Headlines...

NEW -> Contingent Buyer Assistance Program
<p>House Panel Approves Bankruptcy Bill


<a href="http://www.chron.com/disp/story.mpl/ap/fn/5372411.html">http://www.chron.com/disp/story.mpl/ap/fn/5372411.html</a></p>
 
<p>ForeclosureS.com November Report: Initial Filings Up 93%; Foreclosed Homes Up 41%</p>

<p>http://biz.yahoo.com/bw/071212/20071212005254.html?.v=1</p>
 
<p><a href="http://www.ft.com/cms/s/0/ca3846d0-a81e-11dc-9485-0000779fd2ac.html?nclick_check=1">Concerns over food inflation as harvests fail.</a></p>

<p><em>The global economy is facing a second wave of food inflation after the US agriculture department on Tuesday warned of significant falls in stocks of corn, wheat and soyabean and heavy demand.</em></p>

<p>It's good thing food is excluded from the core inflation rate. Otherwise, there might actually be a little inflation going on.</p>
 
<p><a href="http://www.ft.com/cms/s/0/90126fca-a810-11dc-9485-0000779fd2ac.html">Why the credit squeeze is a turning point for the world.</a></p>

These are historic moments for the world economy. I felt the same during the emerging market financial crises of 1997 and 1998 and the bubble in technology stocks that burst in 2000. This “credit crunch” may, I believe, be an equally important turning point for financial markets and the world economy. Why do I believe this? Let me count the ways.

<p>First and most important, what is happening in credit markets today is a huge blow to the credibility of the Anglo-Saxon model of transactions-orientated financial capitalism. A mixture of crony capitalism and gross incompetence has been on display in the core financial markets of New York and London. From the “ninja” (no-income, no-job, no-asset) subprime lending to the placing (and favourable rating) of assets that turn out to be almost impossible to understand, value or sell, these activities have been riddled with conflicts of interest and incompetence. In the subsequent era of “revulsion”, core financial markets have seized up (see charts).</p>

<p><img src="http://media.ft.com/cms/d10ec14c-a818-11dc-9485-0000779fd2ac.gif" alt="" />


</p>
 
<p>Tsunami of red ink about to hit California</p>

<p><a href="http://www.centralvalleybusinesstimes.com/stories/001/?ID=7251">http://www.centralvalleybusinesstimes.com/stories/001/?ID=7251</a></p>

<p>California is facing a $14 billion state budget deficit, according to unnamed sources cited by the Sacramento Bee today. </p>

<p>The state’s forecasted deficit previously had been publicly estimated at $9.8 billion. </p>
 
<p>Housing market lull means tax refunds for many property owners</p>

<p><a href="http://www.santacruzsentinel.com/story.php?sid=51471&storySection=Local">http://www.santacruzsentinel.com/story.php?sid=51471&storySection=Local</a></p>

<p>Like most everyone else, Muller brought his check to the tax collector's office in time to meet Monday's deadline, but his visit came after a phone call from the county notifying him that his tax bill had been reduced and a partial refund would be in the mail. </p>

<p>"It felt great. I'm looking forward to getting some money back," the Santa Cruz Westside homeowner said. </p>
 
<a href="http://www.ft.com/cms/s/0/36553530-a8f6-11dc-ad9e-0000779fd2ac.html">At Goldman it pays to hedge... it pays really well</a>.


<em>


Goldman Sachs on Wednesay began celebrating confirmation of bumper bonuses for this year, with the chairman and chief executive, Lloyd Blankfein, expected to lead the pack with a 30 per cent increase in his pay to about $70m.


</em>


<em>Both Lehman and Goldman have come through the credit squeeze in far better shape than some of their competitors, as successful hedging strategies offset losses on mortgage-related securities. However, the success of the firms, and the large compensation awarded to their chief executives, could spark further scrutiny of their activities during the rapid expansion in the sale of mortgage-related securities. </em>

<p><em>Goldman’s accrued compensation pot – the money designated for both base salaries and bonuses – at the end of the third quarter was almost $17bn, and is estimated to have ended the bank’s financial year at close to $20bn. That is to be divided among Goldman’s 29,000 full-time employees, as well as almost as many full-time staff not on the official payroll, implying a pay-out on average of roughly $360,000 per head.</em></p>
 
<a href="http://www.economist.com/daily/news/displaystory.cfm?story_id=10278482&top_story=1">From Santa to Scrooge</a>.





