difference between the two management cultures. There was no regulatory barrier to commercial banks offering mergers & acquisitions, for instance, but they were lousy at that for a very long time.

So Kay is effectively asking for a traditional commercial banking model, businesses "that make the most of the ordinary talents of ordinary people". There are businesses like that in banking, but they are mainly in retail banking and corporate lending. If you want that world, you need a far more radical change in the industry than anyone is contemplating now. You'd need to go to the world that Taleb advocates, From a list of his ten suggestions:

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning . Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.


If we can't shut down credit default swaps, which the more I dig, the more I see they had a very direct role in the meltdown CDS on subrprime mortgages started in 2004, and there is a longer form gloss as to how that played a major role, if not the key role, in the superheated demand for "product" particularly subprime, in the manic phase of the credit bubble), we will never get to a world like the one Kay wants to see, or at least not until we hopelessly break the one we have now.

John Kay's original article is appended below:

http://www.ft.com/cms/s/0/6cd8d87e-6b18-11de-861d-00144feabdc0.html

the claim that the fault with the banking system lies not with the structure of banks but with the boards and executives that claimed to run them is both correct and absurd. In one sense, the claim is correct: boards and executives did not successfully perform the tasks assigned to them – tasks that not only did they claim to be discharging, but for which they frequently paid themselves very large sums of money.

John Kay, columist

But, in another sense, the claim is absurd: if the failures are both as widespread and as persistent as it appears, the problem is in the job specification rather than with the incumbent. If you employ an alchemist who fails to turn base metal into gold, the alchemist is certainly a fool and a fraud but the greater fool is the patron.

The bank executives pilloried by the UK’s Treasury select committee of MPs were all exceptional people. The vilified Sir Fred Goodwin was an effective manager who had slashed through the National Westminster bureaucracy and revived a failing institution – a task that had defeated many able men before him. His chairman, Sir Tom McKillop, offered experience and ability that met every possible specification for such a role in a big international corporation. As chairman of HBOS, Lord Stevenson was Britain’s supreme networker. This skill is a particularly valuable attribute in an environment where the essence of banking is to extract very large sums of taxpayers’ money while giving as little as possible in return. His chief executive, Andy Hornby, was criticised for being a retailer. But Halifax, half of HBOS, needed retail expertise. The only thing it needed to know about complex securitised products was that there was no good reason to buy them.

Like Sir Fred, Sir Tom, Lord Stevenson and Mr Hornby, most of the people who sat on the boards of failed banks were individuals whose services other companies would have been delighted to attract. If there was a problem of board composition, it is not an issue just for financial services companies but for the UK corporate sector as a whole. Perhaps there is such a problem, but the restructuring of financial services will not wait for its identification and solution.

The hapless four were criticised for their lack of banking expertise but it is, in fact, not clear what modern banking expertise is. The world of modern banking requires all the skills of these gentlemen, plus some others, and no one can expect to have all these attributes.

It has been said of Jamie Dimon (who does not have a banking qualification) that his dominance exists because at every meeting all the participants know that he could do each of their jobs better than they could. But the business world cannot operate at all if it can operate only with individuals of the calibre of Mr Dimon. Better, as so often, to follow an aphorism of Warren Buffett’s: invest only in businesses that an idiot can run, because sooner or later an idiot will.

Our banks were not run by idiots. They were run by able men who were out of their depth. If their aspirations were beyond their capacity it is because they were probably beyond anyone’s capacity. We could continue the search for Superman or Superwoman. But we would be wiser to look for a simpler world, more resilient to human error and the inevitable misjudgments. Great and enduringly successful organisations are not stages on which geniuses can strut. They are structures that make the most of the ordinary talents of ordinary people.

How are high-tech financial instruments and high-flying banks any different? So the mess isn't radioactive (despite rumors of plutonium in the safe deposit vault)...

http://www.video4viet.com/watchvideo.html?id=GG0gEcTXSJk&title=I%20Don%27t%20Want%20Your%20Millions%20%28almanac%20Singers.%29

U2 version of the lyrics:


"Give Me Back My Job"

I don't want your millions, mister
I can't use no diamond ring
I want the right just to live, mister
Give me back my job again

I don't want your Rolls Royce, mister
I can't use your pleasure yacht
I want some food for these children
Give me back my job again

We work to build this country, mister
While you enjoy your life of ease
And you steal all that we build, mister
See them folks, they starve and freeze

I don't want your millions, mister
I can't use no diamond ring
I want the right to live, mister
Give me back my job again

No I don't want your millions, mister
I can't use no diamond ring
I want the right to live, mister
Give me back my job again

I don't want your foodstamps, mister
And that welfare line don't interest me
Give me a chance to earn my wages
And give me back my old job please

http://www.financialarmageddon.com/2009/07/my-latest-huffington-post-column-how-long-before-the-feds-days-are-numbered-.html

It's no stretch to say the Federal Reserve is garnering a lot of attention these days.

On Wall Street, there's a big debate over whether the Fed's next big move will come too soon or too late. In Washington, the Administration is promoting a plan to give the central bank new powers to oversee systemic risks. Over in the House of Representatives, maverick Republican Ron Paul has gathered more than 245 co-sponsors for a bill requiring an audit of the Fed. In the media, there are questions about whether President Obama will allow Fed Chairman Ben Bernanke to keep his job when his term ends in January. And finally, some commentators are wondering whether this allegedly autonomous institution will retain its independence in a post-crisis world.

But few seem to be asking what I believe is the key question: how long before the Fed's days are numbered?

Before you dismiss my words as a rant, hear me out. Why, for example, is the power to commit substantial resources on taxpayers' behalf, to influence many of the most important commitments and relationships of businesses, individuals, and governments, and to initiate economic and regulatory policies with far-reaching consequences, in the hands of unelected officials with unexceptional abilities and no real accountability?

And even assuming the current arrangement has been the default choice up until now, does that mean things are destined to stay that way? The financial crisis has forced many people to rethink all sorts of assumptions, structures, and approaches. Against this backdrop, there are many reasons to believe that the broader question of why we have a Federal Reserve at all will gain traction in the period ahead.

For one thing, we have a group of individuals, entrusted with the job of reading the economic tea leaves and enacting policies in response, which not only failed to anticipate the worst financial crisis this century, but has yet to make a usefully accurate forecast since the disaster started. Remember, Chairman Bernanke is the individual who maintained that the subprime meltdown would remain "contained." He also said in March that he could see the now elusive "green shoots" sprouting throughout the economy.

And once the crisis began to unfold in earnest, what was the response of those charged with looking after our nation's economic and financial interests? Cynica might describe it as Keystone Cops-like chaos. On the one hand, we've had a reactive whirlwind of aggressive monetary measures that, while creating the semblance of stability, have resolved little and stymied desperately-needed restructuring. Worse still, a broad swath of corporate America is now dependent on government support for its continued existence.

Add that to the alphabet soup of Fed-devised bailouts and rescue plans, nearly all of which seem to have been designed to reward failure, subsidize mostly insolvent but politically powerful businesses, and obscure the reality of how bad things are, and you have a system that could be characterized as even more dysfunctional than it was before the bubble burst. While it might seem like tranquility, it is more likely the calm before the (next) storm.

Then there is all the damage the Federal Reserve caused before now. Most of those who've analyzed the facts and thought about how we got this point -- I don't mean the clowns on Wall Street or the commentators spouting nonsense from both sides of the aisle -- lay a great deal of the blame on the bubble-blowing policies initiated during the Greenspan era.

And if you want to go back even further, ask yourself how is it that an institution charged with maintaining stability has overseen so many crises through the years and allowed our nation's currency to lose more than 95 percent of its purchasing power since the Fed's creation in 1913?

America's central bank hasn't just failed in its economic mission. It's track record as a regulator also leaves a lot to be desired. Among the many questions people should -- and will -- be asking is: how come the Fed was ignorant of, and did little to rein in, the leverage and lending misadventures of America's banks, many of which have long had Federal Reserve examiners ensconced in their offices? Moreover, how is it that an institution that should have known about the intricacies of derivatives was so oblivious to the threats posed by these "weapons of financial mass destruction"?

