All we need is a little leadership right now to help us fix this mess!
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
Tuesday, September 30, 2008
Monday, September 29, 2008
What is in the Bailout?
From Digital Marketing
What's in this massive bailout Congress wasted the whole weekend negotiating? We wasted our Sunday evening reading all 110 pages to find out. (If you want to do the same, click here.)Key points below:
Creation of an "Office of Financial Stability." The bailout will be run via a new government office, which henceforth will be known here and elsewhere as The Bailout Office.
"Preventing Unjust Enrichment": Treasury can't pay more for the crap assets than the banks bought them for (a horrifying possibility, given that most of the securities have already been written way down). This provision, however, doesn't apply to banks who acquired the assets via mergers or to banks in bankruptcy or conservatorship. It also means that the Treasury can and will pay far more than market value for this garbage (and, thus, go against the advice of Warren Buffett and Bill Gross, among others, who recommend paying market prices).
Includes the silly "insurance" option the GOP insisted on--whereby the banks pay the government a fee to guarantee the performance of the toxic securities and then sells them to private-market buyers. The banks won't use the option because the payments would be onerous, and Paulson won't use it because he hates it. Go, GOP!
The Treasury is supposed to consider a bunch of factors when making its decisions, including:
Limiting how much the taxpayer gets screwed
Not wasting money buying assets from banks that will croak anyway
Save jobs, life savings, house values, etc
Try to save small banks that got blown up by Fannie/Freddie collapse
Protect retirement savings by buying the crap assets of pension funds, too
Oversight: Must report back to Congress after 60 days and then every 30 days thereafter. Must send Congress a report after every $50 billion spent.
Helping homeowners. Must try to work with homeowners to modify loans if/when appropriate to avoid foreclosure. Must encourage mortgage servicers to try not to boot people out of houses, instead working on ways to avoid foreclosures (toothless provision).
Executive compensation at bailed-out companies. Toothless: The plan ostensibly prohibits golden parachute payments to CEOs and other "C-level" execs at bailed-out companies. However, it really only prevents payments on severance deals that are struck AFTER the bailout (specifically, it prohibits these deals completely). There is nothing about cancelling the severance payments that the executives are ALREADY contractually entitled to. What this means in practice is that bailed-out companies will have trouble hiring the best talent...because why would you work at Bailed Out Company A when you could go across the street and get a fat severance deal? It also doesn't mean the companies can't pay their CEOs $500 million a year. IN ADDITION: There's another absurd section that makes all compensation above $500,000 for the three highest paid employees at the company not tax-deductible for the company. This is LUDICROUS. It means the company can pay the executives anything it wants and that the penalty for this will be exacted on the company and its shareholders. (Unless we're mistaken, Americans are furious that CEOs make $50 million a year for running companies into the ground, not that the $50 million is tax deductible).
The Treasury has complete discretion over the prices it pays for crap assets (the most important provision in the whole document as far as the taxpayers are concerned). "The Secretary make such purchases at the lowest price that the Secretary determines to be consistent with the purposes of this Act." Translation: If the banks persuade me they won't sell for anything less than a sweetheart price, I can give them that price. The only good news: The Treasury has to publicly detail the prices it pays. So if the Treasury is paying grossly inflated prices, the taxpayer has a chance of finding out about it.
Equity/warrants: The Treasury MUST be granted warrants or debt instruments (senior debt) from public companies in exchange for more than $100 million of bailout money. No specific language on how significant this warrant or debt position must be, except that it must "provide for reasonable participation by the Secretary, for the benefit of taxpayers, in equity appreciation in the case of a warrant, or a reasonable interest rate premium, in the case of a debt instrument." AND...must provide additional protection against taxpayer losses. This is an important and just provision. The tension will be between the government wanting to take enough equity to offset the risk without scaring the bank away.
Size: Treasury gets $250 billion now, and another $100 billion when the President tells Congress it is needed (i.e., now). If $350 billion isn't sufficient, the President can tell Congress he/she is authorizing another $350 billion, at which point Congress can issue a "joint resolution" to block it. In other words, the default amount is $700 billion, and Congress could conceivably block the second $350 billion (the rules for blocking it are complex and doing so wouldn't be a cinch).
Ability to stop the madness. Congress can seek a preliminary or permanent injunction from a court to stop the program.
TIME LIMIT: The authority under the plan lasts until the end of 2009. Congress can then extend for another nine months or so (max 2 years from the date of signing).
Oversight: A bunch of oversight provisions, including appointment of Special Inspector General.
VERY STRANGE AND POSSIBLY ALARMING: The SEC has the ability to suspend mark-to-market accounting for financial institutions when it thinks doing so is in the public interest. The SEC will also be launching a "study" of mark-to-market accounting. Mark-to-market has been fingered as one of the villains in this collapse. It isn't, but it sounds as though the SEC may have been persuaded that it is. Without mark-to-market, there's a lot more risk of a Japan-type scenario, where banks live in denial for years about how far up the creek they are.
Financial industry might have to pay for any taxpayer losses--emphasis on "might." Upon the expiration of the 5-year period beginning upon the date of the enactment of this Act...the President shall submit a legislative proposal that recoups from the financial industry an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program does not add to the deficit or national debt.
The good news: We didn't see any language about profits from the program being funneled into Democrat shell companies or other earmarks that were in an earlier draft. But it's possible we missed them. Full bailout coverage at Clusterstock.
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
What's in this massive bailout Congress wasted the whole weekend negotiating? We wasted our Sunday evening reading all 110 pages to find out. (If you want to do the same, click here.)Key points below:
Creation of an "Office of Financial Stability." The bailout will be run via a new government office, which henceforth will be known here and elsewhere as The Bailout Office.
"Preventing Unjust Enrichment": Treasury can't pay more for the crap assets than the banks bought them for (a horrifying possibility, given that most of the securities have already been written way down). This provision, however, doesn't apply to banks who acquired the assets via mergers or to banks in bankruptcy or conservatorship. It also means that the Treasury can and will pay far more than market value for this garbage (and, thus, go against the advice of Warren Buffett and Bill Gross, among others, who recommend paying market prices).
Includes the silly "insurance" option the GOP insisted on--whereby the banks pay the government a fee to guarantee the performance of the toxic securities and then sells them to private-market buyers. The banks won't use the option because the payments would be onerous, and Paulson won't use it because he hates it. Go, GOP!
The Treasury is supposed to consider a bunch of factors when making its decisions, including:
Limiting how much the taxpayer gets screwed
Not wasting money buying assets from banks that will croak anyway
Save jobs, life savings, house values, etc
Try to save small banks that got blown up by Fannie/Freddie collapse
Protect retirement savings by buying the crap assets of pension funds, too
Oversight: Must report back to Congress after 60 days and then every 30 days thereafter. Must send Congress a report after every $50 billion spent.
Helping homeowners. Must try to work with homeowners to modify loans if/when appropriate to avoid foreclosure. Must encourage mortgage servicers to try not to boot people out of houses, instead working on ways to avoid foreclosures (toothless provision).
Executive compensation at bailed-out companies. Toothless: The plan ostensibly prohibits golden parachute payments to CEOs and other "C-level" execs at bailed-out companies. However, it really only prevents payments on severance deals that are struck AFTER the bailout (specifically, it prohibits these deals completely). There is nothing about cancelling the severance payments that the executives are ALREADY contractually entitled to. What this means in practice is that bailed-out companies will have trouble hiring the best talent...because why would you work at Bailed Out Company A when you could go across the street and get a fat severance deal? It also doesn't mean the companies can't pay their CEOs $500 million a year. IN ADDITION: There's another absurd section that makes all compensation above $500,000 for the three highest paid employees at the company not tax-deductible for the company. This is LUDICROUS. It means the company can pay the executives anything it wants and that the penalty for this will be exacted on the company and its shareholders. (Unless we're mistaken, Americans are furious that CEOs make $50 million a year for running companies into the ground, not that the $50 million is tax deductible).
The Treasury has complete discretion over the prices it pays for crap assets (the most important provision in the whole document as far as the taxpayers are concerned). "The Secretary make such purchases at the lowest price that the Secretary determines to be consistent with the purposes of this Act." Translation: If the banks persuade me they won't sell for anything less than a sweetheart price, I can give them that price. The only good news: The Treasury has to publicly detail the prices it pays. So if the Treasury is paying grossly inflated prices, the taxpayer has a chance of finding out about it.
Equity/warrants: The Treasury MUST be granted warrants or debt instruments (senior debt) from public companies in exchange for more than $100 million of bailout money. No specific language on how significant this warrant or debt position must be, except that it must "provide for reasonable participation by the Secretary, for the benefit of taxpayers, in equity appreciation in the case of a warrant, or a reasonable interest rate premium, in the case of a debt instrument." AND...must provide additional protection against taxpayer losses. This is an important and just provision. The tension will be between the government wanting to take enough equity to offset the risk without scaring the bank away.