<em>BACK in September, Ben Bernanke wowed Wall Street with a larger-than-expected interest rate cut. Stockmarkets soared after the Fed slashed its policy rate by half a point as investors were convinced that America’s central bank would pull out all the stops to prevent turmoil in financial markets from infecting the broader economy.</em>

<p><em>This week Mr Bernanke had the opposite effect. On Tuesday December 11th, despite new tensions in the credit markets, the central bank’s rate-setting committee cut the federal funds rate by a modest quarter point, to 4.25%. Share prices slumped in response. The Dow Jones Industrial Average fell almost 300 points (2%) in the hours after the announcement, while the broader S&P 500 index lost 2.5%. Far from bearing gifts to alleviate financial woes, investors moaned, the Fed was behaving like Scrooge.</em></p>
 
Ugh... another hack piece by wretched Gretchen. <a href="http://www.nytimes.com/2007/12/13/business/13lend.html?_r=1&ref=business&oref=slogin">Countrywide subpoenaed by Illinois AG.</a>





I am sure Tanta will make mince meat of this hack piece, but this paragraph is getting a rant from me.


<em>


Some borrowers told Illinois investigators that they did not know One Source brokers had inflated their incomes to get them a larger mortgage. One consumer provided pay stubs and tax returns to One Source showing her income to be $2,200 a month, the suit said. Only later did she discover that One Source had listed her monthly income as $9,000.</em>





Really? First, was this $9k income on the loan application, when they signed the first loan application? If so, then they knew. If not, then was the income listed or not? Was this after the loan had closed? Because, they signed a final loan application, meaning that they agreed that it was true. I think these would be some good questions to ask. But... hey, I am not the worst financial reporter at the NY Times, and if I were, I would do some research and actually learn about the business if I were reporting on the subject.





And, what was her payment? Was it more than she could afford? If so, why did she agree to the payment?





BTW, this <strike>idiot's</strike> borrower's paycheck stubs and tax returns went into the shredder a long time ago. The "I provided blah and blah" is worthless, especially when they signed several documents saying otherwise. I am not saying what the mortgage company did was not wrong, but seriously, they signed final loan documents with the income listed. I have seen this loan get duped on people, but ask bleeping questions. That is your bleeping job!





Dear NY Times, please get rid of Gretchen. There are better, and more knowledgeable reporters at the Village Voice. Seriously, she tarnishes your reputation every time she hacks something out. I mean, you don't see financial writers from other media sources getting ripped apart by the blogs like Gretchen does, do you?





{rant over}
 
From Lansner:





<a href="http://lansner.freedomblogging.com/2007/12/13/appraisals-show-worst-oc-home-decline-since-93/"><strong>Appraisals show worst O.C. home decline since ‘93</strong></a>


* North (Anaheim, Buena Park, Fullerton, La Habra, Placentia and Yorba Linda) homes were down 8.8%.


* Central O.C. homes (Fountain Valley, Garden Grove, Orange, Santa Ana, Tustin, Westminster) had declines averaging 8.2%.


* Southern/beach cities (Costa Mesa, Huntington Beach, Irvine, Laguna Niguel, Lake Forest, Mission Viejo, Newport Beach, San Clemente, and San Juan Capo) saw home values off 4.9%.





I would argue that Newport and HB (and to some degree Laguna Beach) are preventing the Southern/beach cities from showing a lot worse. Many of the other areas they're mentioning in that group are as bad or worse than any other part of the county (esp. Lake Forest, Mission and San Juan -except luxury parts of it.
 