The truth is that, aside from those periods when conditions and markets have set out a relatively easy path for central bankers to follow, the Federal Reserve has not lived up to its mission or its promise.

Pretty soon, a growing number of people are going to be wondering why we need this institution at all.

Thanks for posting every week. I always read it over. :)

http://www.nakedcapitalism.com/2009/07/siv-rip.html

An article in the Financial Times give a useful recap of what happened to the financial bugbear of days gone by, namely, the SIV, or structured investment vehicle. Henry Paulson's failed plan to rescue these not-so-of-balance-sheet entities was front page news for most of the fourth quarter 2007. By the sound of it then, if SIVs didn't get sorted out, Seriously Bad Things Would Happen, Particularly to Citigroup.

Well, guess what. Seriously bad things did happen, and Citibank indeed took more lumps than most, but SIVs paled compared to other financial threats.

And that bring us to a curious omission: Citi was the most exposed to SIVs, with about $100 billion in face amount out of a $400 billion market, but this story is silent on what happened to the bank's toxic toys. I suspect its SIV assets were brought back on balance sheet (that was at least the plan), but I wonder how much the paper had to be written down. Oh, right, we don't do writedowns here in the US, we prefer to allow banks to carry impaired paper at fantasy values.

From the Financial Times:

http://www.ft.com/cms/s/0/abddae5a-6a3c-11de-ad04-00144feabdc0.html

Almost all the $400bn of assets held in structured investment vehicles have now been disposed of,...

The attraction to investors had been the profits generated by the difference between cheap short-term funding and the income from higher-yielding but illiquid long-term holdings, including subprime mortgages. Once these benefits disappeared in the market convulsions, banks and other other SIV sponsors scrambled to rescue the vehicles.

Analysts at Fitch Ratings calculate that 95 per cent of the assets held in SIVs at the July 2007 peak have now been disposed of as the vehicles have been wound down – with much pain to investors, but without the wild market dislocation many feared.

Glenn Moore, of Fitch’s European structured credit team, said: “Although substantial, the asset disposals have been relatively orderly over the past two years.”...

Of the 29 SIVs, five have been restructured, 13 were consolidated onto the sponsoring bank’s balance sheets and seven defaulted on payments of their senior borrowings. Fitch estimates just four have unwound themselves, at least one of which did so without losses to senior investors.

SIVs that were consolidated or restructured accounted for two thirds of total SIV assets while the defaulting SIVs were worth 32 per cent. The three SIVs that successfully unwound themselves accounted for about 2 per cent of assets in the vehicles.

Investors are still struggling to recover their holdings in SIVs and in many cases have gone to court to push for a more equal sharing of whatever is left over. This may not be much; Ernst & Young, the receiver of Sigma Finance which ceased operations in October last year, only managed to raise $306m for assets with a face value of $2bn.

http://www.ft.com/cms/s/0/41eca4ae-6a5c-11de-ad04-00144feabdc0.html

...Until two years ago, most bankers and economists were celebrating the fact that securitisation appeared to be on an unstoppable roll. In recent decades, bankers have become adept at repackaging all manner of credit, from mortgages to commercial loans, into bonds that can be sold to investors. Five years ago, this activity started to explode at a startling rate, both reflecting and amplifying the wider credit bubble.

However, since mid-2007, it has all come to a dramatic halt as investors have taken fright. Whereas $2,500bn (€1,800bn, £1,500bn) of loans were securitised in 2007, in the US last year almost none were sold to private-sector buyers.

“The securitisation market has seized up,” says Tim Ryan, head of the Securities Industry and Financial Markets Association, a trade body.

For those banks whose business models assumed securitisation would only ever grow, this has all come as a brutal shock. It also creates a huge macroeconomic headache.

Precisely because banks have become adept at repackaging their loans into bonds for sale – and thus removing them from their balance sheets – they have been able to provide more credit than in earlier decades. Or, to put it another way, during the past decade it has been investors holding securitised bonds, not just banks, that have been acting as key lenders to the economy.

Citigroup, for example, calculates that in 2008 the securitisation markets were supplying between 30 per cent and 75 per cent of the credit in different sectors of American finance. The western economy has become akin to a twin-engine plane: driven by one motor of “traditional” banking – and another from securitisation.

But the freeze in securitisation markets has led to a dramatic shortage of lending power – a “credit crunch”. Thus the policy question now is whether there is any way to restart or replace this securitisation “motor” to stop the economy slowing further.

“About $8,700bn of assets are currently funded by securitisation . . . and this securitised leverage matures with no replacement, global economies will be forced to contract,” warns Citi in a report.

In the past year, governments have experimented with stop-gap measures to plug the financing hole. Western central banks have conducted “repurchase operations”, where banks can post unwanted securitised bonds as collateral to borrow funds from central banks. The US government has been running the term asset-backed securities loan facility (Talf) programmes, which give investment groups access to cheap leverage so they can buy securitised bonds. Western politicians have urged banks to increase “traditional” lending.

But so far none of these measures has fixed the problem. Banks cannot hope to fill the hole left by the implosion of the securitisation market with traditional lending, since they are under pressure from regulators to improve capital ratios. Central bank repurchase and Talf schemes are intended to be temporary. Most politicians vehemently oppose the idea of further taxpayer-funded subsidies to the financial sphere.

Slice, dice and shift

Say “securitisation” and people “think of on-off balance sheet, manipulation, Enron and Parmalat . . . obscure language, high fees and toxic assets classes”, as PwC, the consultancy, wrote recently. But the technique emerged long before these scandals. In the 1970s bankers hit on the idea of issuing bonds backed (“secured”) by cash flows, such as interest payments, generated from a pool of assets, such as loans. Typically a bank or company places assets in a legally separate special purpose vehicle and the SPV then issues notes to investors – sliced and diced to reflect different levels of risk. In theory, this allows the original company to shift assets off its balance sheet, dispersing risk around the banking system and making room for new loans.

So what most bankers and many policymakers are trying to do is find ways to restart securitisation markets. In recent months, the European Commission has been pushing a package of reforms that would make them appealing for investors again by imposing more transparency. This is based on the widely held view that credit markets spun out of control because securitisation became so opaque that it was impossible for creditors to monitor risk.

“Securitisations have become ridiculously complex,” Francesco Papadia, director-general of market operations at the European Central Bank says. “Structures should become simpler, plain-vanilla deals.”

The Commission is therefore demanding that rating agencies and bankers disclose more information about deals. Banks should also keep 5 per cent of any securitised bonds that they arrange, so they have enough “skin in the game” to monitor credit risks properly.

Similar proposals have been unveiled by the US administration. Tim Geithner, US Treasury secretary, and Lawrence Summers, President Barack Obama’s chief economic adviser, said in an article that securitisation should, in theory, reduce credit risk by spreading it more widely – but that the breaking of the direct link between borrowers and lenders “led to an erosion of lending standards, resulting in a market failure”.

They have proposed measures that would “impose robust reporting requirements on the issuers of asset-backed securities; reduce investors’ and regulators’ reliance on credit-rating agencies; and . . . require the originator, sponsor or broker of a securitisation to retain a financial interest in its performance”.

Even before such proposals bite, some bankers are embracing simplicity. For example Tesco, the retail group, raised £430m last month by selling a bond backed by a collection of commercial mortgages on its stores. The deal, arranged by Goldman Sachs, was striking: not only was it the first commercial mortgage securitisation for two years but it was also designed to be extraordinarily simple, easy for investors to understand. This was in stark contrast to the deals popular in early 2007.

Moreover, the investors were mainstream asset managers – rather than the “shadow bank” entities, such as structured investment vehicles, that bought most securitised debt during the credit bubble. “This was like the deals that used to be done 20 years ago,” says one banker. Or as Ralph Daloisio of Natixis, the French investment bank, notes: “If yesterday’s securitisations were plagued by an oversupply of highly varied, complex, opaque and illiquid investments, tomorrow’s should be simpler, more standardised, transparent and liquid.”