Size: Treasury gets $250 billion now, and another $100 billion when the President tells Congress it is needed (i.e., now). If $350 billion isn't sufficient, the President can tell Congress he/she is authorizing another $350 billion, at which point Congress can issue a "joint resolution" to block it. In other words, the default amount is $700 billion, and Congress could conceivably block the second $350 billion (the rules for blocking it are complex and doing so wouldn't be a cinch).
Ability to stop the madness. Congress can seek a preliminary or permanent injunction from a court to stop the program.
TIME LIMIT: The authority under the plan lasts until the end of 2009. Congress can then extend for another nine months or so (max 2 years from the date of signing).
Oversight: A bunch of oversight provisions, including appointment of Special Inspector General.
VERY STRANGE AND POSSIBLY ALARMING: The SEC has the ability to suspend mark-to-market accounting for financial institutions when it thinks doing so is in the public interest. The SEC will also be launching a "study" of mark-to-market accounting. Mark-to-market has been fingered as one of the villains in this collapse. It isn't, but it sounds as though the SEC may have been persuaded that it is. Without mark-to-market, there's a lot more risk of a Japan-type scenario, where banks live in denial for years about how far up the creek they are.
Financial industry might have to pay for any taxpayer losses--emphasis on "might." Upon the expiration of the 5-year period beginning upon the date of the enactment of this Act...the President shall submit a legislative proposal that recoups from the financial industry an amount equal to the shortfall in order to ensure that the Troubled Asset Relief Program does not add to the deficit or national debt.
The good news: We didn't see any language about profits from the program being funneled into Democrat shell companies or other earmarks that were in an earlier draft. But it's possible we missed them. Full bailout coverage at Clusterstock.
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
Wachovia
They are toast. Citigroup is acquiring subordinated debt.
The FDIC says this is not a failure. ok.
The bid is currently .99 cents.
Another one bites the dust.
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
The FDIC says this is not a failure. ok.
The bid is currently .99 cents.
Another one bites the dust.
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
Risk is High!
Risk is VERY high in the stock market and the credit market is frozen as we start this very important week. If the Congress gets to political and stalls out passing a bailout bill you will see more large banking institutions fail and a panic could start. That is how dire the current situation is right now. This is no joke.
The Asian markets are down and the futures of the stock market are down. The main technical indicator I follow, The NYSE Bullish Percent, has switched to "Defense" on Friday. If Congress stalls and/or passes a poorly conceived Bailout Bill the Dow Jones could drop a couple thousand points. It is conceivable that the DOW could fall back to 7000-8000 if this Bailout Bill gets stalled out in Congress. Not only would we have a huge correction in the stock market but major run on banks all over the world.
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
The Asian markets are down and the futures of the stock market are down. The main technical indicator I follow, The NYSE Bullish Percent, has switched to "Defense" on Friday. If Congress stalls and/or passes a poorly conceived Bailout Bill the Dow Jones could drop a couple thousand points. It is conceivable that the DOW could fall back to 7000-8000 if this Bailout Bill gets stalled out in Congress. Not only would we have a huge correction in the stock market but major run on banks all over the world.
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
Sunday, September 28, 2008
Pray for America!
This coming week may be the most important week in the U.S./Global economy EVER. There has been a ton of press and comments regarding the $700 Billion Bailout proposed by Henry Paulson. Unfortunately, most Americans, which includes our President and Congress, do not have a true understanding of the complicated issues regarding the current Credit Crisis and what lies ahead.
Let me state that I am for much LESS government and will probably vote Libertarian in the next election due to my disappointment in the Republicans and Democrats. However, these are the two parties in power and they need to make a decision very soon. What irritates me is the lack of leadership among our president, Congressmen and Senators regarding this crisis. This is NOT a time to play politics when the existance and functionality of the economy is at stake.
I am in shock that there was never an emergency economic summit called for months ago when we knew the credit markets and U.S. Banking system were in trouble. I am not privy to what has been going on behind the scenes in NY and DC but it appears that Paulson put together a Bailout plan at the last minute for Congress to vote on. Well the trend in DC is that "Decisions made in haste, normally turn to waste."
According to an article by Brad Setser the reason behind the rush to pass this bill is:
Brad Setser has a fascinating insight to offer in his newest post, Extraordinary Times:
In the last two weeks — if I am reading the Federal Reserves’ balance sheet data correctly — the Fed has:
Increased “other loans” to the financial system by around $230 billion (from $23.56b to $262.34b)
Increased its “other assets” by about $80b (from $98.67b to $183.89b)
Increased the securities it lends out to dealers by $60b (from $117.3b to $190.5b)
That works out to the provision of something like $370b of credit to the financial system in a two week period. And that is just what I saw on a cursory glance.
The most that the IMF ever lent out to cash strapped emerging economies in a year?
$30b, in the four quarters through September 1998 (i.e. the peak of the 97-98 crisis).
The most the IMF ever lend out over two years?
$40b, in the eight quarters through June 2003 (this covered crises in Argentina, Brazil, Uruguay and Turkey)
This is a very real crisis. The Fed’s balance tells a story of extraordinary stress. I never would have expected to see the Fed lent out these kinds of sums over such a short-period.
The major problem occuring right now that has banks dropping like flies is the credit market. The refusal to try and come up with a solution to fix the credit market will lead us down a road to Financial Armageddon that would make the Great Depression look like Child's Play. Not passing a well thought out bill will shut down the credit markets which would shut down the ENTIRE economy and take us back to the stone ages. This is not where we want to go when we are currently living and functioning in the 21st century.
The major problems our credit markets are experiencing right now are:
#1. London Interbank Offered Rates (LIBOR, for short) are surging. For instance, three-month U.S. LIBOR jumped 29 basis points (0.29 percentage points) today after rising 27 basis points yesterday. At 3.77%, LIBOR is well above the federal funds rate of 2%.
These are the rates at which banks lend short-term money to each other. The surge in rates shows that banks are hoarding cash, rather than lending it out.
#2. The yield on the 3-month Treasury Bill is plunging — to as little as 0.46% this week from 1.66% two weeks ago. This is the lowest T-Bill rates have been since at least 1954. This shows that investors are fleeing any and all forms of risk, pursuing safety above all else.
#3. A major U.S. money market fund — the Reserve Primary Fund — recently "broke the buck." In other words, losses on Lehman debt forced its net asset value below the $1 level.
#4. The TED spread — the difference between the yield on three-month Treasury bills and three-month LIBOR rates — blew out to 326 basis points. That's the highest level I can find, and my Bloomberg data goes back to 1984. Think of this as a risk spread — how much riskier financial institutions think it is to lend money to each other rather than the U.S. government. The fact it's off the charts speaks volumes.
#5. Two-year swap spreads have exploded, hitting 166 basis points at one point this week. This is the highest level in at least a couple of decades. And it's yet ANOTHER sign that financial market players are panicking over the credit quality of their counterparties and the possibility of a full-scale meltdown.
The trillion dollar question is will this Bailout work? My answer is I am not sure and I am concerned. This credit bubble has been building for a long time and so much unneccessary risk has been taken by so many companies and consumers that it is going to continue to be painful and tough for the economy to adjust to the shocks of develeraging that are occuring each day.
Even though I am a huge proponent of the free market system I believe some sort of bailout needs to occur in order to prevent the credit market from completely seizing up. Doing nothing is NOT the answer and would be catostrophic to the global economy. My wish is that the brightest minds from the private sector had been brought in earlier to develope the framework of a bailout that would not have cost the taxpayers so much money. I can not understand why a bailout that utilizes the free markets in a more efficient manner was not proposed instead of relying on the goverment to try and place a $700 billion band aid as our credit market is about to bleed to death.
The REAL problem right now is the mountain of derivatives that could collapse. Here are some essential facts that would make this scenario a REAL Nightmare on Wall Street and Main Street.
* The amounts are absurdly large. The total "notional," or face value, of derivatives held by U.S. banks is $180 trillion, and it's three times that much globally. This figure is said to overstate the actual market risk. But it does not overstate the risk of defaults such as those that could be triggered by the failure of a company the size of Lehman Brothers.
* Over 90% of all derivatives are traded outside of regulated exchanges. Consequently, other than very general information, the authorities have no mechanism for keeping track — let alone efficiently cleaning up the mess in the wake of a giant failure.
* Off the balance sheets. Some companies report nothing more than the total value of their derivatives in footnotes to their financial statements. Others don't report at all. Consequently, the actual risk, amounts and even the very existence of derivatives is often poorly disclosed to investors.
