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Board Administrator
Username: Admin

Post Number: 1419
Registered: 12-2004
Posted on Friday, December 21, 2007 - 6:24 pm:   Edit PostPrint Post

My personal feelings... unprecedented problems we thought were decades away would knock on our doors faster than we expected. World hunger, pollution, water scarcity, overpopulation, etc. will become a harsh reminder that precious time had been spent in less than productive ventures. I wouldn't be surprised if we see a stronger, more decisive push towards the creation of sustainable energy coming from unexpected fronts (Google, etc). I will also expect the internet to continue to create disruptions among traditional industries at a faster pace. But critical times may also give rise to another 60s flower power generation that may help break the mold.

Since we all have our little crystal balls I invite anyone to share their ideas here.
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Advanced Member
Username: Saint

Post Number: 281
Registered: 5-2005

Posted on Friday, December 21, 2007 - 6:36 pm:   Edit PostPrint Post


Thanks for starting this section. I think it will be a good place for those that have feelings on the world economy and especially the USA to post their thoughts and not clutter up the Argentina section.

I have to say that your little website is getting a lot of visitors. Just this week I was doing an inteview for an investment magazine for Latin America and they quoted posts I made on your site. Also, today I was in a meeting with a top Economist who also cited back to me some posts I made on your site so congratulations. I hope you get even more visitors in the future.

Roberto, I agree with what you posted. I also believe there will be unprecedented problems that most people didn't think could happen. I don't think this this is limited to just financial or economic problems either. Also most likely the environment but I guess that is whole different category.

Your topic of sustainable energy is a good one and one that I will post in greater detail in the future. Argentina has one of the largest available agricultural spaces available and I believe you will see this land becoming more valuable in the future with more green energy being created here in this available land.

If you couldn't tell, I follow the world-wide economy very carefully (especially Argentina and the USA)and have been correct since 2002. I think you will also see unprecedented problems in the USA with various problems in real estate and banking/finance problems.

I will post some articles here that I have saved that pertains to the economy of the USA, Argentina and some other countries.

Best to all.
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Advanced Member
Username: Saint

Post Number: 282
Registered: 5-2005

Posted on Friday, December 21, 2007 - 6:44 pm:   Edit PostPrint Post

Paris, France

C.Agricole writedown raises fresh Calyon concerns

Reuters Friday December 21 2007

By Sudip Kar-Gupta

PARIS, Dec 21 (Reuters) - An estimated 2.5 billion euro ($3.59 billion) writedown at French bank Credit Agricole raised fresh concerns among analysts on Friday over Agricole's risk management and investment banking arm.

"This announcement affirms previous concerns we held over risk management at Credit Agricole," investment bank Keefe, Bruyette & Woods Ltd said in a research note.

France's biggest retail bank said late on Thursday the writedown related to super-senior collateralised debt obligations and took into account a decision by ratings agency Standard & Poor's to cut to junk status the rating on bond insurer ACA Financial Guaranty Corp., a unit of ACA Capital Holdings.

Credit Agricole added that its Calyon investment bank would have "negative results" for 2007. Third-quarter group net profit already fell 16.8 percent thanks to trading losses at Calyon.

CM-CIC Securities estimated Calyon's annual loss at 400 million euros, while JP Morgan put it at 154 million.

"Doubts will remain unless the management comes up with clearer communication," CM-CIC Securities said in a research note, adding "tensions could arise" between parent and unit.


Credit Agricole's update followed similarly weak results from Wall Street banks hit by the credit crisis, which was triggered by losses on risky U.S. mortgage loans.
Credit Agricole shares fell as much as 2.9 percent to an intraday low of 22.20 euros, but were up 0.3 percent at 22.94 euros in mid-morning trade.

Analysts at ING said much of the bad news had already been factored into the Agricole share price.

According to Reuters Estimates, Credit Agricole shares are trading on a 2008 price to earnings (PE) multiple of around 7.4, a discount to the average PE of around 9 for the DJ Stoxx European bank sector.

"We believe that it is already priced in. We also believe that the risk for additional writedowns is now limited. And we understand that the strong capital ratios, and the strong liquidity at Credit Agricole Group should limit the risk of new concerns," added ING.

Agricole's capital position is helped by its core French retail bank business, often regarded as a cash cow.
On Thursday, Agricole said the writedown would not impact its Tier 1 ratio and would not lead to a 2007 dividend cut.
ING kept a "buy" rating on Agricole, as did CM-CIC Securities. JP Morgan kept an "overweight" rating on Agricole.
However, Keefe, Bruyette & Woods Ltd said Agricole's writedown might prompt rival banks to take similar action on their collateralised debt obligation (CDO) exposure.

"This disclosure may prompt other banks to increase the writedowns taken on their CDO portfolio or counterparty risks, in our view. We believe SocGen, Fortis, Natixis and KBC are possible candidates in the France/Benelux region," said KBW.
Based on latest prices, Credit Agricole shares have fallen by 27 percent since the start of 2007, underperforming a 17 percent fall in the European bank sector.


U.S. Bancorp takes $325 million chargeMinneapolis / St. Paul Business Journal

U.S. Bancorp is taking a $325 million hit in the fourth quarter over litigation involving Visa and for troubled money-market funds stung by the subprime crisis, the company announced Friday.

Minneapolis-based U.S. Bancorp (NYSE: USB) will record a $215 million charge, or 9 cents per diluted share, for a settled antitrust lawsuit filed by American Express Co. against Visa Inc. and several banks. Recent guidance from the Securities and Exchange Commission required U.S. Bancorp and similarly situated banks to take the write-down. U.S. Bancorp already took a $115 million charge for the settlement in the third quarter, but maintains that its losses will be more than offset when Visa goes public in early 2008. U.S. Bancorp owns stock in Visa.

U.S. Bancorp will also recognize a $110 million charge, or 4 cents per diluted share, for asset-backed securities it purchased from rated money-market funds managed by its mutual-fund unit, FAF Advisors. In the fall, U.S. Bancorp said it would prop up the troubled $18 billion money-market fund First American Prime Obligations Fund if necessary. The fund spun off or restructured some of its securities that were collateralized by mortgages, credit-card receivables and auto loans, among other things. The market for such securities has fallen during the subprime mortgage crisis.

U.S. Bancorp said it does not expect further valuations problems with the funds and doesn't expect to purchase any other investments from the funds. /12/17/daily39.html


Barclays ready for subprime fight

By Peter Thal Larsen and Megan Murphy

Financial Times

Dec. 21, 2007

Barclays' lawsuit against Bear Stearns is not the first claim to emerge from the wreckage of the US subprime mortgage market. However, the fact that a large UK bank is prepared to go public with its case against a Wall Street securities house suggests that some epic legal battles might arise from the past six months of market turmoil.

The lawsuit, filed in New York on Wednesday night, comes after Barclays was a victim of the collapse of a Bear Stearns-managed hedge fund that invested heavily in complex subprime securities.

Bear Stearns, which said the Barclays lawsuit was unjustified, already faces a variety of claims from investors in its hedge funds. Other banks face lawsuits from shareholders claiming they might have understated their losses related to subprime investments.

Many lawyers believe the legal fallout from the credit squeeze could be on a similar scale to the aftermath of the stock market boom, when banks such as Citigroup and JPMorgan Chase paid out billions of dollars to settle claims from shareholders that they played a role in the collapse of Enron.

After the dotcom bubble burst, 496 federal securities fraud class-action lawsuits were filed in the US in 2001, a high for the past decade, according to a survey by Stanford Law School's Class Action Clearinghouse.

However, these were just the lawsuits that made it to court. Behind the scenes, there was an equal number of commercial disputes between banks and their clients. Many were settled quietly.

In the UK, banks including Barclays and Bank of America were sued for selling complex structured products after a credit cycle downturn in 2003 by investors who claimed they did not fully appreciate the market risks. Germany's HSH Nordbank and Italy's Banca Popolare di Intra were two banks that alleged they had been miss-sold sophisticated credit derivatives. Both cases were eventually settled without either bank admitting fault.

Given the enormous growth in demand for complex fixed-income products during the credit boom, it seems probable that the credit squeeze will prompt similar growth in potential litigation.

Tim House, a partner at law firm Allen & Overy, said the credit squeeze would trigger a flurry of similar litigation in the US and the UK. Hedge funds, pension groups and other investors would probably claim they did not understand the complexity of structured products sold by top-tier banks, or they did not match their own portfolios' appetite for risk.

Many cases might rest on whether the unprecedented contraction in liquidity this year was something that should have been foreseen, Mr House said.

He added: "The cases will be made to look ugly but what's really gone on in the credit market is something that will be difficult to pin on the banks.''

Big banks, which do business with one another on many different levels, often try to resolve their disputes behind closed doors.

Barclays is understood to have spent several months in high-level discussions with Bear Stearns before deciding to press ahead with its claim. Given the scale of losses suffered by banks and investors as a result of the subprime collapse, the Barclays lawsuit may well be the first of many.