But this drive towards “transparency” and “simplicity” comes with a catch: reform tends to raise the cost of finance. Deals such as the Tesco bond are likely to be more costly and time consuming than the structures used during the credit boom and if banks are forced to keep 5 per cent of any deal on their own balance sheets, that will raise costs further.

Another problem is investor demand. Before the credit crash, shadow banks provided a significant source of demand. Now many of those entities have collapsed and traditional asset managers are often wary of the field. “Investors want to see the performance over time . They need to see evidence that works better,” says Deborah Cunningham, of Federated Investors, who is involved in attempts to reform credit ratings.

A few brave investors are still dipping a toe in the market by buying existing securitised bonds. Two months ago bankers successfully sold triple A rated securitised bonds formerly held by Whistlejacket, a collapsed SIV. Henderson, the asset manager, says this was “an important watershed” for the market.

Some banks are also busy recycling old, sometimes toxic, assets from their balance sheets. Barclays Capital, for example, has developed tools to conduct what it labels “smart securitisation”, which enables clients, including the Barclays parent company, to cut the capital they must hold. This works by pooling the assets with those of other clients into a securitisation vehicle large enough to be rated by a credit rating agency. With a decent rating, such a vehicle requires a lower level of capital to be held against it. “The securitisation market is absolutely not dead. My team is busier than it’s ever been,” says Geoff Smailes of Barclays Capital.

Yet the $9,000bn question is whether activity such as this can actually restart the business of repackaging new loans – and on that front much still rests with politicians, not bankers. After all, as one central banker notes, at the heart of the whole debate there is a crucial “paradox”: though politicians hate the credit crunch, many also remain deeply suspicious of the whole securitisation idea.

Thus when the securitisation conference took place in Edgware Road last month, Paul Sharma, a senior official at the Financial Services Authority, the main UK regulator, admitted that while he personally believes that securitisation will “return and have a significant and irreplaceable role in the financial system” one “should not assume that this is the majority view”. Or as another senior European regulator says: “There are voices saying we should go back to simpler banking ... to stop all this financial engineering.”

The banking industry, for its part, is trying to fight back by pointing out that a clampdown on innovation is likely to raise the cost of capital. Sifma, the lobby group, recently started conducting discreet opinion polls to assess public attitudes towards banking. “We are convinced that getting securitisation started again is the single most important question facing the capital markets today,” says Mr Ryan.

Meanwhile, the American Securitization Forum announced that its 2010 conference will take place in Washington – not Las Vegas, the casino resort that has hosted recent events. But nobody expects this new dance with politicians to yield results soon: for the moment, in other words, the world seems destined to fly with one of its credit motors spluttering or stalled. It will be a long time before champagne flows freely at securitisation conferences again.

According to the popular version, Ben Bernanke, our flawed hero, has averted a Second Great Depression. When the crisis came in '07-'08, he calmly took out the text he had written himself: "Dummies' Guide to Avoiding a Japan-style Deflation"...or something like that.

Then, he followed his own theory...coolly...confidently...cutting Fed rates down to nearly zero, pushing Congress to pass a huge 'stimulus' bill, and even forcing Bank of America to take over Merrill Lynch. In this last event, he is accused of deliberately hiding Merrill's enormous losses and then threatening the BofA board with dismissal if they refused.

Because of Bernanke's swift and assertive action, the nation's banking system held together during those critical weeks of late 2008. And because of his monetary (and fiscal) policies, all the worlds' economies are now in some stage of recovery. Stocks are rising. House sales are increasing. All the indicators point to a better world.

In recognition of the fact that he saved the world, Ben Bernanke was given the nation's highest honor; Obama picked him to continue as head of America's central bank, the Federal Reserve...even though his predecessor, a Republican, appointed him.

Everyone needs a story. It's the way we understand things. Data is just data. Numbers are just numbers. Facts are just facts. Without the framework of a good tale to hold them together, they are worthless.

That's why, here at The Daily Reckoning, we are suspicious of facts, data and numbers. As for the numbers, they are wrong before they get to us...often intentionally. Then, when they are later straightened out, they sometimes tell a completely different story. Even the 'facts' often turn out to be not facts at all...but distorted data, information has been twisted to fit into a storyline.

The more precise the data, meanwhile, the more they lie. Give us a CPI rate of 6.24% and we will give you back two numbers that are total fictions...and another one that turns out to be wrong later. As for the GDP growth rate...don't even bother to give us a number at all. Whatever the digits say, it's a lie.

This week came news that the GDP is falling at a 1% rate. This number surprised economists. They thought it was falling at a 1.5% rate. This better-than-expected number encouraged investors to buy stocks; the Dow rose 37 points yesterday. Oil and gold remained more or less where they were.

Economists are frequently surprised. In a study of GDP forecasts, a researcher found that economists did nothing more than extrapolate current trends into the future. If the GDP was growing at 2%...they projected that it would grow at 2.3% the following year. Or maybe 1.9%. These projections were mostly correct. Generally, one year is a lot like the year before. But whenever the direction changed dramatically, economists missed it completely. In other words, they're not really capable of telling us what the economy will do - unless it does nothing different.

We've discussed the emptiness of the GDP figures many times. Just because the GDP is growing doesn't mean people are really any better off. In fact, GDP growth during the Bubble Epoque was really a measure of how fast people were ruining themselves. Seventy percent of the GDP was consumer spending; as consumer spending went up so did debt. The result was a paradox and a shame - at the end of one of the longest periods of uninterrupted GDP growth in history, the typical householder was poorer than he was than when it began.

That's why we are skeptical of numbers...especially precise numbers. They lie through their decimals.

What matters is the story...and our story now centers on the role of one man: Ben Bernanke. But the story that most people hear...and believe...is false. It is like GDP growth in the Bubble Era...it may sound right on the surface, but the real story is opposite to what is commonly believed.

Bernanke 'wrote the book' on avoiding deflation, 'tis true. But he doesn't really have a clue what he is doing. He didn't really avoid a Second Great Depression. There isn't really a genuine recovery underway. And the world is not becoming a better place as a result of Ben Bernanke's exertions.

Au contraire...he's making a natural mess into an unnatural one. He's turning a depression into a Great Depression. He's making a bad situation worse.

At least, that is OUR plotline. But we'll let the story tell itself...day by day...and see where it leads us. If we are wrong about the plot...we'll find out...

The Daily Reckoning
Friday, August 28, 2009

http://www.nakedcapitalism.com/2009/07/financial-alchemy-at-morgan-stanley.html

The Online Merriam-Webster Dictionary describes alchemy as “a power or process of transforming something common into something special” or “aiming to achieve the transmutation of the base metals into gold.” Well, it seems Morgan Stanley is engaging in some financial alchemy because it is about to trade near-junk rated paper for Aaa gold-standard bonds (July 9th article)

Morgan Stanley plans to repackage a downgraded collateralized debt obligation backed by leveraged loans into new securities with AAA ratings in the first transaction of its kind, said two people familiar with the sale.

Morgan Stanley is selling $87.1 million of securities that it expects to receive top AAA ratings and $42.9 million of notes graded Baa2, the second-lowest investment grade by Moody’s Investors Service, according to marketing documents obtained by Bloomberg News. The bonds were created from Greywolf CLO I Ltd., a CDO arranged in January 2007 by Goldman Sachs Group Inc. and managed by Greywolf Capital Management LP, an investment firm based in Purchase, New York.

Here’s the problem. In June, Moody’s downgraded the Aaa tranche of this CDO six notches to A3 because the default rate for loans in the tranche soared to 7 percent. So, now, Morgan Stanley has been able to re-package this paper, and…voila this debt is Aaa again. Everybody’s doing this repackaging. Goldman plans to sell over $200 million of repackaged Commercial mortgage-backed paper very soon.