* Disclosure in the brokerage industry is especially bad. Many brokerages are private and do not disclose more than their rank and serial number. The SEC collects sparse data and does not publish it. So if you want to figure out how much derivates risk your broker is exposed to, good luck! Getting the information can be like pulling teeth.
* Concentrated in the hands of five major players. Nearly 97% of all U.S. bank-held derivatives are concentrated in the hands of just five major U.S. banks — JPMorgan Chase, Citibank, Bank of America, Wachovia and HSBC.
* Far larger than assets. As you can see in the chart to the left, the pile-up of derivatives greatly exceeds the total assets of the firms. At the same time, in most cases, the default risk related to these holdings greatly exceed the banks' capital.
* Big brokers are also loaded with derivatives. Merrill Lynch has $4.2 trillion. Morgan Stanley has $7.1 trillion. As best we can determine, Lehman Brothers has significantly less — $729 billion. But in proportion to its dwindling capital, its exposure seems to be among the worst.
Source:Money and Markets
I could write much more on this subject but I want everyone to just pray that the leaders responsible for developing and passing this bill use their best judgement for the country and not themselves so we avoid an economic catastrophe of biblical proportions.
God Bless America!
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
Let me state that I am for much LESS government and will probably vote Libertarian in the next election due to my disappointment in the Republicans and Democrats. However, these are the two parties in power and they need to make a decision very soon. What irritates me is the lack of leadership among our president, Congressmen and Senators regarding this crisis. This is NOT a time to play politics when the existance and functionality of the economy is at stake.
I am in shock that there was never an emergency economic summit called for months ago when we knew the credit markets and U.S. Banking system were in trouble. I am not privy to what has been going on behind the scenes in NY and DC but it appears that Paulson put together a Bailout plan at the last minute for Congress to vote on. Well the trend in DC is that "Decisions made in haste, normally turn to waste."
According to an article by Brad Setser the reason behind the rush to pass this bill is:
Brad Setser has a fascinating insight to offer in his newest post, Extraordinary Times:
In the last two weeks — if I am reading the Federal Reserves’ balance sheet data correctly — the Fed has:
Increased “other loans” to the financial system by around $230 billion (from $23.56b to $262.34b)
Increased its “other assets” by about $80b (from $98.67b to $183.89b)
Increased the securities it lends out to dealers by $60b (from $117.3b to $190.5b)
That works out to the provision of something like $370b of credit to the financial system in a two week period. And that is just what I saw on a cursory glance.
The most that the IMF ever lent out to cash strapped emerging economies in a year?
$30b, in the four quarters through September 1998 (i.e. the peak of the 97-98 crisis).
The most the IMF ever lend out over two years?
$40b, in the eight quarters through June 2003 (this covered crises in Argentina, Brazil, Uruguay and Turkey)
This is a very real crisis. The Fed’s balance tells a story of extraordinary stress. I never would have expected to see the Fed lent out these kinds of sums over such a short-period.
The major problem occuring right now that has banks dropping like flies is the credit market. The refusal to try and come up with a solution to fix the credit market will lead us down a road to Financial Armageddon that would make the Great Depression look like Child's Play. Not passing a well thought out bill will shut down the credit markets which would shut down the ENTIRE economy and take us back to the stone ages. This is not where we want to go when we are currently living and functioning in the 21st century.
The major problems our credit markets are experiencing right now are:
#1. London Interbank Offered Rates (LIBOR, for short) are surging. For instance, three-month U.S. LIBOR jumped 29 basis points (0.29 percentage points) today after rising 27 basis points yesterday. At 3.77%, LIBOR is well above the federal funds rate of 2%.
These are the rates at which banks lend short-term money to each other. The surge in rates shows that banks are hoarding cash, rather than lending it out.
#2. The yield on the 3-month Treasury Bill is plunging — to as little as 0.46% this week from 1.66% two weeks ago. This is the lowest T-Bill rates have been since at least 1954. This shows that investors are fleeing any and all forms of risk, pursuing safety above all else.
#3. A major U.S. money market fund — the Reserve Primary Fund — recently "broke the buck." In other words, losses on Lehman debt forced its net asset value below the $1 level.
#4. The TED spread — the difference between the yield on three-month Treasury bills and three-month LIBOR rates — blew out to 326 basis points. That's the highest level I can find, and my Bloomberg data goes back to 1984. Think of this as a risk spread — how much riskier financial institutions think it is to lend money to each other rather than the U.S. government. The fact it's off the charts speaks volumes.
#5. Two-year swap spreads have exploded, hitting 166 basis points at one point this week. This is the highest level in at least a couple of decades. And it's yet ANOTHER sign that financial market players are panicking over the credit quality of their counterparties and the possibility of a full-scale meltdown.
The trillion dollar question is will this Bailout work? My answer is I am not sure and I am concerned. This credit bubble has been building for a long time and so much unneccessary risk has been taken by so many companies and consumers that it is going to continue to be painful and tough for the economy to adjust to the shocks of develeraging that are occuring each day.
Even though I am a huge proponent of the free market system I believe some sort of bailout needs to occur in order to prevent the credit market from completely seizing up. Doing nothing is NOT the answer and would be catostrophic to the global economy. My wish is that the brightest minds from the private sector had been brought in earlier to develope the framework of a bailout that would not have cost the taxpayers so much money. I can not understand why a bailout that utilizes the free markets in a more efficient manner was not proposed instead of relying on the goverment to try and place a $700 billion band aid as our credit market is about to bleed to death.
The REAL problem right now is the mountain of derivatives that could collapse. Here are some essential facts that would make this scenario a REAL Nightmare on Wall Street and Main Street.
* The amounts are absurdly large. The total "notional," or face value, of derivatives held by U.S. banks is $180 trillion, and it's three times that much globally. This figure is said to overstate the actual market risk. But it does not overstate the risk of defaults such as those that could be triggered by the failure of a company the size of Lehman Brothers.
* Over 90% of all derivatives are traded outside of regulated exchanges. Consequently, other than very general information, the authorities have no mechanism for keeping track — let alone efficiently cleaning up the mess in the wake of a giant failure.
* Off the balance sheets. Some companies report nothing more than the total value of their derivatives in footnotes to their financial statements. Others don't report at all. Consequently, the actual risk, amounts and even the very existence of derivatives is often poorly disclosed to investors.
* Disclosure in the brokerage industry is especially bad. Many brokerages are private and do not disclose more than their rank and serial number. The SEC collects sparse data and does not publish it. So if you want to figure out how much derivates risk your broker is exposed to, good luck! Getting the information can be like pulling teeth.
* Concentrated in the hands of five major players. Nearly 97% of all U.S. bank-held derivatives are concentrated in the hands of just five major U.S. banks — JPMorgan Chase, Citibank, Bank of America, Wachovia and HSBC.
* Far larger than assets. As you can see in the chart to the left, the pile-up of derivatives greatly exceeds the total assets of the firms. At the same time, in most cases, the default risk related to these holdings greatly exceed the banks' capital.
* Big brokers are also loaded with derivatives. Merrill Lynch has $4.2 trillion. Morgan Stanley has $7.1 trillion. As best we can determine, Lehman Brothers has significantly less — $729 billion. But in proportion to its dwindling capital, its exposure seems to be among the worst.
Source:Money and Markets
I could write much more on this subject but I want everyone to just pray that the leaders responsible for developing and passing this bill use their best judgement for the country and not themselves so we avoid an economic catastrophe of biblical proportions.
God Bless America!
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
Trendocracy Makes the Top 20!
I did not realize it until yesterday that this blog has made the Top 20 for Economics blogs on the internet according to www.26econ.com. Kind of cool considering I have only been blogging for 2 years. I also do not blog that often because it is not my full time job. I hope to increase the blogging with some good info in the future so I can crack the Top 10. Thanks to all who read Trendocracy!
BTW, I am in front of that irritating liberal economist Robert Reich who used to work for the Clinton Administration. BBBBBBoooyah!
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
BTW, I am in front of that irritating liberal economist Robert Reich who used to work for the Clinton Administration. BBBBBBoooyah!
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
Saturday, September 27, 2008
August 2008 US Foreclosure Report
FORECLOSURE ACTIVITY INCREASES 12 PERCENT IN AUGUST
ACCORDING TO REALTYTRAC® U.S. FORECLOSURE MARKET REPORT
Activity Up 27 Percent From August 2007
IRVINE, Calif. – Sept. 12, 2008 – RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its August 2008 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 303,879 U.S. properties during the month, a 12 percent increase from the previous month and a 27 percent increase from August 2007. The report also shows one in every 416 U.S. households received a foreclosure filing during the month.