UBS investor upsets shareholders

Shareholders at Swiss bank UBS are upset over a deal with a mysterious investment from Saudi Arabia. Scott Jagow talks to Haig Simonian of The Financial Times about the realities these shareholders are facing.

Scott Jagow: For a while, I was telling you every day about a huge bank loss because of bad mortgage debt. Now, it seems there's a big foreign investment in one of those banks every day. This morning, it's Merrill Lynch. The Wall Street Journal says the bank might get $5 billion from the Singapore government.

At the same time, we've learned the identity of a mystery investor in the Swiss bank UBS. It's Saudi Arabia, according to The Financial Times. UBS shareholders are not happy with this deal.

We're joined now by Haig Simonian, who covers UBS for the Times. Haig, why are they so upset?

Haig Simonian: I think shareholders are probably resigned to the fact that the bank needs extra capitol. But shareholders are upset because in bringing in these new investors -- whether it's the government of Singapore in the one case, or the mysterious investor who has now been identified as being from Saudi Arabia -- that's to the disadvantage of existing shareholders. So in other words, your shares aren't going to be as valuable as they were before, because new shareholders are coming in and taking very big stakes.

Jagow: Well as far as we know, UBS shareholders are the only ones that are complaining so far. We haven't heard a peep out of a lot of the other banks.

Simonian: Yeah. The problem in Switzerland with UBS isn't nationalistic, it's not protectionism. It's more I think UBS shareholders had believed until now that their bank was, I don't know, the real blue chip in the pack, one of the world's best-run banks which had a reputation for being extremely risk-adverse. Suddenly, it turns out in a matter of months that that institution run up $40 billion worth of subprime portfolios doing their business.

Jagow: What are shareholders at UBS doing about this? Anything?

Simonian: A mixture of things. One group, a lobby here in Switzerland, has said at the very least, give us more information. A second group has said we vote against this, because the deal you're offering is so attractive that it's to our disadvantage.

Jagow: OK. Haig Simonian with The Financial Times in Zurich, Switzerland. Thanks for joining us.

Simonian: It's good to be with you. 7/12/21/ubs_investors_upset_shareholders_


Dec. 21 (Bloomberg) -- When California homeowner Christopher Aultman stopped writing mortgage checks, Charles Prince of Citigroup Inc. paid.

Some of the $16.6 billion that Prince's New York-based bank estimates it lost on wrong-way subprime bets flowed to investors who for the first time were able to wager that U.S. mortgages would collapse. The subprime derivatives market created in 2005 by a group of Wall Street bankers made that payday possible.

The derivatives were based on subprime mortgages, given to borrowers with bad or incomplete credit. Securities firms packaged and sold that debt in structured financial products where the risk was hidden by investment-grade ratings and the values proved impossible to calculate.

``These structured products were crazy profitable for Wall Street until they blew up,'' says Randall Dodd, senior financial sector expert for the International Monetary Fund in Washington. ``Ultimately it's about excessive risk-taking and greed.''

The risks were amplified by the derivatives, contracts whose values are derived from packages of home loans and are used to hedge risk or for speculation. The vehicles allowed investors to bet against particular pools of mortgages.

The magnified losses caused by derivatives made it possible for a small number of defaulting subprime borrowers to freeze world credit markets.

Credit Squeeze

That's what happened in July after payments in the first quarter stopped on 13.8 percent of subprime mortgages representing 4.8 percent of total U.S. borrowers.

The defaults caused demand for subprime securities to dry up. Uncertainty over the value of the financial products spread to investment funds globally. Corporate lending stopped because no one knew what collateral was worth. By Aug. 10, the Federal Reserve and the European Central Bank were forced to inject a combined $275 billion into the banking system to keep money flowing.

The hedging offered by derivatives made investors feel invulnerable, says Paul Kasriel, chief economist at Northern Trust Co. in Chicago.

``Derivatives don't reduce risk, they shift risk,'' Kasriel says. ``The development of the derivatives market enabled investors to shift risk at a lower cost, and that encouraged them to take on more risk.''

Wagering Against Mortgages

From 2001 to 2006, as U.S. home prices rose 50 percent nationally, owning the debt and guessing that borrowers would keep current paid off. Since July 2006, however, when housing supply began to outstrip demand and the number of late payments started to rise, the short position, or wagering against the performance of mortgages, has prevailed.

Many of those responsible for the economic upheaval caused by subprime derivatives have also been its victims.

Mortgage salesmen peddled loans ``based on the borrowers' ability to refinance rather than the borrowers' ability to repay,'' said David Einhorn, co-founder of Greenlight Capital LLC in New York and a former director of New Century Financial Corp., the second-biggest subprime lender in 2006, at an investors conference in October. If the borrowers defaulted, the mortgage salesmen still got their commissions.

Now many of them are jobless and broke.

Sadek Closes Shop

Daniel Sadek, who says his Costa Mesa, California, subprime lender Quick Loan Funding catered to borrowers with credit scores as low as 420 out of 850, had to close shop in August when Citigroup cut the company's $400 million credit line.

``I'm surprised they went under,'' says borrower Kathy Cleeves of Tenino, Washington. ``They made a fortune off us.''

Borrowers bought houses and took out equity loans they couldn't afford. That didn't matter. As home prices kept rising they could always refinance. Now many of them face foreclosure.

Aultman, a Union Pacific Railroad mechanic with an average credit score of 465, took $21,000 in cash out of a 2005 refinance with Quick Loan Funding. The payments on his house in Victorville, California, adjusted to $2,650 this month, almost double what he was paying for the fixed-rate mortgage he had before the refinance. He was planning to refinance again before he discovered that he couldn't qualify.

Bankers bought loans to turn into securities that gave them the highest yield. If the borrowers defaulted, the bankers still got their fees. Now the losses are piling up.

Billions Lost

The biggest securities firms worldwide are collectively expected to write down about $89 billion in subprime-related losses in the second half of 2007.

Citigroup, the biggest U.S. bank, said it will write down as much as $11 billion in assets on top of $5.6 billion already announced. Citigroup was one of a ``group of five'' Wall Street firms that created the subprime derivatives market.

Morgan Stanley, the second-biggest U.S. securities firm, wrote down $9.4 billion in mortgage-related investments this week.

``Our assumptions included what at the time was deemed to be a worst-case scenario,'' Chief Financial Officer Colm Kelleher said on Dec. 19. ``History has proven that that worst- case scenario was not the worst case.''

Bear Stearns Cos. announced a $1.9 billion writedown on mortgage losses yesterday, sending the New York-based firm to its first quarterly loss since it went public in 1985.

`The Risk Remained'

Merrill Lynch & Co., the world's largest brokerage, and UBS AG, Europe's biggest bank by assets, dismissed their chief executives after they reported a combined $11.4 billion in subprime-related losses in the third quarter. Merrill may post an additional $8.6 billion in losses for the fourth quarter, David Trone, an analyst at Fox-Pitt Kelton Cochrane Caronia Waller, said yesterday.

``Derivatives led a lot of people to believe that risk was being dispersed in a way that made things safer, but the risk remained after people thought they'd moved it off their balance sheets,'' says Bose George, a mortgage industry analyst at Keefe, Bruyette & Woods Inc. in New York.

Investors didn't know what they were buying, says Sylvain Raynes, a principal in New York-based R&R Consulting Inc. and co-author of the book, ``The Analysis of Structured Securities.'' It didn't matter if a certain number of borrowers defaulted because the returns on some parts of the financial instruments were as much as 3 percentage points higher than 10- year Treasury yields.

Losses Worldwide

Now the losses are spreading. Florida schools and cities pulled almost half their deposits from a $27 billion state investment pool linked to subprime mortgages.

A hospital management company in suburban Melbourne, Australia, lost a quarter of its portfolio in July on subprime- linked investments.

Japan's 36 banks booked combined losses of 244 billion yen ($2.17 billion) in the fiscal first half on subprime-related assets, according to the Financial Services Agency.

Sumitomo Trust & Banking Co., Japan's fifth-largest bank by market value, says fiscal first-half profit fell 41 percent on higher provisions for bad loans.

Eight towns in northern Norway, including Hattfjelldal, a village where reindeer outnumber the 1,500 residents, lost a combined 350 million kroner ($64 million) on securities containing subprime mortgages.

``We are a stoic people, used to fighting against the forces of nature, so we'll manage,'' says Hattfjelldal Mayor Asgeir Almaas. ``We won't let this break us.''

`Not Bedtime Reading'

Information about investments in derivatives, such as so- called synthetic collateralized debt obligations, was voluminous and available. A lot of it was also unread.

``These documents are not bedtime reading,'' Gerald Corrigan, managing director in charge of risk management at Goldman Sachs, told a U.K. parliament committee. ``You have to work at it.''

The three biggest ratings companies -- Moody's Investors Service, Standard & Poor's and Fitch Ratings -- were forced to lower ratings on a record number of CDOs last month, according to a Morgan Stanley report, as subprime-backed securities deteriorated.