So, when earnings start coming in this quarter and you are wondering how these banks aren’t writing down huge losses due to events like this and this, you now have one more reason why. Here are two more reasons here and here. The question is whether investors will be fooled.

ps. – I am sure Morgan Stanley added credit enhancement, collateral, reduced the poorly performing assets, etc, etc. But, nevertheless, you have to wonder how this stuff gets a Aaa rating when substantially the same loan pool was just downgraded six notches.

http://embedr.com/playlist/pete-seeger

let it run, it's long.

http://www.nakedcapitalism.com/2009/07/subprime-foreclosure-woes-more-on.html

One of our pet peeves is that the powers that be are desperate to recreate status quo ante, as far as the financial crisis is concerned, when that is what created the mess in the first place. And the tinkering being done around the margins is not sufficient to remedy many of the shortcomings.

Take mortgage securitizations. It is now blindingly obvious that they led to lower quality borrower due diligence. Why bother if you are reselling the loan? And in keeping, while just about every other innovation has a historical precedent (the first derivatives and mutual fund was in Ur, 1788 BC, for instance), loans apparently were never traded prior to our brave new world of banking. That suggests it might not be such a hot idea. Aside from the initial screening, another activity that was once intrinsic to banking was monitoring the borrower. That too goes out the window with securitization.

We've seen some attention to the first set of problems, the incentives for the originator to simply cut costs, which means as little screening as he can conceivably get away with and still unload the paper. The idea of having the party that sourced retain 5% simply is not enough to make a difference in behavior; making it easier for investors to sue in case of deficient originator due diligence would probably do more promote the desired response. But regardless, the priority is to restart the securitization machine, not fix the problems with the process.

One of the obvious, oft-discussed ones is the near impossibility of mortgage mods. In down real estate markets far less bad tahn this one, lenders would try to keep viable borrowers in the house. Since they at least knew the community, and had decent loan files from the initial screening, they could decide what to do on an individual basis. Aside from not being in a position to make informed decisions about particular borrowers, servicers are not set up to do anything on an individual basis. They are factories, with standard procdures for most activities. And of course, most servicing agreements limit or bar mods.

Now we have a new side effect of securitization: trusts dumping foreclosed houses. This looks to be a tragedy of the commons. While it seems rational for owners of foreclosed houses to liquidate inventory and move on (in theory, price discovery and market clearing are a good thing), the servicers are selling in bulk. If you have a lot of sellers dumping inventory at the same time, that is likely to produce an overshoot of housing price declines below historical levels in terms of relationship to rental prices and incomes.

The Wall Street Journal profiles the development in Atlanta, and Georgia has one of the fastest foreclosure timetables in the country, so this trend will be coming to your market soon.

From the Wall Street Journal:

The U.S. housing market is facing new downward pressure as holders of subprime-mortgage bonds flood the market with foreclosed homes at prices that are much lower than where many banks are willing to sell.

While nationwide figures are scarce, a review of thousands of foreclosures in the Atlanta area shows that trusts managing pools of securitized mortgages sold six times as many properties as banks during the six months ended March 31. And homes dumped by subprime bondholders sold for thousands of dollars less on average than bank-owned properties, the data show.


Yves here. That does not prove conclusively that the servicers are truly getting worse prices. The banks presumably were able to offload the best homes, and what is left will probably sell at deeper discounts. Back to the story:

Experts say this is a bad omen for residential real-estate prices and homeowners trying to sell or refinance, because the fire sales, many to cover soured subprime loans, put downward pressure on the value of nearby homes. All of this undermines federal efforts to stabilize the housing market and revive the broader economy....

In the Atlanta area, hit hard by foreclosures and declining home values in the past two years, mortgage-backed securitization entities completed 6,260 foreclosures in last year's fourth quarter and the first quarter of 200...

Of those foreclosures, securitization entities sold 2,963 homes during the same period for an average of 62% of the original loan amount. Banks unloaded just 442 of the homes they foreclosed upon, with an average selling price of 69% of the original loan amount.

There still is much more inventory that mortgage-servicing firms are racing to sell for securitization trusts. Such entities tend to sell in bulk so that they can cut losses, finding it more cost-efficient to move homes through foreclosure and subsequent sale than to try to restructure the mortgage with the borrower...

According to Karen Weaver, global head of securitization research at Deutsche Bank AG, the steepest losses are on subprime loans, where lenders generally are recovering just 26% of the original loan amount....


Yves here. Read that last sentence again. Stunning. But that also says you could do ridiculously deep principal reductions and still come out ahead.

In March, the mortgage-processing firm that works on behalf of a Goldman Sachs Group Inc. mortgage trust sold a house in southwest Atlanta for $17,000 -- a markdown of 87% from the original loan value. A Goldman spokeswoman declined to comment.

In the fourth and first quarters, Bear-issued trusts sold 29 properties in Fulton County, which includes Atlanta, for a total of $3.5 million. That was 60% of the combined original loan amounts of $5.8 million.

The loans were pooled in the vehicle during a period of Bear securitizations that were sold to investors prior to the firm's sale to J.P. Morgan Chase & Co. a little more than a year ago.

A J.P. Morgan spokesman said the depressed prices are representative of a housing market correcting itself in a period that is vastly different from a few years ago. Many of the regions facing the largest declines in value are the same ones that soared and saw a frenzy of construction during the housing boom.

In comparison, Countrywide Financial Corp., now owned by Bank of America Corp., completed the sale of 23 properties in Fulton for $3.7 million, or 86% of the original loan amount during the same time period, the real-estate records analyzed by Data Intelligence show.

A Bank of America spokesman said prices being fetched in the Atlanta area for the Countrywide portfolio reflect a reluctance to dump properties far below prevailing market values. The bank is getting an average of 99% of the appraised value of homes on an average sale, while selling within one year 99% of the properties that end up on its books.

and yet they aren't at all out of date. This tells me, at least, that we have made no progress on the intractable problems facing this economy all summer long.

Muddling through is the British term for coping with adversity by enduring it. Americans don't do adversity. They don't muddle, either. As for coping---well, we will see, won't we?

The prima donnas--banks and multinational corporations, are so high-strung (and highly leveraged) that they can't cope with even the slightest bobble.

Everyday Americans (not the American Express high flyers) never got that kind of credit line, and while they may not all be solvent, they have much less to lose. Once the house is gone, it's gone. There's nothing left to lose but your health.

That's why this health care reform is so vital, why it must be done right and it must be done NOW, and why we are all enraged by the Beltway's hemming, hawing, and fainting spells. That's why losing Senator Kennedy right now is such a blow. Obama is no Kennedy, that's for damn sure.

As I said in a different thread,

Open up Medicare to the uninsured, call it the 'Kennedy Option'!

If people are uninsured, they sign up for the 'Kennedy Option' (which is Medicare). When sick or have emergency and need to go to doctor or hospital, just show your Kennedy Option ID card.

If people are employed and like their insurance, then fine, don't change. Otherwise, they could pay extra and sign up for the 'Kennedy Option'.

Or, perhaps employers, instead of paying increasing medical costs for employees, employers could take that money previously spent for employee health coverage and give it to employees to find their own insurance...either a private insurance company or the 'Kennedy Option'.

Obviously, I don't have all the details worked out. But the Medicare system is already in place. It just needs to be tweaked and expanded, for the 'Kennedy Option'.

http://online.wsj.com/article/SB124701848135809721-email.html

The vacancy rate for U.S. apartments hit a 22-year high in the second quarter as rising unemployment reduced demand during what is usually the peak leasing season.

Rents fell the fastest in markets that have shed white-collar jobs, such as New York and San Jose, Calif., and in markets where many foreclosed homes and condominiums have been turned into rental property, including Las Vegas and Orange County, Calif.

Vacancy levels nationally rose to 7.5% in the April-to-June period, up from 6.1% a year earlier, according to Reis Inc., a New York real-estate research firm. Of the 79 markets tracked by Reis, 45 showed an increase in vacancies.

.....................