RealtyTrac publishes the largest and most comprehensive national database of foreclosure and bank-owned properties, with over 1.5 million properties from over 2,200 counties across the country, and is the foreclosure data provider to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal.
“In August the total number of U.S. properties that received foreclosure filings as well as the national foreclosure rate were both the highest we’ve seen in any month since we began issuing our report in January 2005; however, the annual increase of 27 percent was actually substantially lower than in previous months this year, when it was hovering around 50 to 65 percent,” said James J. Saccacio, chief executive officer of RealtyTrac. “The lower annual percentage increase this month is due to a big spike in activity last August — particularly in default activity. Over the past few months we’ve seen annual increases in default activity and auction activity moderating, and that trend continued in August, with default activity up just 10 percent from a year ago and auction activity up 7 percent from a year ago.
“The increases in default and auction activity could be slowing down partly as the result of new legislation passed in several states that is designed to give homeowners in distress more time before foreclosure proceedings are initiated. In addition, some lenders are adopting loan servicing guidelines that encourage more pro-active approaches to helping homeowners avoid foreclosure. The question now is whether these measures will actually reduce foreclosures or simply cause a temporary lull in foreclosure activity.”
Nevada, California, Arizona post top state foreclosure rates
With one in every 91 households receiving a foreclosure filing in August, Nevada continued to document the nation’s highest state foreclosure rate for the 20th consecutive month. Foreclosure filings were reported on 11,706 Nevada properties, a 16 percent increase from the previous month and an 89 percent increase from August 2007.
California continued to document the nation’s second highest state foreclosure rate, with one in every 130 households receiving a foreclosure filing in August, and Arizona registered the third highest state foreclosure rate, with one in every 182 households receiving a foreclosure filing during the month.
Other states with foreclosure rates ranking among the top 10 were Florida, Michigan, Georgia, Ohio, Colorado, Illinois and Indiana. Michigan, Georgia, Ohio and Colorado all reported annual decreases in foreclosure activity.
California accounts for one-third of U.S. foreclosure activity
Foreclosure filings were reported on 101,724 California properties in August, one-third of the national total and the most of any state. The state’s foreclosure activity increased more than 40 percent from the previous month and more than 75 percent from August 2007.
Florida posted the second highest total in August, with foreclosure filings reported on 44,000 properties during the month — a 4 percent decrease from the previous month but still up nearly 30 percent from August 2007. One in every 194 Florida properties received a foreclosure filing in August, the nation’s fourth highest state foreclosure rate.
Foreclosure filings were reported on 14,333 Arizona properties in August, the nation’s third highest state total. Arizona foreclosure activity was up 7 percent from the previous month and nearly 63 percent from August 2007.
California, Florida and Arizona together accounted for more than half of the nation’s foreclosure activity.
Despite a nearly 13 percent annual decrease in foreclosure activity, Michigan documented the nation’s fourth highest state foreclosure total in August, with foreclosure filings reported on 13,605 properties during the month.
Other states with total properties with foreclosure filings among the 10 highest were Nevada, Ohio, Texas, Illinois, Georgia and New Jersey.
California cities dominate top metro foreclosure rates
California cities accounted for eight of the top 10 metro foreclosure rates out of the 230 metro areas tracked in the August report. Stockton was No. 1, with one in every 50 households receiving a foreclosure filing during the month, followed by Merced, Modesto, Vallejo-Fairfield and Riverside-San Bernardino in the Nos. 2 to 5 spots. Other California cities in the top 10 were Bakersfield, Salinas-Monterey and Sacramento in the Nos. 8 to 10 spots.
The Cape Coral-Fort Myers, Fla., metro area dropped from the top spot in the metro foreclosure rate rankings in July to No. 6 in August thanks in part to a 3 percent dip in foreclosure activity. One in every 66 Cape Coral-Fort Myers households received a foreclosure filing in August, more than six times the national average.
Las Vegas registered the seventh highest metro foreclosure rate in August, with one in every 75 households receiving a foreclosure filing during the month. The metro area’s foreclosure activity was up nearly 14 percent from the previous month and 83 percent from August 2007.
Report methodology
The RealtyTrac Monthly U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing reported during the month — broken out by type of filing at the state and national level. Data is also available at the individual county level. RealtyTrac’s report incorporates documents filed in all three phases of foreclosure: Default — Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). If more than one foreclosure document is filed against a property during the month — which is extremely rare — only the most recent filing is counted in the report. The report also checks if the same type of document was filed against a property in a previous month. If so, and if that previous filing occurred within the estimated foreclosure timeframe for the state the property is in, the report does not count the property in the current month.
U.S. Foreclosure Market Data by State – August 2008
About RealtyTrac Inc.
Ranked as the third largest real estate site by MediaMetrix and No. 53 on Inc. magazine’s 2006 Inc. 500 list of the nation’s fastest-growing private companies, RealtyTrac Inc. (www.realtytrac.com), is the leading online marketplace for foreclosure properties, providing all the resources that home seekers, investors and real estate agents need to locate, evaluate and buy properties below market value.
Founded in 1996, RealtyTrac publishes the largest and most comprehensive national database of pre-foreclosure, foreclosure, For Sale By Owner, resale and new homes, with more than 1 million properties across the country, property reports, productivity tools and extensive professional resources. RealtyTrac hosts nearly 3 million unique visitors monthly and has been chosen to supply foreclosure data to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal. For current news and information regarding foreclosure-related issues
For surety bond
information contact BryantSurety.com
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
ACCORDING TO REALTYTRAC® U.S. FORECLOSURE MARKET REPORT
Activity Up 27 Percent From August 2007
IRVINE, Calif. – Sept. 12, 2008 – RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its August 2008 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 303,879 U.S. properties during the month, a 12 percent increase from the previous month and a 27 percent increase from August 2007. The report also shows one in every 416 U.S. households received a foreclosure filing during the month.
RealtyTrac publishes the largest and most comprehensive national database of foreclosure and bank-owned properties, with over 1.5 million properties from over 2,200 counties across the country, and is the foreclosure data provider to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal.
“In August the total number of U.S. properties that received foreclosure filings as well as the national foreclosure rate were both the highest we’ve seen in any month since we began issuing our report in January 2005; however, the annual increase of 27 percent was actually substantially lower than in previous months this year, when it was hovering around 50 to 65 percent,” said James J. Saccacio, chief executive officer of RealtyTrac. “The lower annual percentage increase this month is due to a big spike in activity last August — particularly in default activity. Over the past few months we’ve seen annual increases in default activity and auction activity moderating, and that trend continued in August, with default activity up just 10 percent from a year ago and auction activity up 7 percent from a year ago.
“The increases in default and auction activity could be slowing down partly as the result of new legislation passed in several states that is designed to give homeowners in distress more time before foreclosure proceedings are initiated. In addition, some lenders are adopting loan servicing guidelines that encourage more pro-active approaches to helping homeowners avoid foreclosure. The question now is whether these measures will actually reduce foreclosures or simply cause a temporary lull in foreclosure activity.”
Nevada, California, Arizona post top state foreclosure rates
With one in every 91 households receiving a foreclosure filing in August, Nevada continued to document the nation’s highest state foreclosure rate for the 20th consecutive month. Foreclosure filings were reported on 11,706 Nevada properties, a 16 percent increase from the previous month and an 89 percent increase from August 2007.
California continued to document the nation’s second highest state foreclosure rate, with one in every 130 households receiving a foreclosure filing in August, and Arizona registered the third highest state foreclosure rate, with one in every 182 households receiving a foreclosure filing during the month.
Other states with foreclosure rates ranking among the top 10 were Florida, Michigan, Georgia, Ohio, Colorado, Illinois and Indiana. Michigan, Georgia, Ohio and Colorado all reported annual decreases in foreclosure activity.
California accounts for one-third of U.S. foreclosure activity
Foreclosure filings were reported on 101,724 California properties in August, one-third of the national total and the most of any state. The state’s foreclosure activity increased more than 40 percent from the previous month and more than 75 percent from August 2007.
Florida posted the second highest total in August, with foreclosure filings reported on 44,000 properties during the month — a 4 percent decrease from the previous month but still up nearly 30 percent from August 2007. One in every 194 Florida properties received a foreclosure filing in August, the nation’s fourth highest state foreclosure rate.
Foreclosure filings were reported on 14,333 Arizona properties in August, the nation’s third highest state total. Arizona foreclosure activity was up 7 percent from the previous month and nearly 63 percent from August 2007.
California, Florida and Arizona together accounted for more than half of the nation’s foreclosure activity.