S&P says it downgraded 16 percent of subprime vehicles issued in 2005 and 29 percent of the 2006 vintage. By comparison, the company says it upgraded 0.07 percent of its 2005 securities and 0.08 percent of 2006.

Sniffing Out the Worst

Those who bet against the mortgage industry fared better.

J. Kyle Bass of Hayman Capital Partners in Dallas hired private investigators to help him sniff out the worst lenders. He says he turned a $110 million stake into about $600 million.

Deutsche Bank AG's writedowns on subprime losses were 2.16 billion euros ($3.09 billion) -- less than they would have been if not for the offsetting short trades of Greg Lippmann, the bank's global head of asset-backed securities trading.

Goldman Sachs avoided the losses other banks suffered by betting that U.S. homeowners would walk away from their debts.

John Paulson of New York-based Paulson & Co. made similar bets. One of his hedge funds returned 436 percent in the first nine months of 2007, based on data compiled by Bloomberg.

``The people who dug deep and analyzed the underlying collateral of the securities made a lot of money betting against them,'' says Girish Reddy, former co-head of equity derivatives at Goldman Sachs and managing partner of Prisma Capital Partners LP in Jersey City, New Jersey.

Savannah Loses a Bicycle

Nobody paid more dearly than Savannah Nesbit. The six-year- old and her family lost their house in Boston's Dorchester neighborhood last month after failing to pay a subprime mortgage that adjusts higher every six months.

Savannah got her first bicycle for her birthday in August, pink with streamers dangling from the handlebars. She decorated the present from her grandmother with stickers of Dora the Explorer, her favorite animated character.

When sheriff's deputies emptied the house and changed the locks, they left Savannah's bike behind.

``She cries about that bike every night, and she wants me to buy her another one, but I can't afford it right now because I have my own financial problems,'' says Savannah's grandmother, Anne Marie Wynter, whose home is also in foreclosure.

Sadek `Under Water'

Sadek's Quick Loan Funding had 700 employees at its 2005 peak. Now Sadek is making payments on three residential properties he mortgaged in a failed attempt to keep his firm afloat. He also owns a restaurant in Newport Beach, California.

``I'm under water,'' he says, puffing on a Marlboro Light. ``I'm trying to sell everything, and nothing is being sold.''

His attempts to bankroll a film career for his former fiancee, soap opera actress Nadia Bjorlin, came to naught. Last month, Bjorlin returned to her role as Chloe Lane on ``Days of Our Lives.''

Aultman, the railroad mechanic, teeters on the brink of foreclosure. He has been trying to modify his loan terms with Countrywide Financial Corp., which now owns his mortgage.

``It's scary, very scary,'' Aultman says. ``Sometimes I'll walk through the house and touch the walls and say to myself, `This is mine.'''

Moody's, S&P and Fitch continue to be arbiters of the quality of securities, though their reputations have suffered.

State, SEC Probes

The Connecticut attorney general is investigating the three companies, including whether they rank debt against issuers' wishes and then demand payment, whether they threaten to downgrade debt unless they win a contract to rate all of an issuer's securities, and the practice of offering ratings discounts in return for exclusive contracts.

The Securities and Exchange Commission and two other states, New York and Ohio, have launched separate investigations of the ratings companies. Moody's also faces a shareholder lawsuit.

Deutsche Bank recently began meetings to create a new index on another security, Alt-A mortgage bonds. It will allow hedging against defaults by Alt-A borrowers, who have prime credit and get mortgages without verifying their incomes.

Investors will also be able to wager that Alt-A homeowners will quit making payments, potentially turning losses into more and bigger paydays.


Fraud Seen as a Driver
In Wave of Foreclosures

Atlanta Ring Scams
Bear Stearns, Getting
$6.8 Million in Loans


December 21, 2007; Page A1

ATLANTA -- Skyrocketing foreclosures are a testament to how easy it was to borrow from mortgage lenders in recent years.
It may also have been easy to steal from them, to judge from a multimillion-dollar fraud scheme that federal prosecutors unraveled here in Atlanta. The criminals obtained $6.8 million in mortgages from Bear Stearns Cos., including a $1.8 million mortgage to Calvin Wright, a New Yorker who told the investment bank that he and his wife earned more than $50,000 a month as the top officers of a marketing firm. Mr. Wright submitted statements showing assets of $3 million, a federal indictment alleged.

In fact, Mr. Wright was a phone technician earning only $105,000 a year, with assets of only $35,000, and his wife was a homemaker. The palm-tree-lined mansion they purchased with Bear Stearns's $1.8 million recently sold out of foreclosure for just $1.1 million. Bear Stearns, meanwhile, posted the first quarterly loss in its 84-year history as it wrote down $1.9 billion of mortgage assets yesterday.

Fraud goes a long way toward explaining why mortgage defaults and foreclosures are rocking financial institutions, Wall Street and the economy. The Federal Bureau of Investigation says the share of its white-collar agents and analysts devoted to prosecuting mortgage fraud has risen to 28%, up from 7% in 2003. Suspicious Activity Reports, which many lenders are required to file with the Treasury Department's Financial Crimes Enforcement Network when they suspect fraud, shot up nearly 700% between 2000 and 2006.

In 2006, losses from fraud could total a record $4.5 billion, a 100% increase from the previous year, says Arthur Prieston, chairman of the Prieston Group, which provides lenders with mortgage-fraud insurance and training. The surge ranges from one-off cases of fudging and fibbing to organized criminal rings. The FBI says its active mortgage-fraud cases have increased to 1,210 this year from 436 in 2003. In some regions, fraud may account for half of all foreclosures. "We've created a culture where a great many people know how to take advantage of the system," says Mr. Prieston.

Yet the system itself bears blame. The evolution of mortgages into a securities instrument turned loan origination into a competition. Caution gave way to a push for speed and volume. Embroiled in an all-out war for market share, issuers reduced barriers to credit, for example, by offering so-called "stated-income" loans, which require no proof of income. "The stated-income loan deserves the nickname used by many in the industry, the 'liar's loan,' " says the Mortgage Asset Research Institute, which works with lenders to prevent fraud. A recent review of a sampling of about 100 stated-income loans revealed that almost 60% of the stated amounts were exaggerated by more than 50%, MARI says.

It didn't take a rocket scientist to steal a fortune from mortgage lenders in recent years. That much is clear from the Atlanta scheme. It was perpetrated in large part by a 23-year-old college dropout named Gregory Jerome Wings Jr., aka G-Money. His accomplices included a young nightclub owner, along with the director of an underground documentary called "Crackheads Gone Wild," a cautionary tale about drug addiction.

Their scam was garden variety: recruit borrowers with good credit to apply for gigantic loans, often of the stated-income variety, using false income and asset statements. Find a mortgage broker willing to submit false information, and find appraisers who will approve inflated values. The perpetrators line their pockets with the proceeds, using some as down payments or for future renovations. Some buyers diverted proceeds to themselves through shell companies.
The brazenness of the scheme is illustrated by the case of Mr. Wright, the New York telephone worker who posed as a highly paid executive to obtain a $1.8 million mortgage from Bear Stearns. Recruited into the scheme by an acquaintance in Atlanta, Mr. Wright, with the help of ring leaders, diverted hundreds of thousands of dollars from that Bear Stearns mortgage to himself, to Mr. Wings and to others in the scheme, according to a federal indictment.

In the very same week, Mr. Wright obtained a $1.9 million mortgage on a second value-inflated mansion near Atlanta, this time from BankFirst, a unit of Minneapolis-based Marshall BankFirst Corp. This deal also brought enormous spoils to Mr. Wright, Mr. Wings and other accomplices.
"It was so easy, it's incredible," says Akil Secret, attorney for Mr. Wright, who has pleaded guilty to bank fraud and is awaiting sentencing.

'Seemed Clean and OK'

As profits from the scheme fattened their wallets, these young men became the envy of their peers, especially since their actions involved none of the dangers of street crime. "You see a guy who is 23 and he's driving a fancy car. You go into clubs and everyone seems to know him, and you kind of want to be like him," says defense attorney Rickey Richardson, explaining how his client, Daryl Smith, got involved in the scheme. "This wasn't drugs. This wasn't guns. This seemed clean and OK."

Residents of some fancy Atlanta suburbs spotted the scheme. They became suspicious when new homes in their neighborhoods sold for sky-high prices, then remained vacant. After the same individual bought several such homes in one ritzy development, neighbors alerted authorities. One homeowner who helped expose the fraud and other schemes in his neighborhood now carries a loaded handgun in his truck. "This is serious stuff," he says. "We are putting people in prison for many, many years."
Since federal authorities issued an indictment in April 2006, Mr. Wings, Mr. Smith, Mr. Wright and about 10 others have pleaded guilty to various counts, including bank fraud, and are awaiting sentencing. Another ringleader was convicted in federal court last month. Their sentences could be lengthy: In an unrelated case, an Atlanta attorney with no prior criminal record was sentenced in August 2005 to 30 years in federal prison on a mortgage-fraud conviction. Mr. Wings declined to comment for this story, as did Messrs. Wright and Smith.
In the wake of their downfall, debate has been intense about how such an unaccomplished group could defraud top-tier financial institutions out of millions.