The housing downturn initially offered landlords the chance to lure troubled homeowners into the rental market. But the pace of job losses shattered any inroads that apartments might have gained from the housing bust. Apartment vacancies began to rise at the end of 2007 before accelerating further as the economy deteriorated last fall.

Rents, meanwhile, are falling at the fastest pace in at least a decade. Effective rents, which include landlord concessions such as one month free rent, fell 1.1% in the first quarter and 0.9% in the second quarter to an average of $975 a month. The combined decline for the first half of the year was the largest since Reis began tracking the data in 1999.

Effective rents were down 2.9% in San Jose, the sharpest quarterly drop, to $1,430 a month. New York City had the largest 12-month rent decline, at 5.8%, to an average of $2,680...

http://www.businessinsider.com/chart-of-the-day-2009-7

http://static.businessinsider.com/~~/f?id=4a54fc314b5437ba0029f926

What's the best way to express just how bad the job market is? You could look at the soaring unemployment rate, or perhaps the ever-shortening work week. How about this: Total nonfarm payrolls, notes economist James Hamilton, are now back to where they were in mid 2000, and in a few months they'll certainly be back to pre-2000 levels. 21st century job creation: gone.

A spaceport bar on Tatooine
She got a job as a libertine
They didn't warn her
Did not inform her
'Bout makin' Wookies

Anatomy can vary
Humans have only one
Then when she saw Big Hairy's
It really doubled her fun

She feels so silly that she indulged
Now that her belly's begun to bulge
So planet lubbers
Use double rubbers
When makin' Wookies

http://www.nakedcapitalism.com/2009/07/nationwide-brings-back-125-ltv.html

The Nationwide, the world’s largest building society, is now bringing back the dreaded 125% mortgage. While the lender claims these mortgages are a “niche product” designed for customers of Nationwide in negative equity, the Financial Services Authority (FSA) is looking to ban this type of lending.

From the BBC:

It will only be available to existing customers in negative equity who want to move house.

Negative equity means that the value of someone's home is less than the amount they owe on their mortgage.

Nationwide said the deal was a very "niche offer" and that not everyone in negative equity would qualify.

The Financial Services Authority is considering limiting mortgage loans to 100% of a property's value.

'No more risk'

The Nationwide only offers new customers mortgages worth 85% of the value of the home they want to buy.

Under its new arrangement, borrowers would take out a loan for 95% of the value of their new house at a fixed rate of 6.73% for three years or 7.48% for five years.

They would then be able to add on the negative equity from their old home, up to another 30% of the value of the new property, at a higher fixed rate of 7.23% for three years or 7.98% for five years.

Now, this is a different product than the one being sponsored by the U.S. government ( see posts on that here and here). In the U.S., the 125% mortgage only applies to the refinancing of mortgages of existing properties. Here, the Nationwide is offering to fund 95% of the new house purchase, plus up to 30% negative equity from a previous residence.

While I am sceptical about the rationale for this product, it is quite innovative. First, the negative equity portion carries a higher rate than the 95% mortgage. Moreover, loan exposure for Nationwide probably won’t increase because these deals are for existing customers. And, Nationwide seems to have found a way to get more house transactions in a climate where prices have been declining.

To my mind, the 125% product offered by this building society shows how innovative the financial services industry can be in any investing or economic climate. However, products like these operate on the fringe of what should be considered prudent. I see it as further evidence that the financial services industry needs strong oversight to prevent lenders from taking on too much risk and creating the kind of financial crises we have experienced.

http://www.nakedcapitalism.com/2009/07/citigroup-aig-equity-may-be-worth-zero.html

While recent news reports have tried to put a cheery face on the AIG bailout as asset sales are moving forward haltingly, the end game appears no better than it did some months ago, at least according to Citigroup. Note that the amount authorized for bailout is $180 billion,"only" $134 billion has been committed to date. The Citigroup analyst suggests the taxpayer may just get out whole on the loans, but one has to wonder whether he is merely steering clear of voicing an opinion on the debt, since that is not his beat anyhow. Regardless, this report raises doubts about full recovery of the funds, much the less any supposed upside.

From Reuters (hat tip reader Joe C):

American International Group Inc, the insurer rescued by a series of federal bailouts, may have zero equity value due to the risk of more credit default swap losses and the disposal of key assets at low valuations, Citigroup said.

Shares of the company fell 22 percent to $10.22 in early trade Thursday on the New York Stock Exchange. The shares have lost more than 90 percent of their value in the last year.

Potential markdowns in AIG Financial Product unit's regulatory CDS portfolio may result in collateral calls that would again put pressure on AIG's liquidity, Citigroup analyst Joshua Shanker said.


Yves here, If I am not mistaken, those "regulatory CDS" are the infamous $300 billion provided to allow European banks to lower required regulatory capital, and if so, the article puts a lower value on it, suggesting writedowns have already occurred. Some readers have said those were used to hedge AAA rated structured paper, like CDOs (eek). I am not sure of how this trade worked (Basel II arcana, needless to say) but I believe unhedged AAA was treated as needing only 20% as much equity as riskier credits (A or BBB equivalent?). UBS was big in this practice, and the CDS may have been the reason the bank was able to carry only 1% equity against assets.

Any readers who know details, please elaborate or correct. If you prefer, you can e-mail me at yves@naekdcapitalism.com and I will amend the post as needed. Back to Reuters:

"Such collateral calls could also pressure rating agencies to lower their credit ratings for the company, leading to a similar cycle to the one that the company experienced prior to the massive government intervention in the third quarter," Shanker wrote in a research note.

Last month, AIG revised its 2008 annual report to add a new risk factor that shows it may recognize valuation losses on a CDS portfolio if credit markets continue to deteriorate.

At issue is a super senior CDS portfolio held by AIG Financial Products with a notional value of $192.6 billion as of March 31, 2009....

The analyst said while AIG may be able to repay U.S. investment and some debt with core asset sales, the remaining businesses may be those that generate lower return on equity, handicapped by a high debt burden.

In June, the federal government agreed to accept $25 billion of preferred stock in two AIG businesses as partial repayment of debt.

AIG had said the agreement positions its two businesses -- American International Assurance Co Ltd (AIA) and American Life Insurance Co (Alico) -- for initial public offerings, depending on market conditions.

Shanker said it expects AIG to carve out its commercial property and casualty business in the form of an initial public offering in 2010.

The analyst, however, said there is high probability that selling off all operations just to cover debt will leave the holding company with little or no equity.

AIG had already agreed to sell a 98 percent stake in its Russian consumer finance business to Banque PSA Finance SA, a unit of France's Peugeot SA (Paris:PEUP.PA - News), and is selling its credit card business in Taiwan to Far Eastern International Bank.

AIG's bid to sell its Taiwan insurance unit, Nan Shan LIfe, attracted bids from global investors Carlyle and Primus, among others and could fetch more than $2 billion.

:rofl:

How many of us have been saying from the beginning that AIG wasn't worth squat?

Oh, yeah, and where's that worthless piece of shit Cassano, anyway.



Tansy Gold, who got more work than she wanted for the week-end but less than she usually gets so she may have some time to post here for a change

Hope you don't need your belaying pin this weekend.

'Guthrie traveled with migrant workers from Oklahoma to California and learned traditional folk and blues songs. Many of his songs are about his experiences in the Dust Bowl era during the Great Depression, earning him the nickname the "Dust Bowl Troubadour".'

Woodrow Wilson "Woody" Guthrie (July 14, 1912 – October 3, 1967) is best known as an American singer-songwriter and folk musician, whose musical legacy includes hundreds of political, traditional and children's songs, ballads and improvised works. His best-known song is "This Land Is Your Land", which is regularly sung in American schools. Many of his recorded songs are archived in the Library of Congress.<1>

"He frequently performed with the slogan This Machine Kills Fascists displayed on his guitar."

http://en.wikipedia.org/wiki/Woody_Guthrie

Most of my peers are probably more familiar with Woody's son, Arlo.

http://en.wikipedia.org/wiki/Arlo_Guthrie

"His most famous work is "Alice's Restaurant Massacree", a talking blues song that lasts 18 minutes and 34 seconds in its original recorded version (Guthrie has been known to spin the story out to forty-five minutes in concert). Guthrie has pointed out that this was also the exact length of one of the famous gaps in Richard Nixon's Watergate tapes. The Alice in the song is Alice Brock, who now runs an art gallery in Provincetown, Massachusetts.