Despite a nearly 13 percent annual decrease in foreclosure activity, Michigan documented the nation’s fourth highest state foreclosure total in August, with foreclosure filings reported on 13,605 properties during the month.
Other states with total properties with foreclosure filings among the 10 highest were Nevada, Ohio, Texas, Illinois, Georgia and New Jersey.
California cities dominate top metro foreclosure rates
California cities accounted for eight of the top 10 metro foreclosure rates out of the 230 metro areas tracked in the August report. Stockton was No. 1, with one in every 50 households receiving a foreclosure filing during the month, followed by Merced, Modesto, Vallejo-Fairfield and Riverside-San Bernardino in the Nos. 2 to 5 spots. Other California cities in the top 10 were Bakersfield, Salinas-Monterey and Sacramento in the Nos. 8 to 10 spots.
The Cape Coral-Fort Myers, Fla., metro area dropped from the top spot in the metro foreclosure rate rankings in July to No. 6 in August thanks in part to a 3 percent dip in foreclosure activity. One in every 66 Cape Coral-Fort Myers households received a foreclosure filing in August, more than six times the national average.
Las Vegas registered the seventh highest metro foreclosure rate in August, with one in every 75 households receiving a foreclosure filing during the month. The metro area’s foreclosure activity was up nearly 14 percent from the previous month and 83 percent from August 2007.
Report methodology
The RealtyTrac Monthly U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing reported during the month — broken out by type of filing at the state and national level. Data is also available at the individual county level. RealtyTrac’s report incorporates documents filed in all three phases of foreclosure: Default — Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). If more than one foreclosure document is filed against a property during the month — which is extremely rare — only the most recent filing is counted in the report. The report also checks if the same type of document was filed against a property in a previous month. If so, and if that previous filing occurred within the estimated foreclosure timeframe for the state the property is in, the report does not count the property in the current month.
U.S. Foreclosure Market Data by State – August 2008
About RealtyTrac Inc.
Ranked as the third largest real estate site by MediaMetrix and No. 53 on Inc. magazine’s 2006 Inc. 500 list of the nation’s fastest-growing private companies, RealtyTrac Inc. (www.realtytrac.com), is the leading online marketplace for foreclosure properties, providing all the resources that home seekers, investors and real estate agents need to locate, evaluate and buy properties below market value.
Founded in 1996, RealtyTrac publishes the largest and most comprehensive national database of pre-foreclosure, foreclosure, For Sale By Owner, resale and new homes, with more than 1 million properties across the country, property reports, productivity tools and extensive professional resources. RealtyTrac hosts nearly 3 million unique visitors monthly and has been chosen to supply foreclosure data to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal. For current news and information regarding foreclosure-related issues
For surety bond
information contact BryantSurety.com
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
Charleston Market Report - September 2008
In This Issue:
New Website
Advertising
White Paper
CofC Carter Real Estate Center
Cartoons
Egos and Bailouts NOT Girls Gone Wild
CMR- Tri-County Real Estate Stats
New Website
I wanted to let everyone know that I have redesigned my website. The website I have been using the past two years had limitations so I made a switch to a more robust site which gives me more flexibility. The new website is better organized and will also allow me to add more info that will help many of you gain better visibility of the markets and I hope you enjoy it.
White Paper
The new website also has a White Paper written by Dr. James Sears regarding Park Circle.
Below is the link.
Park Circle PDF
CofC - Carter Real Esate Center
I would encourage the local professionals in Charleston to get involved with the Carter Real Estate Center. I am confident the CofC will begin producing students who enter the real estate profession and make solid contributions to the industry unlike some of the elite universities that have created the "Mad Scientists" on Wall Street. I met many subsribers at the first event and hope everyone can make the next one on Sept. 23. I look forward to hearing Vince speak about his views of real estate and development. It should be a fun and educational evening.
Cartoons
Egos and Bailouts NOT Girls Gone Wild
The way Wall Street works is that sometimes the bull wins, sometimes the bear wins, but the pigs usually get slaughtered. My wish is that some of these pigs who have temporarily ruined the financial system be sent to jail. This is wishful thinking because typically crime pays on Wall Street. Some of these pigs who should be slaughtered right now are being given a free pass out of the slaughter house courtesy of the "Invisible Hand" or shall we say UNCLE (Our government.)
The recent events of Phoney Mae, Fraudy Mac, Merrill Lynch, Lehman Brothers, Washington Mutual, AIG and the Category 5 Hurricane ripping through Wall Street are no shock to this author and many long time subscribers because I have been talking about these problems and events for the past two years. It is really hard to believe this website started two years ago!
Let us not forget what got us into this economic mess, which is Wall Street's venture into housing via the securitization of loans. The "Egos Gone Wild" and "Masters of the Universe" on Wall Street are running very scared right now. Lucky for them they have a direct line to people like Helicopter Ben Bernanke and Bazooka Henry Paulson to bail them out by printing money out of thin air. Paulson's first name should be Joe so I could call him Bazooka Joe Paulson. Maybe it is ironic that Bazooka Joe is bubble gum which can often go "POP" like the stock market and housing market right now. FYI, the reason the reference has been played out in the press is because of this statement Paulson made in July.
Paulson asked Congress for the right to use taxpayer funds to intervene - but hoped the pledge alone would be sufficient. "If you have a bazooka in your pocket and people know it, you probably won't have to use it,'' he said at a July 15 Senate Banking Committee hearing.
On Monday when these "Masters of the Universe" saw what happened to Goldman Sachs and Morgan Stanley's stocks they realized how far they pushed the envelope with their greed and stupidity that they had to "Phone a Friend" and get another bailout from UNCLE so AIG would not implode. What a bunch of Panhandlers! I am sick of this selective bailout agenda! Let them fail and let the market correct itself! Where does it end Bailout Nation??
Let's take a walk down CMR Memory Lane.
On 3/15/2008 I wrote:
Lending Bubble? I Thought it was Contained.
Folks, the scary part of this entire "Lending Bubble" is that we are only maybe halfway through it if we are lucky. Why you may ask? Because the de-leveraging process is a slow and very painful process. Here is the current tally of the worldwide bank blowup I created this chart from the Bank Implode Meter website. As of last week the total was $190 billion, with a B! The writedown mess will go over a Trillion dollars after all these institutions come clean and tell the truth what is actually on their books. It will take time since many of these companies are very good at hiding the truth and cooking the books.
So many of you are probably asking yourself, "What is the solution to this mess." The best solution I have seen was published by Caroline Baum of Bloomberg. Here is an excerpt of what she calls The Jon Galt Plan:
Galt, the hero of Ayn Rand's magnum opus "Atlas Shrugged," stops the world by going on strike. He and the "men of the mind" literally withdraw from the world after watching their wealth confiscated by the looters (the government).
Toward the end of Rand's 1,000-plus page novel(or polemic), the economy is in shambles. Desperate, the looters kidnap Galt and prod him to "tell us what to do."
Galt refuses, or rather tells them "to get out of the way."
Brilliant! Government is NOT the solution it is the problem. Isn't that normally the case, unless you are a Socialist??? Is this really a Democracy? Sometimes I wonder.
In the December 2007 Report I wrote:
The Cartoon
Take your pick as to who you feel is holding that fire hose. Some prime candidates would be the CEOs of major banks, brokerage firms, mortgage insurance firms and mortgage companies who all got caught up in securitizing mortgages on a large scale. The bank that is on fire in this cartoon could be Citibank, Wachovia, BofA, HSBC, UBS, Merrill, ETrade, Northern Rock, JP Morgan, Bear Stearns.....you get the picture.
Unfortunately, we have a banking cirisis on our hands right now. The U.S. Banking system has always been portrayed as sound and secure. Well 5 years of a severe addiction to credit, a real estate market jacked up on loose lending, and risky derivative strategies now have placed cracks in the system. The suits in these companies that "Took a Walk on the Wild Side" are now being exposed and their stock prices have been slammed. Many of these companies are already out of business and high profile CEOs such Chuck Prince from Citibank and Stan ONeil from Merrill have been told to "Hit the road Jack."
The current problems we are experiencing are larger than a subprime problem. Alt A and Prime mortgages are caught up in this "lending bubble" also. Just like I said in a previous article called Mr. Gordon Gekko You Have Credit Cancer and It Is Spreading is holding true. Unfortunately, cancer and fires spread. This "credit fire" or "credit cancer" has spread to pension funds, local muncipalities and banking institutions all over the world.