Prosecutors call the scheme sophisticated, noting its reliance upon forged and falsified documentation.
Lenders agree. Bear Stearns says the scheme evaded its antifraud efforts by supplying false information at every step of the application process. "We as an industry cannot eliminate fraud entirely," Tom Marano, head of mortgages and asset-backed securities for Bear Sterns, said in a statement about the Atlanta ring. "We can and do continue to develop systems and detection techniques that evolve with the complexity of criminal schemes.'"

But others contend that the Atlanta case illustrates the recklessness with which lenders were issuing mortgages in recent years. "This case should have been an indictment of the mortgage industry," says Patrick Deering, an Atlanta defense attorney involved in the case.

In an eye-opening setback for prosecutors, Mr. Deering and other defense attorneys successfully defended three home builders against charges that they had participated in the scheme. Prosecutors had attacked the home builders for failing to raise red flags when they witnessed mortgages being issued far in excess of what the builders were being paid.

On the Offensive

But some defense attorneys went on the offensive and attacked lenders for failing to guard against fraud. Particularly illuminating was the testimony of Lucy Lynch, a former vice president of mortgage operations at BankFirst.
"Fraud was not really a consideration in our world," Ms. Lynch testified, according to a trial transcript.

Ms. Lynch said the bank relied on an outside "loan officer" at a reputable mortgage broker to serve as its "eyes and ears" in the real-estate transactions. As it turned out, that person was indicted as part of the fraud ring. Ms. Lynch stressed that the bank took measures such as running all loan applications through a software program designed to detect fraud. "And things that didn't seem quite right, an underwriter could quickly pick those things out," Ms. Lynch said, according to a trial transcript. "So as far as having an actual policy or procedure around fraud, we didn't think it was necessary, quite frankly."

A total of $4.9 million in loans from BankFirst were used by the Atlanta fraud ring. In some cases, the bank gave its blessing to closing documents that showed unexplained payments of hundreds of thousands of dollars to obscure companies that turned out to be owned by the fraudsters. On three different Atlanta-area homes over a three-month period starting in late 2005, closing documents approved by BankFirst showed large payouts to the same companies.

Ms. Lynch said the bank assumed that the cash was going to subcontractors for construction work. But the bank never asked for invoices. In an interview, Ms. Lynch says the bank was primarily checking to make sure the borrower wasn't being charged any additional fees or debt. "We didn't do anything different from the rest of the industry,'' she said, adding that she believes her testimony helped convict three perpetrators of the fraud -- two borrowers and a real-estate agent who helped lead the ring.

Asked in court why the pattern of payouts didn't raise any red flags, Ms. Lynch responded: "Do you have any idea how many loans came into BankFirst during that time period?" She said BankFirst typically allowed a "15-minute window" from the time it received closing documents by fax to the time it released the loan proceeds to the borrower.

Ultimately, prosecutors failed to convict any of the three home builders. Charges against one were dropped. Another was the subject of a mistrial. And the third was acquitted before the case went to the jury. "These were the wrong people on trial," says Mr. Deering, whose client, home builder Randall Tharp, was acquitted.

One of the biggest losers in the Atlanta scheme was Bear Stearns. A total of $6.8 million in Bear Stearns loans were used by the enterprise. The fourth-largest mortgage that Bear Stearns originated in 2006 went to a borrower in the Atlanta scheme. That involved a mansion on which Bear Stearns lent nearly $3 million. Today, that mansion is in foreclosure and listed at $1.75 million.

Bear Stearns says falsified income and asset documents are difficult to detect "if they are part of a sophisticated fraud ring." In the case of the $1.8 million loan that Bear Stearns issued to Mr. Wright, the New York telephone worker, the company says it verified Mr. Wright's employment and assets.
But Mr. Wright's attorney, Mr. Secret, says, "Bear Stearns certainly couldn't have verified any of the assets or any of the money. It simply wasn't there."

A relative newcomer to the mortgage-origination business, Bear Stearns in 2005 created Bear Stearns Residential Mortgage to focus on "Alt-A" mortgages, a category between prime and subprime loans. Bear says its Alt-A loans included stated-income mortgages that required verification of assets.
During its first full year of business in 2006, Bear Stearns Residential Mortgage originated 19,715 mortgages for a combined $4.37 billion, according to data compiled by the Federal Reserve and analyzed by The Wall Street Journal.

Bear Stearns Residential Mortgage rejected about 13% of applications, compared with an average denial rate of 29% nationally, according to the Fed data. Bear Stearns says that it had a lower denial rate because all of its applicants had already been screened through its "on line pre-qualifying" site before they submitted a formal application.

Since the scheme, Bear Stearns says it has enhanced its monitoring of payouts listed on closing statements. BankFirst stopped issuing residential mortgages altogether, citing the declining market.

Some banks victimized by the Atlanta ring say they depended in part on a party called the closing attorney to protect their interests. But often, lenders neither choose nor pay for the closing attorney: The buyer does. In this case, the closing attorney was part of the fraud ring. The 58-year-old lawyer, Raymond Costanzo Jr., known in the ring as "Uncle Joe," signed off on several fraudulent sales, and collected $250,000 from the scheme, the indictment alleges. In 2006, Mr. Costanzo pleaded guilty to bank fraud and is awaiting sentencing.
Of course, the Atlanta scheme wouldn't have worked if not for appraisers willing to approve values far in excess of what builders were charging for new homes. Indeed, Bear Stearns and BankFirst say they ordered multiple appraisals of the homes they financed. Yet no evidence has emerged of appraisers receiving kickbacks. And no appraisers got indicted.

Artificially Raised Values

In some neighborhoods, the fraud scheme itself may have artificially raised values. Another explanation is that the appraisal market is fiercely competitive. Experts say some appraisers may offer inflated values in exchange for their standard fee of several hundred dollars -- a strategy that can win business without exposing an appraiser to charges of fraud. "Appraisers get sucked into these schemes because they are starving for work and many of them don't know what the heck they are doing," says Carl Heckman, co-founder of the Georgia Real Estate Fraud Prevention and Awareness Coalition, composed of appraisers, lenders, mortgage brokers and residents.
In the neighborhoods where the Atlanta scheme operated, values have plummeted. Many homes associated with the scheme are now in foreclosure. Some have sold for as low as 50% of what buyers in the fraud ring paid. "The banks are getting more and more aggressive in their pricing because they don't want to own these homes," says Warren Lovett, a real estate agent with Coldwell Banker in Atlanta.

Mr. Lovett has taken listings for about 60 foreclosed properties this year. He estimates that half of the foreclosures he's encountered are due to fraud.

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San Francisco, California - USA

Bay Area home sales near 20-year low for November
James Temple, Chronicle Staff Writer

Friday, December 21, 2007

The Bay Area housing market showed no signs of recovery in November, as sales fell to a nearly two-decade low and buyers still struggled to find mortgages.

A total of 5,127 new and existing houses and condos traded hands last month, free-falling 36.2 percent from the 8,042 sold in November 2006, according to a report released Thursday by DataQuick Information Systems. That's the lowest sales count for the month since at least 1988, when the research company began tracking the market, and represents the 34th consecutive month of declines.

November sales of existing single-family homes in the nine-county region plummeted 39.4 percent, from 5,308 last year to 3,217 this year.

A major reason sales are sluggish despite falling prices in many regions is that it remains difficult to qualify for or afford jumbo loans, still necessary for average home shoppers in the pricey Bay Area. Since summer, when credit rules started getting stricter, fewer lenders are offering financing for more than the $417,000 conforming amount, and those that do are charging more or tightening lending standards. Buyers used jumbo loans for 44.1 percent of home purchases last month, compared with an average of 62 percent for the first seven months of the year, DataQuick said.

"Properties are just sitting on the market," said Barry Pilger, broker and owner of Stafford Real Estate in Oakland. "My theory is that people are standing aside until jumbo loan rates come down."

For existing single-family homes in the Bay Area, the median price in November was $670,000, up 1.4 percent from $661,000 a year ago. The median means that half the homes sold for more than that amount and half for less.

Prices in the metro markets close to large job centers are higher than those in outlying areas. Solano and Sonoma counties saw drops in median home values of 18 and 11.4 percent, respectively. Santa Clara and San Francisco, on the other hand, showed increases of 9.5 and 6.9 percent.

"In the far stretches of the Bay Area, you've got rising foreclosures, competition from new-home builders and in some cases you had more speculation," DataQuick analyst Andrew LePage said. "But if you're close to the water and close to job centers, there isn't much erosion in median home values. At least not yet."

Sellers, buyers and brokers also noted these city-by-city, and even neighborhood-by-neighborhood, variations - the micro markets.