The song, a bitingly satirical protest against the Vietnam War draft, is based on a true incident. In the song, Guthrie is called up for a draft examination, and rejected as unfit for military service as a result of a criminal record — consisting in its entirety of a single arrest, court appearance, fine and clean-up order for littering and creating a public nuisance on Thanksgiving Day in 1965, when Arlo was eighteen years old. On the DVD commentary for the film, Guthrie states that the events as presented in the song are true to real-life occurrences.

For a short period of time after its release in 1967, "Alice's Restaurant" was in frequent rotation on nearly every college and counter-culture radio station in the country. Indeed, it became a symbol of the late '60s and for many it defined an attitude and lifestyle that were lived out across the country in the ensuing years. Many stations across the States have made playing "Alice's Restaurant" a Thanksgiving Day tradition.

grumble, grumble.

http://www.youtube.com/watch?v=DUDtFdnn9oQ

Woody Guthrie -- This Land

http://www.youtube.com/watch?v=XaI5IRuS2aE

I really need help like that!

http://www.youtube.com/watch?v=daBx_PBrvSE&feature=video_response#

Cute Video to go along with the lyrics on this one!

I knew Arlo would have the perfect song out there somewhere. :)

http://www.nakedcapitalism.com/2009/07/banks-get-break-buy-tarp-warrants-back.html

Another day, another banking industry subsidy. From MarketWatch (hat tip reader Marshall):

A panel that oversees a $700 billion bank bailout package said Friday that financial institutions buying out warrants they gave the government in exchange for capital injections are now buying back those stakes at well below their fair value.

The Congressional Oversight Panel, which is charged with overseeing the Troubled Asset Relief Program, or TARP, said in a report that a group of 11 small banks that have repurchased government warrants in exchange for taxpayer-funded assistance, have bought-out the stakes at 66% of their face value.

The C.O.P., which employed three Harvard University valuation experts to conduct the analysis, said that taxpayers would have received $10 million more had the warrants been sold back to the banks at their face value.

The report argues that liquidity discounts are a key factor for why the warrants were purchased at such low prices. Should a similar discount be a major factor for warrant repurchases at larger institutions buying out government stakes, the shortfall to taxpayers could be as much as $2.1 billion,...

The panel employed three valuation experts from Harvard Business School -- Robert Merton, Daniel Bergstresser and Victoria Ivashina -- to conduct the review....

The report also raises the question of whether banks should be repaying TARP funds at all at this stage in the economic recovery. The C.O.P.'s next report will examine this question.

"Any exit from the TARP system implicates an important policy question: If the banks give up federal support prematurely, will the economy suffer as a result? The panel has not reached a consensus on whether it is wise policy to release banks from the TARP program at this time, but our June report on the bank stress tests raised key questions about whether we know enough about the banks' overall health," the report said.


Boy, are the banks trying to spin this one, and the Wall Street Journal is a taker. See "J.P. Morgan to Send Warrants to Market":

Several Wall Street firms seeking to buy back warrants held by the government as part of the $700 billion financial bailout are complaining that the Treasury Department is demanding too high a price, according to people familiar with the matter.

The Treasury has rejected the vast majority of valuation proposals from banks, saying the firms are undervaluing what the warrants are worth, these people said. That has prompted complaints from some top executives. J.P. Morgan Chase & Co. Chief Executive James Dimon raised the issue directly with Treasury Secretary Timothy Geithner, disagreeing with some of the valuation methods that the government was using to value the warrants.

The inability to agree on a price has already prompted J.P. Morgan to take the next step in a complex process to remove the warrants from the hands of the government. The bank has waived its right to buy the warrants and will allow the Treasury to auction them in the public market, which bank executives say will result in an actual market price.

http://www.nakedcapitalism.com/2009/07/so-where-exactly-did-lehmans-130.html

The Lehman demise refuses to go away.

It has come out that the losses appear likely to be $130 billion on what was a roughly $660 billion balance sheet. That is an insanely high level.

What has caught my attention from the get-go is that blame was very quickly pinned on the disorderly bankruptcy. While I am sure that is a major factor, it is now being played up in the press as if it was the sole cause. I find it curious that Bryan Marsal, the president of Lehman and more important, co-chief executive officer of Alvarez & Marsal, the restructuring consultant for US bankruptcy, is taking the time to tell this story, per the CNBC clip below. There happens to be a piece in the Financial Times: tonight on Lehman (hat tip reader Don B) as well as this video from last week via reader Hubert, which says there might be a bit of a PR effort afoot.

SEE LINK FOR VIDEO

http://market-ticker.denninger.net/archives/1192-FLASH-Goldman-Code-Theft-BOMBSHELL.html


Something really ugly popped up on Daily Kos yesterday late in the afternoon of July 7th.....

...GS, through access to the system as a result of their special gov't perks, was/is able to read the data on trades before it's committed, and place their own buys or sells accordingly in that brief moment, thus allowing them to essentially steal buttloads of money every day from the rest of the punters world.

Two things come out of this:

1. If true, this should be highly illegal, and would, in any sane country result in something like what happened to Arthur Andersen...

(2. ... is way off point....)

God help Goldman if this is true and the government goes after them. This would constitute massive unlawful activity. Indeed, the allegation is that Goldman alone was given this access!

God help our capital markets if this is true and is ignored by our government and regulatory agencies, or generates nothing more than a "handslap." Nobody in their right mind would ever trade on our markets again if this occurred and does not result in severe criminal and civil penalties.

There apparently is reason to believe that Sergey might have been involved in exactly this sort of coding implementation. Specifically, look at the patent claims cited on DailyKos; his expertise was in fact in this general area of knowledge in the telecommunications world......

This is precisely the sort of thing that a Unix machine, sitting on a network cable where it can "see" traffic potentially not intended for it, could have an interface put into what is called "promiscuous mode" and SILENTLY sniff that traffic!

ASSUMING THE TRAFFIC IS PASSING BY THE MACHINE ON THE WIRE THIS IS TRIVIALLY EASY FOR ANY NETWORK PROGRAMMER OF REASONABLE SKILL TO DO. IF THAT TRAFFIC IS EITHER UNENCRYPTED OR IT IS EASY TO BREAK THE ENCRYPTION.....

Folks, I have no way to know what the code in question does, but if there's anything to this - anything at all - there is a major, as in biggest scam of the century - scandal here - something much, much bigger than Madoff or Stanford.

What would this mean, if it was all to prove up?

It would mean that Goldman was able to "see" transaction order flow - bid, offer, and execute messages - before they were committed in the transaction stream. Such a "SNIFF" would be COMPLETELY UNDETECTABLE by the sender or recipient of the message.

The implication of this would be that they would be able to front-run any transaction where the data was visible to them, thereby effectively "stealing pennies" from each transaction they were able to front-run.

Again: I have absolutely nothing on the content of the allegedly-stolen code nor can I validate the claim made that Goldman had "special network access." Nothing. All I have to go on with regards to "market manipulation" (which such a program would be, writ large!) is the statement of the US Attorney that I cited in my earlier Ticker.

This may be nothing more than a crazy conspiracy theory put out by someone at Daily Kos. But consider the following:

The last few days the the market has traded "organically." I and many other market participants have noted that prior to the week before July 4th the market had been acting "very odd" - normal correlations between interest rate, foreign exchange the the stock markets had been on "tilt" for the previous couple of months, with the amount of "tiltage" increasing dramatically in the last three or four weeks. In fact, many of my usual indicators that I use for daytrading had become completely useless. Suddenly, just before the July 4the weekend, everything started correlating normally again. I have no explanation for this "light-switch" change but it aligned almost exactly with the day the NYSE had "computer problems" and extended trading by 15 minutes. Was there a configuration change made to their networking infrastructure, one asks?