We are witnessing the breakdown of the banking system right now. Not only has residential paper been effected but commercial paper is shrinking by hundreds of billions each month right now. Sure the Fed will ease the Fed Funds Rate probably by 25bps and the Discount Rate by 50bps today but the problem is that cutting these rates will not help spur the necessary economic growth to get us out of this mess. Housing needs to turn before the economy gets back on its feet. Many high profile analysts are still calling for a 10-15% drop in housing prices before they see the real estate market taking a turn. I agree with them and the price correction needs to be higher in some markets before buyers will come to the table. Indeed, it's fair to say that the recent housing bubble was just the climax of a home price boom that began decades ago fueled by an ever-larger infusion of credit, an ever-taller mountain of debt.
I do not relish in reliving the past because I try to live in the present. Unfortunately, what is happening in the stock market and real estate market has had a direct impact on my life over the past two years. I know the feeling that many of the Lehman Brothers and Merrill Lynch employees whose jobs are toast are feeling right now. I know the feeling of uncertainty that many of the hard working people in the real estate and securities industry are experiencing right now. I was in a similar predicament two years ago and lost income due to ignorant Egos.
There are many new subscribers to this website. Those of you that are new to reading my monthly and quarterly rants must realize that I was an outspoken critic of what was going on in the lending and real estate markets when I was a local appraiser over two years ago when I made a public statement on the front page of the Post and Courier stating we were in a "Lending Bubble." Since I have an extensive background in real estate and securities many of these overlapping complicated issues our economy is dealing with right now makes sense to me. Today, I write this report with pride that I have been able to keep my independent and honest analysis of the economy, real estate and the stock market as a positive contribution to those of you who read this report each month. It is a very difficult job to put your analysis of the complicated markets in writing each month and quarter and consistently stay accurate. I am sure there are many "haters" out there waiting for me to screw up and make an inaccurate analysis so they can jump all over me. Well get in line. You may be in line a while because the research and knowledge I have gained through hard work usually puts me on the right side of the fence. You can read what I have written over the past two years if you do not believe me.
The economic problems that the US and the rest of the world are experiencing today are the direct result of a moral breakdown caused by "Egos Gone Wild."
Ego-the belief in the reality of the separated or false self, made as substitute for the Self Which God created; the thought of separation that gives rise to sin, guilt, fear, and a thought system based on specialness to protect itself; the part of the mind that believes it is separate from the Mind of Christ; this split mind has two parts: wrong- and right-mindedness; almost always used to denote " wrong-mindedness," but can include the part of the split mind that can learn to choose right-mindedness.
At many levels from Wall Street to Main Street it is this “wrong mindedness” that has taken this country into this financial moral dilema. I have witnessed it myself at the local and institutional level where greed and deceit takes over to obscure an individual of common sense and brings him or her to an individual who lives in a world of lies. So many of us bought into this real estate, Wall Street and economic Ponzi scheme that has been building for years that not only were we drinking the Kool Aid but we spiked it with Grain Alcohol and just remained drunk for years. Unfortunately if you are just sobering up today or are still drunk (which many sheeple are) it is not too late to enter a twelve step program to free your mind from the bullshit many of you are fed each and everyday by the mainstream media and others who are in your ear on a daily basis.
The eye of this storm is housing. If the default trend continues the financial losses could be more than $1 trillion inflicting severe harm to the U.S. banking system. The "Egos Gone Wild" of buyers falsifying their mortgage application, lenders allowing unqualified buyers to get loans, appraisers inflating home values, CEOs cooking their books, mortgage companies pushing exotic loans through underwriting, government refusing to perform proper oversight, Wall St. over-securitizing loans and certain real estate agents telling buyers “It’s a great time to buy” in overpriced areas have all contributed to this firestorm.
Between 1996 and 2006 home prices rose by more than 70 percent after adjusting for inflation. The collapse of the bubble could destroy approximately $8 trillion in housing wealth. The fact and truth is that real estate has been overvalued for years and the adjustment period has just begun. This author has been making this statement on this website for two years yet many people I know have been buying real estate at retail prices. Why?
What needs to happen AND will happen is what I call a reversion to the mean in real estate. Every city, sub area and subdivision will have different implications on how bad the price adjustment will be on housing. The housing market is in a vicious cycle right now because of a lack of available capital in the mortgage industry. The U.S. housing market is in a deflationary cycle that is looking more and more like Japan’s lost decade in the 1990s. This was an era for Japan that consisted of slow growth despite cheap money. Other factors that are not favoring the residential real estate market right now is that we are entering the 6 month period of slower sales due to seasonality which will place even more pressure on short sales, foreclosures and inventory. The risk in the U.S. and Global markets will place realistic fear in the mind of many potential buyers as Charleston and the rest of the country will see lower prices that will lead to more defaults and higher inventory.
The subject of Fannie Mae and Freddie Mac (Phoney and Fraudy) has been discussed at length on this website. The ramifications are we the taxpayers are all in the mortgage biz now and expect higher taxes in order to pay for the $250-300 billion loss. What you will witness in the weeks ahead is what the market looks like when they refuse to interfere with the free market system. It is my opinion that the government needs to step aside and let the markets adjust themselves. Let’s let the crap roll downhill and allow Darwinism to take place. Yes, certain companies will fail and it will be painful but these are necessary steps in an ugly part of the economic cycle. Companies that made risky bets on leverage should be punished just like a bad restaurant in New York City. There is plenty of private capital around the globe that will take advantage of an opportunity in these various sectors. These shifts that we are currently witnessing on Wall Street have happened before although this particular shift is certainly historic.
The egos of Washington DC and Wall Street need to realize UNCLE (The Government) can not save of us from every financial fiasco. When you try to plug a leak in a dam usually another one forms which is exactly what is happening right now. The only problem is that each leak that is repaired costs the taxpayer billions and then another one suddenly appears. The problem is that Phoney and Fraudy’s mortgage obligations are as big as the total amount of Treasury debt outstanding. What if Phoney Mae and Fraudy Mac drag down the U.S. Treasury? Yes it could happen which would ruin the U.S. credit rating and cause U.S. Treasury prices to collapse and yields would skyrocket. This alone would kill the real estate industry. Let’s all hope we do not live to witness this scenario but it is now a possibility because of the lack of oversight provided by the U.S. Government over the past seven years with respect to the mortgage industry. The super sized ego of Congress, The Fed, Bush Administration and Treasury Department are making decisions that are forcing the government and financial industry to destroy itself from within. I hope and pray our fearless leaders begin to see the light very quickly before this recession turns into a depression.
The takeover of Phoney/Fraudy and the impending "bridge loan" for AIG provides plenty of evidence at how broken our government and financial system are at this time. The egotistical "drug addicts" in government and the private sector need to lay off the credit (crack) and sober up. The only way for a drug addict to kick their habit is intervention by removing the drug (credit or crack) away from the addicted individual. Instead we keep allowing the "drug addicts" to keep shooting up which is destroying their minds,companies and our economy at the same time. Whatever happened to that government sponsored program "Just Say No?" How about Just Say No to Bailouts? I understand that the restructuring of Fannie and Freddie was necessary to maintain liquidity in the housing market BUT you have to change the broken business model these companies are running on or you create a bigger problem down the road. To my knowledge this has not happened. The housing sector has dodged a bullet because the mortgage rates remain at very favorable levels (if you qualify for a loan) but the demand for real estate is very low right now and quite frankly the majority of people in this country already own a home. Regardless of all the complicated issues and bankrupcies being flashed across the TV screen right now the reality is that housing brought us into this mess and it will need to take us out of this downturn. Unfortunately, I believe this will take a couple of years for this to happen.
All of these problems in the economy are NOT the end of the world. Yes, the sun will continue to come up each day and just remember that song by Gloria Gaynor "I Will Survive." I love that song! We Will Survive Hey Hey!
Lyrics
First I was afraid
I was petrified
Kept thinking I could never live
without you by my side
But I spent so many nights
thinking how you did me wrong
I grew strong
I learned how to carry on
and so you're back
from outer space
I just walked in to find you here
with that sad look upon your face
I should have changed my stupid lock
I should have made you leave your key
If I had known for just one second
you'd be back to bother me
Go on now go walk out the door
just turn around now
'cause you're not welcome anymore
weren't you the one who tried to hurt me with goodbye
you think I'd crumble
you think I'd lay down and die
Oh no, not I
I will survive
as long as i know how to love
I know I will stay alive
I've got all my life to live
I've got all my love to give
and I'll survive
I will survive
It took all the strength I had
not to fall apart
kept trying hard to mend
the pieces of my broken heart
and I spent oh so many nights
just feeling sorry for myself
I used to cry
Now I hold my head up high
and you see me
somebody new
I'm not that chained up little person
still in love with you
and so you felt like dropping in
and just expect me to be free
now I'm saving all my loving
for someone who's loving me
The government should allow the markets to repair themselves so the necessary market corrections take place on Wall Street and Main Street. If you are a bank or investment firm that is leveraged 30:1 or higher you deserve to go KAPUT because you took on too much risk! Unfortunately the top 50 banks control more than 80% of the assets. Many of the maller banks in states not crushed by the real estate downturn are in decent shape financially. Many of these local banks are going to survive this credit crunch.