Ammie Bach and her husband, Regan, live in a Nob Hill condo, but are starting a family and hope to move to Marin County. They've seen price reductions throughout the area, but in the cities they really like - Mill Valley, Larkspur and Corte Madera - little is coming up for sale and there's a mad rush when it does. "You have a crazy bidding war on the few houses that come on the market, so it goes 15 percent over asking in the end," she said. "You're getting a fixer-upper for $1.1 million."

More homes are on the market in places like Novato or San Rafael in the $600,000 to $700,000 range, but those cities are too far north for the couple.

It's a similar story in the East Bay, where it would take about 2.25 months to sell all the homes now for sale in the Oakland hills but 15.7 months to churn through the inventory in Hayward, based on sales averages this year and multiple listing service data.

There's little to suggest that this month is shaping up any better than November. Brokers say that few people are listing properties or submitting offers, reflecting what sellers hope is just the usual lull around the holidays.

Mark Corrallo and his wife, Huiling Yang, have a 17-month old son and hope to move from their 2,500-square-foot, four-bedroom home in Oakland's Montclair district to a quiet, cul-de-sac in Walnut Creek. The couple listed their home in October at $1,119,000 and quickly reduced it to $1,079,000. They haven't had a single offer and plan to pull the listing on Monday.

"It seems the market has simply died in Montclair," he said. "The big question is whether that's an indication of a prolonged slump in the higher-end market that will continue into the new year, or if it's simply a seasonal slowdown that will correct itself in the spring."

Puerto Rico

Popular to book US$90mn-165mn loss in 4Q07 - Puerto Rico
Friday, December 21, 2007

Puerto Rico's Popular (Nasdaq: BPOP), parent of the island's largest bank of the same name, will report a pre-tax loss of US$90mn-165mn for the fourth quarter this year due to charges stemming from accounting changes.

In a press release, Popular said it would have to reclassify 21 mortgage loans held in securitization trusts that do not qualify for sale accounting treatment, resulting in a US$20mn-95mn charge for the fourth quarter.

The move will reduce Popular's US$3.1bn subprime mortgage portfolio by around US$2.4bn.

"The subprime mortgages being shifted for accounting purposes were already legally off the balance sheet. Economically, there is no real difference, but it will likely provide greater accounting clarity regarding Popular's actual subprime mortgage exposure," Fitch analyst Joseph Scott told BNamericas.

Coupled with this, a US$175mn impairment charge on the goodwill and trademark value of Popular's E- LOAN subsidiary will lead to net loss in 2007.

"The restructuring and scaling back of E-LOAN reflects the realities of the market as well as management's focus on reducing underperforming businesses," Scott said.

Popular said it would still exceed the risk-based capital guidelines under federal banking regulations after the 4Q07 charges.

Friday's announcement led Moody's to lower Popular's ratings*90mn-165mn_loss_in_4Q07


KeyCorp Sees 4Q Loss, Plans Layoffs

CLEVELAND — KeyCorp said Thursday that it expects to post a fourth quarter loss of up to 5 cents a share as the Midwest regional bank sets aside additional reserves for loan losses and eliminates 1,040 jobs.

Analysts surveyed by Thomson Financial were expecting a profit of 63 cents a share.

KeyCorp said it expects to report net loan charge-offs of $110 million to $120 million, fixed-income losses of $55 million to $65 million, and layoff expenses of $26 million for the fourth quarter.

The Cleveland-based company plans to lay off 740 workers and eliminate 300 open positions. In Ohio, KeyCorp said it will eliminate 230 jobs in Cleveland and 170 jobs at a call center in Dayton.

KeyCorp said the loan charge-offs are because of deteriorating market conditions in its residential portfolio, primarily in Florida and California. It also said it will no longer make loans to real estate developers outside of the 13-state region where it does business and also will stop making most home-equity loans out of the region.

It has transferred approximately $1.1 billion of homebuilder-related loans and $800 million of condominium exposure to its special asset management group.

KeyCorp also will quit its payroll services businesses, which will eliminate 170 jobs.

KeyCorp previously announced a $32 million charge, or 5 cents per share, related to the settlement of an antitrust lawsuit between credit card companies American Express Co. and Visa Inc.
"Like most banks, Key's homebuilder loan portfolio has been adversely impacted by the downturn in the U.S. housing market, and our participation in the capital markets through various lines of business has adversely impacted market values, and therefore, financial results," Chief Executive Henry Meyer said in a statement.

The company exited its subprime-mortgage business more than a year ago and has "no meaningful" exposure to risky lending or investment vehicles related to the housing market, Meyer said.
KeyCorp said it will increase its dividend to 37.5 cents per share in the first quarter.

The announcement was made after stock markets closed Thursday. KeyCorp shares fell 40 cents, or nearly 2 percent, to close at $21.91 after hitting a new multiyear intraday low of $21.56. The stock lost a penny in after-hours trading.
KeyCorp shares have traded as high as $39.90 in the past year.


First Horizon to lose money on mortgages
December 21, 2007: 09:36 AM EST

Dec. 21, 2007 (Thomson Financial delivered by Newstex) --

MEMPHIS, Tenn. (AP) - First Horizon National Corp. (NYSE:FHN) expects its mortgage business to lose money in the fourth quarter as sinking property values handcuff borrowers' access to cash.

First Horizon, which runs about 600 branches, expects to set aside an additional $150 million in anticipation of unpaid loans.

This provision prepares for defaults from residential developers that borrowed money to buy properties in Florida, California, Virginia, Georgia and Nevada.

Because this real estate is losing value in the midst of a protracted housing slump, these borrowers are not able to tap their properties for as much cash and are thus more likely to default on their loans.

The provision for the fourth quarter exceeds First Horizon's $116.2 million combined provision for the first three quarters of the year. The bank expects to write off $50 million in loans at the end of the fourth quarter.

Further, the bank expects pressure on its home-equity loan business because of the housing squeeze.

First Horizon expects to record a $70 million 'goodwill adjustment' to its mortgage business for the fourth quarter. Goodwill reflects the value of a company's brand and reputation, and a goodwill write-down implies a fundamental deterioration in the value of a business.

The volatility in interest rates and aversion to mortgage credit risk has made it tougher for First Horizon to sell loans and protect itself from mortgage debt losing value, which the bank said will squeeze profit in the fourth quarter by $40 million.

The bank will also be responsible for $19 million of the more than $2 billion Visa agreed to pay American Express (NYSE:AXP) as part of a legal settlement.

US homebuilders' joint ventures

Published: 21/12/2007 | Last Updated: 21/12/2007 09:40 London Time

The investments are off-balance sheet, their underlying assets have plunged in value, and their risks are difficult to quantify. Sound familiar? Many structured investment vehicles would fit that bill. But so would the hundreds - perhaps thousands - of opaque joint ventures formed in the past 15 years by US homebuilders.

After the last housing slump ended in the early 1990s, builders began to use joint ventures to manage land inventories. That, combined with the widespread use of options on land instead of outright purchases, helped boost their credit ratings. But the proliferation of complicated JVs by some builders, including KB Home, Centex, and particularly Lennar, is now depressing their share prices and scaring off buyers of distressed land holdings. The top 15 public builders have taken $16.5bn in writedowns since the start of 2006. Of that, $1bn stemmed from JVs according to Standard & Poor's.

Homebuilders reveal scant information about their JVs, which can involve any number of partners, geographies, and types of projects. More worrisome is that the legal and financial structure of each is different, as is the level of recourse lenders have to the venture's assets.

Investors are not the only ones who find it hard to gauge builders' JV liabilities. Technical Olympic USA's own miscalculations have brought it to the edge of bankruptcy. TOUSA's overpriced venture with Transeastern turned insolvent as the Florida housing market went into freefall. TOUSA felt its liability was limited. But after lenders threatened to force it into bankruptcy to trigger full recourse, TOUSA took on an oppressive $500m of debt to settle the claims.

Builders can provide more clarity on these ventures without giving away competitive advantages - and they should. TOUSA's JV was huge, over-levered, ambiguous, and in a bubble market. That is a lesson in what not to do. But it was not the only builder to wade into the JV morass. Lightning often strikes more than once.


No one wins in foreclosure

Banks losing money; others losing their homes

Economic analysis of the current wave of mortgage foreclosures must now yield to the overwhelming feelings of grief and blame as Charlotte County's construction-dependent economy prepares for a tough 2008.

Charlotte County homeowners are being tossed out of their dwellings in record numbers, victims of a lending system that gave, then took away.

Southwest Florida's circuit courts are reporting foreclosures at triple their 2006 levels and actually getting momentum as 2007 draws to a close. For example, the Charlotte County Clerk of the Circuit Court reports 1,992 foreclosure filings compared with 664 in 2006. These figures would be slightly higher if a relative handful of foreclosures filed in County Court were also included, although these are normally over sums of money less than $15,000.

Foreclosure activity may get even more intense next year as many adjustable rate mortgages reset from introductory or "teaser" interest rates to market levels. Many borrowers will face heavier debts.

Meanwhile, their ability to sell out and move to something they can actually afford is being limited by falling real estate values throughout Florida, with Charlotte County sale prices down 10 percent or more from 2006 levels.