<p><strong><a href="http://U.S. Nov. PPI up 3.2% -- largest growth since 1973">U.S. Nov. PPI up 3.2% -- largest growth since 1973</a></strong></p>

<p><strong>Wholesale energy goods price growth hits new record; core prices up 0.4%</strong></p>

<p> "Ugh," said John Ryding, chief U.S. economist for Bear Stearns, in reaction to the producer price index results. "This is a horrible inflation report. Our reading is that both import prices and producer prices point to significant inflation problems ahead." </p>

<p> Wholesale energy prices rose 14.1% in November, beating the prior record growth of 13.4% in January 1990. Gasoline price growth also hit a record -- reaching 34.8% -- up from the prior record of 28.8% in April 1999. </p>

<p> "This is the long anticipated flow through from high oil prices into the more general economy," said Michael Lynch, president and director of global petroleum service with


Strategic Energy and Economic Research Inc. "I think we're going to see greater effects in the coming months. This is a black day for [Federal Reserve Chairman] Ben Bernanke." </p>
 
inflation report came in far worse than expected. looks like the fed has clearly decided its goal is to avert recession, instead of doing its job which is to manage inflation and protect the dollar.





as an aside, the IYR (dj reit index) is down 2.5%. i know theres several people here who are in the SRS, which should be close to 2x the inverse of the IYR. so it should be up around 5% but instead it's at 3.8%. an underperformance vs the underlying index, even though the SRS isnt technically an index fund, of 120 bp in a single day is pretty bad. i've always wondered whether the swap mkt for reits was large enough to support the SRS if public real estate started to tank and many investors started jumping into this etf. i believe the last time i looked a month or two ago the etf had net assets in the 400M range and today its 634M so thats a huge jump. for those of you that have some SRS, have you noticed how its performed the past few days where there was huge drops in the reit indices?
 
<p><img alt="" src="http://bp0.blogger.com/_pMscxxELHEg/R2FshTRwQ8I/AAAAAAAABVc/zIDqBC-mkIQ/s320/a2p2spread.gif" /></p>

<p><a href="http://calculatedrisk.blogspot.com/2007/12/discount-rate-spread-increases.html">http://calculatedrisk.blogspot.com/2007/12/discount-rate-spread-increases.html</a></p>

<p>Excerpts from the comments:</p>

<p><img class="gravatar" title="Gravatar" style="PADDING-RIGHT: 1px; PADDING-LEFT: 1px; FLOAT: right; PADDING-BOTTOM: 1px; MARGIN: 2px; PADDING-TOP: 1px" alt="Gravatar" src="http://www.gravatar.com/avatar.php?gravatar_id=44abd28b722d48dbfe54341560917f7c&default=http%3A%2F%2Fec1.images-amazon.com%2Fimages%2FG%2F01%2Fx-locale%2Fcommon%2Ftransparent-pixel.gif&rating=PG&size=28" /> John Stark--many of the readers and contributors are not specialist's in the field-read some of the previous explainatory posts, they're still on the site.





What is happening is that financial instituions no longer trust the solvency of other institutions and are conserving their own money for their own problems. As a result higher returns are required on loaned money and some of the credit markets are locking up.





No more money to lend, or much more expensive money.


Neal | 12.13.07 - 1:17 pm | <a title="Link to this comment" href="http://www.haloscan.com/comments/calculatedrisk/3789623034575456688/#365044">#</a> </p>

<p>John Stark --





Suppose you run a business with $10 million in assets. Only assume most of those assets are manufacturing equipment, accounts receivable (i.e., money you are owed but have not yet been paid), and so forth... Not cash.





Now it's mid-month and time to pay your employees. The typical employee is not expecting to get paid with a lien on a lathe, or an IOU payable when your customers pay... The typical employee wants cash.





Now, you could sell some of your manufacturing equipment. But it's all in use; business is good!





So you head to the capital markets and say, look, I just need a 30-day loan so I can make payroll. I have all these great customers who will pay me later this month, plus worst-case I have all this equipment as collateral, so I am a very very safe risk. What interest rate will you give me?





Well, the market where you do that is called the Commercial Paper market, and it is -- er, was -- a $2 trillion market. The interest rate you can get is almost as low as a savings account or a Treasury bill would pay. That's what it means to say you are a very safe risk. And money market funds all over the world will be quite happy to loan you the money for 30 days to earn a little more interest than a T-bill.





And then every month you repeat the process, because you would rather have your capital tied up in productive equipment rather than in cash. You just borrow for the next 30 days in order to repay the loan from the previous 30 days. This is called "rolling the paper".