In conclusion their is no need to watch the daytime soap operas right now because we have one playing out before our eyes on Wall Street. There are many more episodes left of cheating, lying, embezzlement and deceit courtesy of Egos Gone Wild.
Stay tuned!
Tri County Real Estate Stats
The MLS now provides Price per Square Foot (PSF) and you can see below that the average PSF is dropping in most segments of the market. I have seen this in many of the Market Studies I provide to builders and developers where I have to drill down much further in a certain area. The more worrisom problem we have in the local Charleston market is continuous slowdown of homesales, inventory buildup and increasing foreclosures. Since we are now entering the slow "seasonal" period of real estate, which typically lasts six months, these stats below will get worse.
The Aug. 2008 demonstrates how dead the upper end of the market is right now and only accounted for 12% of the sales. However, when you look at Condos. Townhouses and Single Family homes in the MLS the inventory of these types of properties greater than $500,000 accounts for 29% of the total inventory in the Tri-County area. This is NOT good for the sellers or the banks that own these mortgages.
Source: Charleston MLS
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
New Website
Advertising
White Paper
CofC Carter Real Estate Center
Cartoons
Egos and Bailouts NOT Girls Gone Wild
CMR- Tri-County Real Estate Stats
New Website
I wanted to let everyone know that I have redesigned my website. The website I have been using the past two years had limitations so I made a switch to a more robust site which gives me more flexibility. The new website is better organized and will also allow me to add more info that will help many of you gain better visibility of the markets and I hope you enjoy it.
White Paper
The new website also has a White Paper written by Dr. James Sears regarding Park Circle.
Below is the link.
Park Circle PDF
CofC - Carter Real Esate Center
I would encourage the local professionals in Charleston to get involved with the Carter Real Estate Center. I am confident the CofC will begin producing students who enter the real estate profession and make solid contributions to the industry unlike some of the elite universities that have created the "Mad Scientists" on Wall Street. I met many subsribers at the first event and hope everyone can make the next one on Sept. 23. I look forward to hearing Vince speak about his views of real estate and development. It should be a fun and educational evening.
Cartoons
Egos and Bailouts NOT Girls Gone Wild
The way Wall Street works is that sometimes the bull wins, sometimes the bear wins, but the pigs usually get slaughtered. My wish is that some of these pigs who have temporarily ruined the financial system be sent to jail. This is wishful thinking because typically crime pays on Wall Street. Some of these pigs who should be slaughtered right now are being given a free pass out of the slaughter house courtesy of the "Invisible Hand" or shall we say UNCLE (Our government.)
The recent events of Phoney Mae, Fraudy Mac, Merrill Lynch, Lehman Brothers, Washington Mutual, AIG and the Category 5 Hurricane ripping through Wall Street are no shock to this author and many long time subscribers because I have been talking about these problems and events for the past two years. It is really hard to believe this website started two years ago!
Let us not forget what got us into this economic mess, which is Wall Street's venture into housing via the securitization of loans. The "Egos Gone Wild" and "Masters of the Universe" on Wall Street are running very scared right now. Lucky for them they have a direct line to people like Helicopter Ben Bernanke and Bazooka Henry Paulson to bail them out by printing money out of thin air. Paulson's first name should be Joe so I could call him Bazooka Joe Paulson. Maybe it is ironic that Bazooka Joe is bubble gum which can often go "POP" like the stock market and housing market right now. FYI, the reason the reference has been played out in the press is because of this statement Paulson made in July.
Paulson asked Congress for the right to use taxpayer funds to intervene - but hoped the pledge alone would be sufficient. "If you have a bazooka in your pocket and people know it, you probably won't have to use it,'' he said at a July 15 Senate Banking Committee hearing.
On Monday when these "Masters of the Universe" saw what happened to Goldman Sachs and Morgan Stanley's stocks they realized how far they pushed the envelope with their greed and stupidity that they had to "Phone a Friend" and get another bailout from UNCLE so AIG would not implode. What a bunch of Panhandlers! I am sick of this selective bailout agenda! Let them fail and let the market correct itself! Where does it end Bailout Nation??
Let's take a walk down CMR Memory Lane.
On 3/15/2008 I wrote:
Lending Bubble? I Thought it was Contained.
Folks, the scary part of this entire "Lending Bubble" is that we are only maybe halfway through it if we are lucky. Why you may ask? Because the de-leveraging process is a slow and very painful process. Here is the current tally of the worldwide bank blowup I created this chart from the Bank Implode Meter website. As of last week the total was $190 billion, with a B! The writedown mess will go over a Trillion dollars after all these institutions come clean and tell the truth what is actually on their books. It will take time since many of these companies are very good at hiding the truth and cooking the books.
So many of you are probably asking yourself, "What is the solution to this mess." The best solution I have seen was published by Caroline Baum of Bloomberg. Here is an excerpt of what she calls The Jon Galt Plan:
Galt, the hero of Ayn Rand's magnum opus "Atlas Shrugged," stops the world by going on strike. He and the "men of the mind" literally withdraw from the world after watching their wealth confiscated by the looters (the government).
Toward the end of Rand's 1,000-plus page novel(or polemic), the economy is in shambles. Desperate, the looters kidnap Galt and prod him to "tell us what to do."
Galt refuses, or rather tells them "to get out of the way."
Brilliant! Government is NOT the solution it is the problem. Isn't that normally the case, unless you are a Socialist??? Is this really a Democracy? Sometimes I wonder.
In the December 2007 Report I wrote:
The Cartoon
Take your pick as to who you feel is holding that fire hose. Some prime candidates would be the CEOs of major banks, brokerage firms, mortgage insurance firms and mortgage companies who all got caught up in securitizing mortgages on a large scale. The bank that is on fire in this cartoon could be Citibank, Wachovia, BofA, HSBC, UBS, Merrill, ETrade, Northern Rock, JP Morgan, Bear Stearns.....you get the picture.
Unfortunately, we have a banking cirisis on our hands right now. The U.S. Banking system has always been portrayed as sound and secure. Well 5 years of a severe addiction to credit, a real estate market jacked up on loose lending, and risky derivative strategies now have placed cracks in the system. The suits in these companies that "Took a Walk on the Wild Side" are now being exposed and their stock prices have been slammed. Many of these companies are already out of business and high profile CEOs such Chuck Prince from Citibank and Stan ONeil from Merrill have been told to "Hit the road Jack."
The current problems we are experiencing are larger than a subprime problem. Alt A and Prime mortgages are caught up in this "lending bubble" also. Just like I said in a previous article called Mr. Gordon Gekko You Have Credit Cancer and It Is Spreading is holding true. Unfortunately, cancer and fires spread. This "credit fire" or "credit cancer" has spread to pension funds, local muncipalities and banking institutions all over the world.
We are witnessing the breakdown of the banking system right now. Not only has residential paper been effected but commercial paper is shrinking by hundreds of billions each month right now. Sure the Fed will ease the Fed Funds Rate probably by 25bps and the Discount Rate by 50bps today but the problem is that cutting these rates will not help spur the necessary economic growth to get us out of this mess. Housing needs to turn before the economy gets back on its feet. Many high profile analysts are still calling for a 10-15% drop in housing prices before they see the real estate market taking a turn. I agree with them and the price correction needs to be higher in some markets before buyers will come to the table. Indeed, it's fair to say that the recent housing bubble was just the climax of a home price boom that began decades ago fueled by an ever-larger infusion of credit, an ever-taller mountain of debt.
I do not relish in reliving the past because I try to live in the present. Unfortunately, what is happening in the stock market and real estate market has had a direct impact on my life over the past two years. I know the feeling that many of the Lehman Brothers and Merrill Lynch employees whose jobs are toast are feeling right now. I know the feeling of uncertainty that many of the hard working people in the real estate and securities industry are experiencing right now. I was in a similar predicament two years ago and lost income due to ignorant Egos.
There are many new subscribers to this website. Those of you that are new to reading my monthly and quarterly rants must realize that I was an outspoken critic of what was going on in the lending and real estate markets when I was a local appraiser over two years ago when I made a public statement on the front page of the Post and Courier stating we were in a "Lending Bubble." Since I have an extensive background in real estate and securities many of these overlapping complicated issues our economy is dealing with right now makes sense to me. Today, I write this report with pride that I have been able to keep my independent and honest analysis of the economy, real estate and the stock market as a positive contribution to those of you who read this report each month. It is a very difficult job to put your analysis of the complicated markets in writing each month and quarter and consistently stay accurate. I am sure there are many "haters" out there waiting for me to screw up and make an inaccurate analysis so they can jump all over me. Well get in line. You may be in line a while because the research and knowledge I have gained through hard work usually puts me on the right side of the fence. You can read what I have written over the past two years if you do not believe me.