The fact that Charlotte County has been built on retirement income doesn't help either. Jobs in home construction, mainly for retirees, have become scarce. Where in the immediate aftermath of Hurricane Charley there was work for all during the cleanup, recent months have seen Charlotte County consistently rank in the top handful of worst localities for unemployment, with a jobless rate in the mid-5 percent range.

This leads local attorney Kevin Russell to conclude that "next summer is going to be a test of will for a lot of us ... we're at ground zero in Port Charlotte and North Port for a lot of what's going on."

Statistics compiled from Charlotte, DeSoto and Sarasota counties don't reveal how many foreclosures involve families losing primary residences and how many are simply instances of speculative deals gone sour. Neither do they show how many of the primary residences were lost because of genuine misfortune and how many because the borrowers overextended themselves.

In other words, no two stories are likely to be exactly the same. The Dec. 12 dedication of the St. Vincent de Paul Community Health Care clinic in Port Charlotte may have been a first step toward keeping many debt-ridden families in their homes.

"The problem is that the uninsured are an invisible population," said Marjorie Hamrell, a consultant with Volunteers in Medicine, a Vermont-based organization that provided technical assistance to the clinic's local organizers. She noted that half of personal bankruptcies involve overwhelming medical bills. Medical expenses have also driven people from their homes.

"These people are the 'missing class' -- they are far from the middle class and may work two or three jobs to make ends meet. But they don't receive Medicaid, they don't receive food stamps, and they don't qualify for subsidized housing," Hamrell said.

Some are tales of overwhelming tragedy, as revealed by some of the guests at the recent clinic dedication. Leonard Leary of Port Charlotte said he was left with hundreds of thousands of dollars in medical bills following the death of his wife from cancer. He lost his house as a result, while also having to fight serious health problems of his own.

Following Hurricane Charley in August, 2004, speculators descended on storm-ravaged neighborhoods, buying up houses in the expectation that any structurally sound dwelling would fetch top dollar during an anticipated long recovery.

Some of them guessed right and were able to "flip" their purchases for a profit during the boom market of 2005, when virtually anything with four walls and a roof could sell and sell quickly.

Others weren't so fortunate and are now unable to maintain payments on their investments.

Real estate speculators are by definition risk-takers. A wave of foreclosures on investment properties will have a much different community impact than families losing their primary residences.

"There are real people losing their homes because they have lost jobs or just can't keep up payments," said Russell, who along with his legal practice is also president of the Charlotte County Homeless Coalition. Russell notes that the coalition is constructing a new shelter -- which in view of the economic malaise, he expects will be busy.

Conversely, Roger Miller, attorney with the Farr law firm in Punta Gorda, said the vast majority of the 30-some foreclosures currently on his desk are investment deals gone bad.

For families struggling to meet obligations, the first step to recovery may be contacting their lenders before missed payments pile up, said Steve Vito, Charlotte County president for SunTrust Bank.

Vito said that SunTrust has largely stayed out of the subprime mortgage market -- that is, borrowers who otherwise wouldn't qualify for the same amount of credit. What subprime mortgages SunTrust has written have been sold to other lenders. Overall, Vito said that SunTrust's residential loan portfolio continues to perform.

SunTrust is also taking steps to improve communications with borrowers. "Someone who might be having issues, we want to reach out to them at the very beginning, rather than wait until they're 90 or 120 days in arrears," Vito said. SunTrust has set up a toll-free line -- 800-443-1032 -- for this purpose.

"The key to any foreclosure situation in most cases is early intervention," Vito said. "There are opportunities to restructure debt or defer payments or do other things that can make a big difference in the long run."

Lenders are also taking a tough look at the root causes of failed loans, which have caused a general decline in the price of mortgage-backed securities. It's a common industry practice for lenders to finance transactions by selling bonds using the mortgages as collateral. But when the mortgages go bad, the value of the bonds also plummets. This is exactly what has taken place in financial markets this year.

"The cause was poor underwriting that apparently was accepted by too many people who were putting these things into bonds and selling them off to folks who really didn't know what they were buying," said Mike Ezzell, president of First National Bank of Southwest Florida in Port Charlotte.

Craig DeYoung, president of Charlotte State Bank, agreed. "Underwriting standards were getting a lot less restrictive than they historically had ever been," he said. His own bank stayed out of extending large amounts of credit to high-risk clients. But DeYoung noted that the general price collapse of mortgage-backed securities affects the whole banking industry, at least insofar as home sales and lending seem likely to remain sluggish for some time.

One veteran financial analyst with a completely neutral perspective says it's a toss-up whether aggressive lenders or foolhardy borrowers are more to blame for the turmoil in subprime mortgages. Tommy White, who manages investments for the Charlotte County Clerk of the Circuit Court, said that adjustable rate mortgages are playing a large share in the wave of defaults and foreclosures.

"I don't want to sound harsh but ... if I bought a house with a teaser rate, should I use that rate to buy a more expensive house? Or should I buy a house I can afford without the teaser rate, and use the savings for other things?" White said.

With teaser rates expiring -- and home prices falling across Florida -- many borrowers are now caught in the squeeze. In hindsight, it's now clear that many borrowers in arrears or facing foreclosure didn't plan against the downside risk of their purchases.


Market won't bottom out until '09, analyst predicts


Palm Beach Post Staff Writer

Friday, December 21, 2007

The housing market won't "hit bottom" until 2009 - a year later than previously predicted, the chief economist for the National Association of Home Builders said Thursday.

Rather than bringing an end to the worst housing slump in 16 years, 2008 will simply be "another down year," Chief Economist David Seiders told reporters and analysts in a conference call.

In fact, there's a 40 percent chance the nation will slide into recession, he said, up from his earlier prediction of a 30 percent probability.

"We really are in a danger zone," Seiders said. Although the probability of recession is high, Seiders doesn't believe that will happen.

Nevertheless, he said, "We'll be looking at further erosion in house values in 2008 and hit bottom in 2009."

Seiders said a heavy backlog of unsold homes is a major factor in the currently stalled housing market. Sellers aren't selling and buyers aren't buying.

"The essential story here," Seiders said, "is a major run-up in unsold inventory during the second half of 2005, through 2006 and into 2007.

"There are currently 2.1 million vacant homes for sale on the market,' he added, "with 700,000 being excess compared to more normal times."

Subprime lenders went belly-up, Seiders said, "and it cascaded down from there."

The ripple effect of the resulting credit crunch, together with the crumbling housing market, will cause unemployment to rise next year, Seiders said. Payroll growth will be "tepid," and "the overall inflation picture is good despite misbehaving energy prices."

On the home-sales side, he said, price declines are helping to revive affordability.

Nationwide, home prices peaked in 2005, he said. In Palm Beach County, they peaked in November 2005, when the median price of an existing single-family home was $421,500, the Florida Association of Realtors says.

U.S. home prices fell at an annualized rate of 7 percent in the third quarter of this year, Seiders said, "and there's little doubt that the fourth quarter will be down further."

In a report released Thursday, economists Ethan Harris and Michelle Meyer of Lehman Brothers Holdings Inc. said "housing pain looks likely to continue through 2009.''

The Lehman Brothers economists cited an estimate by the firm's mortgage strategists that 1 million homes will return to the market through foreclosure in 2008 and 2009, four times what they said was the normal number. Since foreclosures sell at a 25 percent to 30 percent discount, home prices will continue their decline until the end of 2009, the report said.

Seiders acknowledged that his estimates were dependent on the success of government attempts to help homeowners whose monthly subprime mortgage payments were due to jump.

If those 800,000 homes go back on the market, "we're in deeper trouble,'' Seiders said.

President Bush and Treasury Secretary Henry Paulson have negotiated a plan with lenders and regulators to help up to 1.2 million people keep their homes by freezing rates on some subprime adjustable-rate mortgages.


Home Builders Pull Fewest Permits for November Since 2000

With so many houses already on the market, it's tough to build and sell new ones.

By Kyle Kennedy

The Ledger

LAKELAND | Polk County home builders had a lean November, pulling their lowest permit total for the month since 2000.

The county recorded 252 permits for new single-family home construction last month, down 20 percent from 315 in November 2006, but up slightly from 221 in October, according to The Ledger's records.

It marked the 21st consecutive month of annual declines in permitting activity, and was the lowest November figure since 221 in 2000.

"Right now the builders aren't adding to inventory when they have existing inventories to move. That's why you're seeing these permits down," said Joel Adams, executive vice president of Lakeland-based Highland Homes.

Permits fell in nearly every city. Auburndale dropped to one from 18 a year ago, while Bartow had just three in November versus 14 last year.

Lakeland's total dropped to 13 from 28, while Winter Haven fell to 20 from 34.

Lake Wales recorded seven permits last month, while it had none the year prior.

Some builders are faring better than others. Olivera Construction, a Lakeland-based firm with homes starting in the upper $300,000s, will complete 18 homes this year versus 22 in 2006, said vice president Philip Olivera.