Zerohedge's information, if you believe it, seems to point toward some sort of distortion. The cite above claims statistically "as likely as an asteroid hitting earth it is not true" proof of distortion in the market. I have not analyzed the data to independently validate that conclusion, but even if the odds of these "effects" in the market being random chance are only as good as getting hit by a tornado this afternoon......

Every market participant deserves answers on this point. Specifically to the NYSE and all other markets where colocation connections are made and allowed:

1.
Was it possible for message traffic to be "seen" by computers on your network and colocated into your infrastructure by other than the originator and recipient? That is, was it physically possible for anyone to "sniff" messages to and from other market participants.

2.If it was possible, is it no longer possible, and if so, when was that change made?

I believe the SEC and FBI must direct a subpoena at all market exchanges for an under-oath answer to question #1. If the answer to that question is "yes" then every market participant who had or has equipment colocated on the NYSE infrastructure must be immediately served with a subpoena for a true and complete copy of all software operating on every machine connected to said infrastructure for immediate forensic investigation to ascertain if any participants were indeed "sniffing" traffic and front-running orders.

The charge made on the pages of Daily Kos is incredibly serious. If this happened it is a case of literal robbery of every market participant for the entire duration of the time that the code in question was executing on the network, with losses to market participants potentially running into the hundreds of billions of dollars.

Market participants deserve an answer to these questions.

If the above doesn't give you nightmares, there's something wrong. Sleep tight, everybody!

and what, if anything, is being done to stop it?

‘Secretive’ firms dominate US share trading

By Jeremy Grant in London

http://www.ft.com/cms/s/0/a5f03366-6d69-11de-8b19-00144feabdc0.html

A tiny minority of a new breed of electronic trading firm is driving almost three quarters of all US equities trading volume and generating $21bn in annual profits doing so, Tabb Group, a consultancy, said on Friday.

The disclosure is one of the first attempts to quantify the impact of so-called “high frequency” trading firms that have quietly grabbed a huge slice of trading in the world’s equity markets.

Some of the trading firms – such as Getco, Peak6, RGM Advisers and Hudson Bay Trading – are far from household names in the markets. Many are based in Chicago and grew out of the city’s options trading pits.

However, they appear to have built up such a significant presence in the markets that they look set to eclipse familiar Wall Street names in their collective influence. Such firms have grown especially quickly as they filled a gap in the markets left by hedge funds.

They typically employ trading strategies that are based not on company earnings prospects and other fundamentals, but on arbitraging minute differences in share prices and trading speeds – known as latency – between exchanges and other trading venues.

Robert Iati, partner at Tabb, said: “They are, as a rule, secretive, stealthy, smart, and relatively unknown.

“The incredible capabilities offered by technology have given meteoric rise to a relatively few high frequency proprietary trading firms that now wield far greater influence on the markets today than most people recognize,” he added.

Tabb estimated that such firms, which include the new breed also known as “electronic liquidity providers”, represent about 2 per cent of the 20,000 or so trading firms operating in the US markets. But they accounted for 73 per cent of all US equity trading volume.

Trading venues have altered their fees structures to attract such firms, which often look for platforms to offer monetary incentives to encourage firms to post liquidity with them in so-called “maker-taker” fee models. The London Stock Exchange this month abandoned a maker-taker fee model introduced only in September last year, a move that its smaller rivals such as BATS Europe are likely to welcome as it could drive more high-frequency traders to them.

The firms included proprietary trading desks for a small number of major investment banks, less than 100 of the most sophisticated hedge funds and hundreds of “the most secretive prop shops, all of which operate with one thing in mind: capture profit opportunities by being smarter and faster than the closest competition”, Tabb said.

Firms engaged in high frequency trading (HFT) use complex computer algorithms to drive their trading strategies, and guard them jealously. The value of such algorithms was exposed this week when US federal prosecutors charged Sergey Aleynikov, a former Goldman Sachs computer programmer, with stealing computer code from the bank’s HFT business.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFeyqdzYcizc


Commentary by Jonathan Weil

July 9 (Bloomberg) -- Never let it be said that the Justice Department can’t move quickly when it gets a hot tip about an alleged crime at a Wall Street bank. It does help, though, if the party doing the complaining is the bank itself, and not merely an aggrieved customer.

Another plus is if the bank tells the feds the security of the U.S. financial markets is at stake. This brings us to the strange tale of Goldman Sachs Group Inc. and Sergey Aleynikov.

Aleynikov, 39, is the former Goldman computer programmer who was arrested on theft charges July 3 as he stepped off a flight at Liberty International Airport in Newark, New Jersey. That was two days after Goldman told the government he had stolen its secret, rapid-fire, stock- and commodities-trading software in early June during his last week as a Goldman employee. Prosecutors say Aleynikov uploaded the program code to an unidentified Web site server in Germany.

It wasn’t just Goldman that faced imminent harm if Aleynikov were to be released, Assistant U.S. Attorney Joseph Facciponti told a federal magistrate judge at his July 4 bail hearing in New York. The 34-year-old prosecutor also dropped this bombshell: “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.”

How could somebody do this? The precise answer isn’t obvious -- we’re talking about a black-box trading system here. And Facciponti didn’t elaborate. You don’t need a Goldman Sachs doomsday machine to manipulate markets, of course. A false rumor expertly planted using an ordinary telephone often will do just fine. In any event, the judge rejected Facciponti’s argument that Aleynikov posed a danger to the community, and ruled he could go free on $750,000 bail. He was released July 6.

Market Manipulation

All this leaves us to wonder: Did Goldman really tell the government its high-speed, high-volume, algorithmic-trading program can be used to manipulate markets in unfair ways, as Facciponti said? And shouldn’t Goldman’s bosses be worried this revelation may cause lots of people to start hypothesizing aloud about whether Goldman itself might misuse this program?

Here’s some of what we do know. Aleynikov, a citizen of the U.S. and Russia, left his $400,000-a-year salary at Goldman for a chance to triple his pay at a start-up firm in Chicago co- founded by Misha Malyshev, a former Citadel Investment Group LLC trader. Malyshev, who oversaw high-frequency trading at Citadel, said his firm, Teza Technologies LLC, first learned about the alleged theft July 5 and suspended Aleynikov without pay.

‘Preposterous’ Charges

Aleynikov’s attorney, Sabrina Shroff, told the judge at the bail hearing that Aleynikov never intended to use the downloaded material “in any proprietary way” and that the government’s charges were “preposterous.”

Goldman isn’t commenting publicly about any of this, though it seems the bank’s bosses want us to believe there’s no need to worry. On July 6, Dow Jones Newswires quoted a “person familiar with the matter” saying this: “The theft has had no impact on our clients and no impact on our business.” Note that this person was so familiar with Goldman that he or she spoke of Goldman’s clients as “our clients” and Goldman’s business as “our business.”

By comparison, last Saturday, while most Americans were enjoying the Fourth of July holiday, Facciponti was in court warning of looming threats to Goldman and the financial markets.

“The copy in Germany is still out there,” the prosecutor said, according to an audio recording of the hearing. “And we at this time do not know who else has access to it and what’s going to happen to that software.”

Secret Software

“We believe that if the defendant is at liberty, there is a substantial danger that he will obtain access to that software and send it on to whoever may need it,” Facciponti said. “And keep in mind, this is worth millions of dollars.”

By “millions,” it’s unclear if that would be enough to match Goldman Chief Executive Lloyd Blankfein’s $70.3 million compensation package for 2007. Or perhaps millions means thousands of millions, otherwise known as billions.

Facciponti said the bank told the government that “they do not believe that any steps they can take would mitigate the danger of this program being released.” He added: “Once it is out there, anybody will be able to use this, and their market share will be adversely affected.” All Aleynikov would need to get the code from the German server is maybe 10 minutes with a cell phone and an Internet connection, Facciponti said.