The economic problems that the US and the rest of the world are experiencing today are the direct result of a moral breakdown caused by "Egos Gone Wild."
Ego-the belief in the reality of the separated or false self, made as substitute for the Self Which God created; the thought of separation that gives rise to sin, guilt, fear, and a thought system based on specialness to protect itself; the part of the mind that believes it is separate from the Mind of Christ; this split mind has two parts: wrong- and right-mindedness; almost always used to denote " wrong-mindedness," but can include the part of the split mind that can learn to choose right-mindedness.
At many levels from Wall Street to Main Street it is this “wrong mindedness” that has taken this country into this financial moral dilema. I have witnessed it myself at the local and institutional level where greed and deceit takes over to obscure an individual of common sense and brings him or her to an individual who lives in a world of lies. So many of us bought into this real estate, Wall Street and economic Ponzi scheme that has been building for years that not only were we drinking the Kool Aid but we spiked it with Grain Alcohol and just remained drunk for years. Unfortunately if you are just sobering up today or are still drunk (which many sheeple are) it is not too late to enter a twelve step program to free your mind from the bullshit many of you are fed each and everyday by the mainstream media and others who are in your ear on a daily basis.
The eye of this storm is housing. If the default trend continues the financial losses could be more than $1 trillion inflicting severe harm to the U.S. banking system. The "Egos Gone Wild" of buyers falsifying their mortgage application, lenders allowing unqualified buyers to get loans, appraisers inflating home values, CEOs cooking their books, mortgage companies pushing exotic loans through underwriting, government refusing to perform proper oversight, Wall St. over-securitizing loans and certain real estate agents telling buyers “It’s a great time to buy” in overpriced areas have all contributed to this firestorm.
Between 1996 and 2006 home prices rose by more than 70 percent after adjusting for inflation. The collapse of the bubble could destroy approximately $8 trillion in housing wealth. The fact and truth is that real estate has been overvalued for years and the adjustment period has just begun. This author has been making this statement on this website for two years yet many people I know have been buying real estate at retail prices. Why?
What needs to happen AND will happen is what I call a reversion to the mean in real estate. Every city, sub area and subdivision will have different implications on how bad the price adjustment will be on housing. The housing market is in a vicious cycle right now because of a lack of available capital in the mortgage industry. The U.S. housing market is in a deflationary cycle that is looking more and more like Japan’s lost decade in the 1990s. This was an era for Japan that consisted of slow growth despite cheap money. Other factors that are not favoring the residential real estate market right now is that we are entering the 6 month period of slower sales due to seasonality which will place even more pressure on short sales, foreclosures and inventory. The risk in the U.S. and Global markets will place realistic fear in the mind of many potential buyers as Charleston and the rest of the country will see lower prices that will lead to more defaults and higher inventory.
The subject of Fannie Mae and Freddie Mac (Phoney and Fraudy) has been discussed at length on this website. The ramifications are we the taxpayers are all in the mortgage biz now and expect higher taxes in order to pay for the $250-300 billion loss. What you will witness in the weeks ahead is what the market looks like when they refuse to interfere with the free market system. It is my opinion that the government needs to step aside and let the markets adjust themselves. Let’s let the crap roll downhill and allow Darwinism to take place. Yes, certain companies will fail and it will be painful but these are necessary steps in an ugly part of the economic cycle. Companies that made risky bets on leverage should be punished just like a bad restaurant in New York City. There is plenty of private capital around the globe that will take advantage of an opportunity in these various sectors. These shifts that we are currently witnessing on Wall Street have happened before although this particular shift is certainly historic.
The egos of Washington DC and Wall Street need to realize UNCLE (The Government) can not save of us from every financial fiasco. When you try to plug a leak in a dam usually another one forms which is exactly what is happening right now. The only problem is that each leak that is repaired costs the taxpayer billions and then another one suddenly appears. The problem is that Phoney and Fraudy’s mortgage obligations are as big as the total amount of Treasury debt outstanding. What if Phoney Mae and Fraudy Mac drag down the U.S. Treasury? Yes it could happen which would ruin the U.S. credit rating and cause U.S. Treasury prices to collapse and yields would skyrocket. This alone would kill the real estate industry. Let’s all hope we do not live to witness this scenario but it is now a possibility because of the lack of oversight provided by the U.S. Government over the past seven years with respect to the mortgage industry. The super sized ego of Congress, The Fed, Bush Administration and Treasury Department are making decisions that are forcing the government and financial industry to destroy itself from within. I hope and pray our fearless leaders begin to see the light very quickly before this recession turns into a depression.
The takeover of Phoney/Fraudy and the impending "bridge loan" for AIG provides plenty of evidence at how broken our government and financial system are at this time. The egotistical "drug addicts" in government and the private sector need to lay off the credit (crack) and sober up. The only way for a drug addict to kick their habit is intervention by removing the drug (credit or crack) away from the addicted individual. Instead we keep allowing the "drug addicts" to keep shooting up which is destroying their minds,companies and our economy at the same time. Whatever happened to that government sponsored program "Just Say No?" How about Just Say No to Bailouts? I understand that the restructuring of Fannie and Freddie was necessary to maintain liquidity in the housing market BUT you have to change the broken business model these companies are running on or you create a bigger problem down the road. To my knowledge this has not happened. The housing sector has dodged a bullet because the mortgage rates remain at very favorable levels (if you qualify for a loan) but the demand for real estate is very low right now and quite frankly the majority of people in this country already own a home. Regardless of all the complicated issues and bankrupcies being flashed across the TV screen right now the reality is that housing brought us into this mess and it will need to take us out of this downturn. Unfortunately, I believe this will take a couple of years for this to happen.
All of these problems in the economy are NOT the end of the world. Yes, the sun will continue to come up each day and just remember that song by Gloria Gaynor "I Will Survive." I love that song! We Will Survive Hey Hey!
Lyrics
First I was afraid
I was petrified
Kept thinking I could never live
without you by my side
But I spent so many nights
thinking how you did me wrong
I grew strong
I learned how to carry on
and so you're back
from outer space
I just walked in to find you here
with that sad look upon your face
I should have changed my stupid lock
I should have made you leave your key
If I had known for just one second
you'd be back to bother me
Go on now go walk out the door
just turn around now
'cause you're not welcome anymore
weren't you the one who tried to hurt me with goodbye
you think I'd crumble
you think I'd lay down and die
Oh no, not I
I will survive
as long as i know how to love
I know I will stay alive
I've got all my life to live
I've got all my love to give
and I'll survive
I will survive
It took all the strength I had
not to fall apart
kept trying hard to mend
the pieces of my broken heart
and I spent oh so many nights
just feeling sorry for myself
I used to cry
Now I hold my head up high
and you see me
somebody new
I'm not that chained up little person
still in love with you
and so you felt like dropping in
and just expect me to be free
now I'm saving all my loving
for someone who's loving me
The government should allow the markets to repair themselves so the necessary market corrections take place on Wall Street and Main Street. If you are a bank or investment firm that is leveraged 30:1 or higher you deserve to go KAPUT because you took on too much risk! Unfortunately the top 50 banks control more than 80% of the assets. Many of the maller banks in states not crushed by the real estate downturn are in decent shape financially. Many of these local banks are going to survive this credit crunch.
In conclusion their is no need to watch the daytime soap operas right now because we have one playing out before our eyes on Wall Street. There are many more episodes left of cheating, lying, embezzlement and deceit courtesy of Egos Gone Wild.
Stay tuned!
Tri County Real Estate Stats
The MLS now provides Price per Square Foot (PSF) and you can see below that the average PSF is dropping in most segments of the market. I have seen this in many of the Market Studies I provide to builders and developers where I have to drill down much further in a certain area. The more worrisom problem we have in the local Charleston market is continuous slowdown of homesales, inventory buildup and increasing foreclosures. Since we are now entering the slow "seasonal" period of real estate, which typically lasts six months, these stats below will get worse.
The Aug. 2008 demonstrates how dead the upper end of the market is right now and only accounted for 12% of the sales. However, when you look at Condos. Townhouses and Single Family homes in the MLS the inventory of these types of properties greater than $500,000 accounts for 29% of the total inventory in the Tri-County area. This is NOT good for the sellers or the banks that own these mortgages.
Source: Charleston MLS
Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.
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