"We've been able to stay busy because we've gotten some great support from our subcontractors and vendors. We've tightened our margins and sharpened our pencils," he said. "We've been able to stay competitive, and a lot of people are seeing the value of building now."

Still, Adams said he expects 2008 to be another tough year for most in the industry.

"There could be some perception among buyers that prices haven't hit rock bottom. I'm not sure that's the case. Over this past year new home builders have probably done all the price cutting they can," he said. "It's going to take time to chew up this unsold inventory and get the equilibrium back in, and I think it's going to take most of 2008 to do that."

Nationwide, housing starts totaled about 1.19 million in November, down 24.2 on the year, according to the Commerce Department.

It was the lowest level of new home construction in 16 years.


Hovnanian lost $469.3 million amid housing slump

NEWARK, N.J. — Fallout from the housing downturn and an accounting charge helped Hovnanian Enterprises Inc.’s fiscal fourth-quarter loss nearly quadruple, but the homebuilder’s chief executive says there are some encouraging signs.

Hovnanian operates in Lee County as First Home Builders, whose assets Hovnanian bought in August 2005 for an undisclosed amount.

Despite the net loss of $469.3 million, the company generated $376 million of positive cash flow from operations in the quarter that ended Oct. 31 and projects that it will have more than $100 million in cash flow from operations in fiscal 2008.

The company has been particularly hard hit in Lee County, where it is now largely out of business.

It has a skeleton crew of about 50 employees, down from nearly 1,200 during the height of the boom in late 2005.

On Nov. 5, Hovnanian sold 812 lots in Cape Coral to Ocala-based Deltona Corp. for $16.2 million. The company’s Lehigh Acres lots are also for sale.

Two of the main lenders for First Homes construction loans are also in financial trouble: Colorado-based Norlarco Credit Union and Michigan-based Huron River Area Credit Union were taken over by the National Credit Union Administration because of bad debt due in part to their construction loans for First Home customers.

Hovnanian also faces lawsuits including a federal class action filed May 30 in Fort Myers by would-be buyers claims they were duped by First Home, the Gates D'Alessandro & Woodyard real estate agency and various lenders into financing houses at inflated prices with promises of a 14 percent return on their money.

Under the original 2003 deal, D'Alessandro would bring investors looking for a better deal than the stock market.

First Home would build the houses and duplexes and also provide the tenants, who would be culled from the ranks of people who couldn't quite get financing to buy.

The builder would help them repair their credit, and many would be able to buy from the investors when they decided to flip.

Hovnanian and other homebuilders have been struggling amid the subprime mortgage fallout, as a record number of foreclosures has made it harder to get loans, weakening the housing market.

Earlier this month, Toll Brothers Inc., the nation’s largest builder of luxury homes, reported its first quarterly loss in 21 years.

Despite the company’s problems nationally, Hovnanian president and chief executive Ara Hovnanian said Tuesday that there’s some good news.

“Considering the challenging market conditions that homebuilders are continuing to face, we are pleased to have exceeded our expectations for cash generation in the fourth quarter and to have paid down our debt levels more than we projected,” he said in a statement.

The industry is in a slump, “However, after a very slow period for new sales contracts in October and November, we have experienced an improvement in sales pace during the first three weeks of December. This is encouraging given that December is historically a slower sales month,” he said.

Red Bank-based Hovnanian, which operates in 19 states, reported its fifth consecutive quarterly loss Tuesday.

Its fourth-quarter net loss of $7.42 per share after paying preferred stock dividends compares with a loss of $117.9 million, or $1.88 per share, for the same period a year ago.

Hovnanian said an accounting determination resulted in a $54 million tax expense in the most recent quarter instead of an expected $162 million benefit, for a $216 million swing.

Quarterly revenue fell 20 percent to $1.39 billion from $1.75 billion in the same period last year.

Analysts surveyed by Thomson Financial, who apparently did not factor the accounting charge, expected Hovnanian to lose $1.49 per share in the quarter on revenues of $1.32 billion.

In addition to the accounting charge, Hovnanian incurred $383 million in quarterly pretax charges for land impairments and other items. It was not known if the analysts expected that amount, said Jeffrey T. O’Keefe, Hovnanian’s director of investor relations.

Hovnanian shares rose 5 cents to $8.45 in after-hours trading, having closed earlier up 45 cents, or 5.7 percent, at $8.40.

The stock has steadily declined from a high of $37.58 to a low of $6.75 over the past year.

The company will not pay dividends on its Series A preferred stock in fiscal 2008 because of indentures on senior and senior subordinated notes, J. Larry Sorsby, executive vice president and chief financial officer, said in a statement.

Hovnanian said its net contracts for the fourth quarter, excluding joint ventures, fell 10 percent to 2,781. The dollar value of net contracts decreased 13.6 percent to $875 million from $1.01 billion in the year-ago quarter. Hovnanian’s contract cancellation rate grew to 40 percent from 35 percent last quarter and in the fourth quarter a year ago.

For fiscal 2007, after paying preferred stock dividends, the company reported a loss of $637.8 million, or $10.11 per share, compared with a profit of $138.9 million, or $2.21 per share, for the prior fiscal year.

Annual revenue fell 22.4 percent to $4.58 billion from $5.9 billion in fiscal 2006.

Net contracts for fiscal 2007, excluding joint ventures, fell 20 percent to 11,006.

The dollar value of net contracts decreased 22.6 percent to $3.84 billion from $4.97 billion last fiscal year.

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Advanced Member
Username: Saint

Post Number: 283
Registered: 5-2005

Posted on Friday, December 21, 2007 - 7:24 pm:   Edit PostPrint Post

Here is a good article that explains some of these bond insurers that I talked about yesterday. Some of these will go under which will cause yet more losses at banks and financial institutions in 2008. "Counter party exposure" is still a big fear and as I've mentioned many times over the last few months....these banks and financial institutions STILL don't know what there true liabilities (i.e. LOSSES) are.

ACA woes trigger more bank write-downs

Counterparty-credit concerns hit Merrill, CIBC and Credit Agricole
By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) -- The problems of a small bond insurer called ACA Capital are rippling through credit markets in a big way, triggering more mortgage-related write-downs by some of the world's leading banks.
The rating of ACA's bond insurance unit was slashed to CCC from A by Standard & Poor's on Wednesday because mortgage-related losses could exceed its $650 million capital cushion by more than $2 billion, the agency said.

Bond insurers agree to pay principal and interest when due in a timely manner in the event of a default. ACA has provided such guarantees on billions of securities, including more than $26 billion of collateralized debt obligations, complex vehicles that are partly exposed to subprime mortgages.
If a bond insurer gets downgraded, in theory all the securities it has guaranteed have to be downgraded too.

Banks and other firms that have hedged mortgage-related exposures by buying protection from ACA may now have to write-down the value of those positions because ACA's guarantees are worth much less now.
Credit Agricole one of the biggest banks in France, unveiled a $2.5 billion write-down Thursday, partly because of the ACA downgrade.

If ACA falters, Merrill would end up with more subprime exposure as those hedging contracts terminate. That would lead to more write-downs, possibly reaching $2 billion, the analysts estimated.

"This is one of the big issues still out there: Everyone is worried about counterparty exposure," Kathleen Shanley, an analyst at Gimme Credit, said in an interview Thursday.
ACA Capital is small compared to rival bond insurers like Ambac Financial

If another, bigger bond insurer is downgraded, there may be a similar effect, only more widespread, she said.
S&P affirmed the AAA ratings of Ambac and MBIA on Wednesday, but the agency warned that it may downgrade those ratings in future.

Bear Stearns Cos.' exposure to ACA Capital is "well contained," Chief Financial Officer Sam Molinaro said during a conference call with analysts Thursday.

A merchant banking fund run by Bear is an equity investor in ACA, but that exposure is not material, Molinaro said Thursday.
Bear's counterparty credit exposures to ACA are also "quite benign and fully reserved and reflected in earnings," the CFO said. "We have no additional exposure to them, so I think that that is quite well contained and behind us, whatever the exposure was."


Unlike most bond insurers, ACA Capital is required to post collateral to back some of its guarantees if its credit rating falls below a certain level. The company said on Thursday that its counterparties have agreed to waive all collateral requirements, and their rights to terminate deals, until Jan. 18.

"ACA Capital will continue to work with its counterparties in seeking a more permanent solution to stabilize its liquidity and capital position," the insurer said in a statement on its Web site. problems-trigger-more/story.aspx?guid=%7B64149C51- 59E9-45E9-B39B-0BF6341442F9%7D


Some smart banks are already preparing and they aren't in denial and they KNOW that firms like ACA that will collapse will cause them to lose BILLIONS more in losses. It's NOT just restricted to USA banks and institutions. As I mentioned, there is a lot of exposure all around the world. See this news release from Canada.


CIBC may take another $2B hit
By Ottawa Business Journal Staff
Thu, Dec 20, 2007 8:00 AM EST

Canadian Imperial Bank of Commerce is warning that it may have to take another $2-billion charge related to its U.S. subprime investments in its first quarter.