So what's the problem?


(continued below)</p>

<p>Nemo | <a title="http://self-evident.org/" href="http://self-evident.org/">Homepage</a> | 12.13.07 - 1:19 pm | <a title="Link to this comment" href="http://www.haloscan.com/comments/calculatedrisk/3789623034575456688/#365046">#</a> </p>

<p>(continued)





Now, in recent years there has been an explosion in <strong>other</strong> kinds of commercial paper. Banks created these off-balance sheet entities called "SIVs" which buy mortgages and issue CP. So instead of CP collateralized by accounts receivable and capital equipment, this CP is collateralized by mortgages. And money market funds lapped it up, too.





Except now the MM funds are a little worried about the quality of the collateral, for some reason, so they are taking money OUT of commercial paper and plowing it into Treasury bills. That is why the yield on the <a rel="nofollow" href="http://finance.yahoo.com/q/bc?s=%5EIRX&t=1y&l=off&z=l&q=l&c=">13-week T-bill</a> has collapsed; insane amounts of money has been taken out of CP and put into "perfectly safe" Treasuries. You know, just until "this whole thing blows over". Better safe than sorry. Etc.





By some sort of "contagion" mechanism that I do not really understand (animal spirits?), this is affecting the CP market for real businesses. This is where they get their working capital to do things like, oh, make payroll. If these CP numbers continue their current trend for much longer, real companies -- not banks or brokerages or mortgage lenders, but real companies in the real world -- will have to start liquidating real assets and/or firing real people.





And this is the real problem in the entire crisis. MEW affecting consumer spending remains pure speculation, and financial firms writing down billions makes for great CNBC coverage, but commercial paper is the mechanism by which this crisis threatens the real economy, right now, today. It is by far the most important thing to monitor, IMO.


Nemo | <a title="http://self-evident.org/" href="http://self-evident.org/">Homepage</a> | 12.13.07 - 1:28 pm | <a title="Link to this comment" href="http://www.haloscan.com/comments/calculatedrisk/3789623034575456688/#365056">#</a> </p>

<p />

<p>


</p>
 
<p><a title="Permanent Link: Lending Tree sheds another 220 jobs, mostly in Irvine" rel="bookmark" href="http://mortgage.freedomblogging.com/2007/12/13/lending-tree-sheds-another-220-jobs-mostly-in-irvine/">Lending Tree sheds another 220 jobs, mostly in Irvine</a></p>

<p>http://mortgage.freedomblogging.com/2007/12/13/lending-tree-sheds-another-220-jobs-mostly-in-irvine/</p>
 
IRVINE ON THE JUICE





irvine housing was named in the just released mitchell report. long suspected, but now confirmed, irvine was injecting itself with HGH (housing growth hormones) to boost land values and sales performance. exorbitant $ per sq footages, bursting out of too-small lot sizes, were obvious signs of juicing which the public turned a blind eye toward.
 
<p><strong>Libor Fails to Drop From 7-Year High</strong>; <a target="_blank" href="http://www.bloomberg.com/apps/news?pid=20601087&sid=ao_OVjipp7mY&refer=home">Crunch Persists</a>. </p>

<p><em>Dec. 13 (Bloomberg) -- The interest rates banks charge each other for short-term loans in Europe failed to decline from the highest levels in seven years a day after central banks joined forces to break a logjam in money markets.</em></p>
 
<p><a href="http://www.ft.com/cms/s/0/dc18b864-a984-11dc-aa8b-0000779fd2ac.html">Monetary policy is out of sync</a>


</p>

<p><em>


The first argument advanced for caution is that after the exceptional housing boom, prices should be allowed to fall back towards more reasonable levels. But there is little risk that lower interest rates would arrest the adjustment of prices. Up to 60 per cent of the variation in house prices is thought to arise from supply, regulations and inventory, rather than from macro-economic factors. Rising repossessions are occurring before the economy has slowed down significantly. The US proposal to freeze mortgage rates for subprime borrowers misses the point that most repossessions happen because of unemployment or income constraint, not interest payment adjustment.</em></p>
 
You must log in or register to reply here.
Back
Top