Judge’s Ruling

The hole in Facciponti’s argument was that the government offered no evidence that Aleynikov had tried to disseminate the software during the month prior to his arrest, after he downloaded it and had left his job at Goldman. That’s the main reason the judge, Kevin N. Fox, cited in ruling Aleynikov could be released on bail.

“We don’t deal with speculation when we come to court,” Fox said. “We deal with facts.”

Meantime, it would be nice to see someone at Goldman go on the record to explain what’s stopping the world’s most powerful investment bank from using its trading program in unfair ways, too. Oh yes, and could the bank be a bit more careful about safeguarding its trading programs from now on? Hopefully the government is asking the same questions already.

(Jonathan Weil is a Bloomberg News columnist. The opinions expressed are his own.)

-----------------------------------------------------------------------------

http://www.youtube.com/watch?v=lrlQSMCx-aE&feature=player_embedded

More commentary from Bloomberg

I counted the word 'predatory' four times in the first few paragraphs.

Very Interesting!

http://www.house.gov/apps/list/hearing/financialsvcs_dem/galbraith_testimony.pdf

http://www.nakedcapitalism.com/2009/07/fed-under-fire.html

Video commentary

The Washington Post points out the effect the recession is having on household formation:

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/09/AR2009070902803.html?wprss=rss_realestate

The number of people setting up their own households has fallen to some of the lowest levels in a generation, a trend that threatens to prolong the recession.

Many people, young and old, who in more promising times would be out on their own, are finding themselves ... stuck at square one. ...

The recession has wreaked havoc on all sorts of life plans. Tumbling stock prices have cut retirements short. Layoffs have forced middle-aged children to move in with mom. Falling home prices prompt unhappy couples to rethink divorce. The larger consequence of all these discrete decisions is that Americans are forming fewer households, which in turn helps prolong the downturn.

Government data suggest that the recession has helped push down household formation. ...

Household formation rates could keep falling, said Richard Moody, chief economist for Forward Capital, a real estate investment and research company, because of the strong correlation between job loss and household formation. With unemployment not expected to peak until next year, "a lot of that isn't reflected yet" in the data, he said.

Meanwhile, a good portion of those who HAD or HAVE houses, have mortgaged them to the hilt and then some, effectively pricing many others out, or the speculators pushed up the prices or the economy went bust. . . .. Like I said, "no duh."


Tansy Gold, who may need another rubber stamp.

8/26/09 "Dress Rehearsal For Debt Peonage" with economist Dr. Michael Hudson on why the banks are returning the bailout money; bank fees and penalties; banks prefer default to foreclosure; debt as wealth; Obama's Financial Regulatory Reform Proposal and its six major flaws; the deregulation-by centralization ploy; failure to reform the economy will lead to debt peonage.

appx 1 hour audio from KPFA 'Guns and Butter'
The entire program is worthwhile to listen, but the segment about Debt Peonage starts after 24 minutes.

http://www.kpfa.org/archive/id/53994

Partly my inability to absorb it, partly the Kid being noisy.

If this is the state of current events, then I'm afraid it WILL come to blood in the streets. We will have to physically throw out those people who decide to run with the wolves, whether they are slaves, mercenaries, or parasites. We will have to defend our land, homes, businesses, resources all from the predators.

The only advantage ordinary people have, that I see, beyond the two facts that death is the only alternative, and that we are so many, is that the Predators have screwed themselves in every nation and every language.

They have no place to hide when (it's not a question of if) open revolt overwhelms their greed. Talk about Globalism! This will be something out of Klingon mythology.

What a magnificent folly! What were they thinking? Did they truly think that they could kill or enslave 6 billion people around the globe before we came after and annihilated them?

My name is Kassandra. Let the Predators be cursed by Apollo.

Melikes the Tom Waits contribution:
http://www.youtube.com/watch?v=CVE72Ae82Tw&feature=related

Big news this week: Bernanke is going to be staying where he is, at the head of the Federal Reserve. Of course, this is because he has 'saved' the United States from the near disaster of the Second Great Depression...or so every media outlet and financial 'expert' out there would like you to think.

But, as we've been pointing out, this 'recovery' isn't adding up. Take this little tidbit: The FDIC reported on Thursday that the number of troubled banks rose to 416 at the end of June, up from 305 at the end of March. Says MarketWatch: "FDIC said this is the largest number of banks on its 'problem list' since June 30, 1994, when 434 banks were on the list. Assets at troubled banks totaled $299.8 billion, the highest level since Dec. 31, 1993, the agency said."

If that doesn't spell recovery, I don't know what does

Daily Reckoning.com

The Mogambo Guru -- World News Trust

Aug. 28, 2009 -- TAMPA BAY, Fla. -- I admit that I was pretty sloshed when I started haranguing the other barfly trash sitting near me about how “It has been said that the big problem with the human brain is that it cannot understand parabolic curves, and it cannot comprehend the horrific folly of the Federal Reserve increasing money and credit parabolically, and the amount of money that the Congress is spending is parabolic, and the inflation in consumer prices will soon be parabolic, too, and which means to you barfly trash that a lousy drink in this filthy rat hole of a bar will cost $500, which means that we ought to drink up now while the prices are still low!”

more

http://www.worldnewstrust.com/commentary/3624-more-money-is-owed-than-exists-mogambo-guru-

A few interesting articles implying that if anyone is still in the stock market, it's time to take any gains and move to safer investments...

8/19/09 Insiders are unloading their companies’ stock at the most rapid clip at least since October 2007.
Insiders are those corporate officers, directors, major shareholders and others have an inside track on the future earnings outlook for their companies, as well on the relative attractiveness of the price of their companies’ stocks. Insiders’ buying and selling activity is a particularly useful market indicator over the short term (weeks) to intermediate term (months), especially when used in conjunction with other market timing indicators.
full article...
http://www.financialsense.com/editorials/bronson/2009/0819.html

8/28/09 Insider Trading and Investor Sentiment Signaling U.S. Stock Market Top
Insider Selling in August Soars to 30.6 Times Insider Buying
The best-informed market participants are sending a clear signal that the party on Wall Street is going to end soon
full article...
http://news.prnewswire.com/DisplayReleaseContent.aspx?ACCT=104&STORY=/www/story/08-28-2009/0005084471&EDATE=

8/28/09 When the last bear capitulates, it’s time to start selling.
That was the view of many traders this week when they heard Bob Janjuah, RBS’s chief markets strategist, had thrown in the towel.
Indeed there are good reasons to sell now. Historically, September has been a tough month for equities. Since 1900, the Dow Jones Industrial Average has fallen 58 per cent of the time in September.
full article...
http://www.ft.com/cms/s/0/75371f2c-9402-11de-9c57-00144feabdc0,s01=1.html?catid=91&SID=google

Note that it was Janjuah who last year on 6/18/08, predicted last years major downturn
6/18/08 The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. "A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist.
full article...
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/2791861/RBS-issues-global-stock-and-credit-crash-alert.html

8/28/09 Cerberus clients overwhelmingly want out
Cerberus Capital Management has been swamped with redemption requests with the Wall Street Journal reporting that investors are asking to pull out $5.5 billion or 71 percent of assets from its hedge funds. Cerberus last month tried to entice investors into staying with the firm, but found that its clients overwhelmingly wanted to leave, the newspaper reported.
full article...
http://www.reuters.com/article/ousiv/idUSTRE57R4MR20090828
Cerberus Capital Management, L.P. is one of the largest private equity investment firms in the United States. The firm is based in New York City, and run by 49-year-old financier Steve Feinberg. Former U.S. Vice President Dan Quayle has been a prominent Cerberus spokesperson and runs one of its international units.
http://en.wikipedia.org/wiki/Cerberus_Capital_Management

Run, you nasty bugs! Run and hide!

It's been a long hard slog, and the news is indigestible and likely to keep you up all night. To sing you off to sweet repose and dreams of survival and thriving again:


http://www.youtube.com/watch?v=ujzKk_4WBsE&feature=related

http://www.youtube.com/watch?v=TmR1YvfIGng

Appreciate all your postings!