"Although CIBC believes it is premature to predict the outcome, CIBC believes there is a reasonably high probability that it will incur a large charge in its financial results for the first quarter ending Jan. 31, 2008," the bank's statement read.

The announcement came after news that Standard and Poor had reduced the credit rating of bond insurer ACA Financial Guaranty Corp. – a hedge counterparty to Toronto-based CIBC – from "A" to "CCC."

CIBC said ACA's insurance on subprime holdings was worth about $2 billion as of Nov. 30, and that it has hedged about $3.5 billion of its U.S. subprime real estate exposure with the New York-based company.

"It is not known whether ACA will continue as a viable counterparty to CIBC," the bank said.

The bank said it currently projects its Tier 1 capital ratio will remain in excess of nine per cent at the end of its first quarter if it takes the $2-billion writedowns, which amount to $1.3 billion after tax.

CIBC has already announced charges totalling C$978 million prior to the Wednesday announcement.

Here is another related article:

VANCOUVER, British Columbia, Dec 19 (Reuters) - There is a "reasonably high probability" that Canadian Imperial Bank of Commerce will report a "large charge" in its first-quarter results, the bank warned on Wednesday, as pain from the exposure to the U.S. subprime mortgage market deepens.

CIBC, Canada's fifth-biggest bank, did not give a firm figure for the charge but said the subprime hedge protection it bought from troubled bond insurer ACA Financial Guaranty Corp was valued at $2 billion as of Nov. 30.

That had risen from $1.7 billion at the end of October, showing a deterioration in the subprime housing market.

If the bond insurer -- whose credit rating was slashed by Standard & Poor's on Wednesday to junk level "CCC" from "A" -- were to fail, CIBC could lose that amount or more.

Shares in CIBC, which were already down 26 percent this year before Wednesday's developments, fell a further 1.6 percent, or C$1.15, after the announcement to close at C$71.14 on the Toronto Stock Exchange.

One analyst said a $2 billion charge likely isn't enough to clear CIBC's subprime exposure, which is held via complicated structured finance deals called collateralized debt obligations, most of which are hedged.

"There was a collective sigh across (financial centers) Toronto and Montreal, but it wasn't a sigh of relief," when CIBC's statement came out, said Genuity Capital Markets analyst Mario Mendonca.

"It is unfortunate that the bank has decided to bleed that out. They should take a charge so that most investors will say it really can't be any larger than that," Mendonca told Reuters in an interview.

Rating agency DBRS placed all of CIBC's debt ratings under review with negative implications on Wednesday after the ACA downgrade. Fitch Ratings said it may cut CIBC's "AA-minus" rating, its fourth highest investment grade.

Moody's Investors Service, however, said CIBC's statement about a large first quarter charge was "within the company expectations" when it changed the bank's rating outlook to negative on Dec. 6 and no further action was needed right now.

The New York Times reported on Wednesday that Merrill Lynch & Co Inc (MER.N: Quote, Profile, Research), Bear Stearns Co Inc (BSC.N: Quote, Profile, Research) and other large banks were in talks about bailing out ACA, citing two people briefed on the situation.

CIBC declined to comment on whether it was involved in the talks.

But Mendonca said that even if ACA is bailed out, those who it owed money would have to "suck up some loss".

"To say a bailout would reduce the possibility that CIBC would lose money is very simplistic," he said.

ACA's parent company, ACA Capital Holdings, lost $1 billion in its most recent quarter and last week delisted from the New York Stock Exchange.

CIBC, with some $11 billion tied to subprime mortgages, has by far the largest exposure to this market of Canada's banks.

Speculation doing the rounds on Wednesday was that CIBC might look for a capital injection, either through a share issue or through selling a stake in the bank -- akin to recent stake sales at global banks Citigroup Inc (C.N: Quote, Profile, Research) and UBS AG (UBSN.VX: Quote, Profile, Research) after they were hit by subprime charges.

Mendonca said the "best news" would be if Manulife Financial Corp (MFC.TO: Quote, Profile, Research), Canada's biggest life insurer, which has long expressed an interest in expanding in banking, were to buy into CIBC.

CIBC said on Wednesday that if it suffers a first-quarter charge of $2 billion before tax, its Tier 1 capital ratio, is assumed to be above 9 percent at the end of January.

International capital adequacy standards require commercial banks to hold a certain amount of capital to support their operations. In Canada, the Tier 1, or core capital, ratio target is 7 percent.


As I mentioned will start to see a whole wave of lawsuits come on the horizon. Not just from consumer and class action suits but you will see banks suing other banks. This will be very brutal and expensive with lawyers fighting lawyers and when it's all said and done it comes down to shareholders that will suffer.


Barclays sues Bear Stearns over sub-prime funds failure

Barclays has accused beleaguered investment bank Bear Stearns of using one of its two collapsed sub-prime hedge funds as places to offload troubled assets.

The British bank, launching a damning attack just hours before its US rival is due to announce full-year results, called the funds' combined $1.6bn collapse "one of the most high-profile and shocking hedge-fund failures of the past decade."

Barclays, in a lawsuit filed last night in New York's federal court, is seeking to recoup losses and damages from Bear Stearns Asset Management (BSAM), its chief operating officer Matthew Tannin and the recently departed Ralph Cioffi.

The 75-page suit does not disclose Barclays' exact losses as the bank argues it cannot calculate them because BSAM has been unhelpful in providing it with information since the funds collapsed in July.

Barclays was the sole shareholder in one of the two funds, the Enhanced Leveraged fund, having lent Bear Stearns what is understood to be between $300 and $400m to allow it to provide a leveraged return for its investors in two smaller feeder funds.

The suit alleges that Messrs Tannin and Cioffi knew of problems with the fund's performance as early as September 2006 - some nine months before it eventually collapsed.

Later in the document, Barclays provides what it claims is evidence of discussions between its bankers and those from Bear Stearns, with Mr Tannin allegedly writing in an email on February 22, 2007, that: "Despite the sell-off in the sub-prime mortgage market - our fund continues to do well, quite well, in fact."

It continues: "BSAM and Tannin repeatedly and fraudulently? misled Barclays and utterly failed to provide the total transparency? that the BSAM defendants promised to Barclays."

In one of its harshest criticisms, Barclays accuses Bear Stearns of using one of the funds as a place to "unload excessively risky or troubled assets" that it could not sell on to other investors.

Mr Cioffi, a former adviser who left last week, is being investigated by the US Attorney's office and the SEC over whether he withdrew $2m from one of the two funds ahead of their collapse.

A Bear Stearns spokesman said the suit was unjustified and without merit.


Really many companies still don't know what their true liabilities are. In 2008 you will continue to read/hear things like "we are shocked management withheld this information from us"


MBIA Tumbles on $8.1 Billion of CDOs, Fitch Warning

Dec. 20 (Bloomberg) -- MBIA Inc. fell the most since 1987 in New York trading after the world's biggest bond insurer disclosed that it guarantees $8.1 billion of collateralized debt obligations that investors say have a greater chance of losses.

``We are shocked management withheld this information for as long as it did,'' Ken Zerbe, an analyst with Morgan Stanley in New York, wrote in a report yesterday. ``MBIA simply did not disclose arguably the riskiest parts of its CDO portfolio to investors.''

MBIA, Ambac Financial Group Inc., and other insurers are being reviewed by credit-rating companies on concern they don't have enough capital to cover potential losses stemming from mounting downgrades of the securities they guarantee. Fitch Ratings ratcheted up the pressure on MBIA today, saying it would reassess its AAA insurance rating for a possible downgrade and gave the company four to six weeks to raise at least $1 billion.

More than $2 trillion of insured securities would lose their AAA ratings amid mass downgrades of bond guarantors. MBIA fell $7.07, or 26 percent, to $19.95 at the close of regular New York Stock Exchange trading. Ambac rose 24 cents to $27.70.

MBIA posted a document on its Web site late yesterday showing it insured $8.1 billion of so-called CDOs-squared, which repackage other CDOs and securities linked to subprime mortgages. Rising delinquencies on subprime loans contributed to downgrades on 2,007 CDOs last month alone, according to Morgan Stanley.

The ``eleventh-hour'' disclosure by MBIA ``ignites concerns all over again about the prospect for future losses,'' Kathleen Shanley, an analyst at bond research firm Gimme Credit in Chicago, wrote in a report. She said outside investors didn't know about the CDOs-squared, which she called the riskiest type of CDO.

MBIA Response

MBIA said in a statement late today that it disclosed in an Aug. 2 conference call with investors that it insured such transactions. It didn't break out every type of holding in that disclosure because less than 25 percent of the underlying collateral in the deals was mortgage-backed bonds.

In five CDOs-squared MBIA insured, the majority of collateral was CDOs of corporate loans, according to the statement. Between 12 percent and 38 percent of the collateral was CDOs of asset- backed securities including mortgage bonds, the company said.

Yesterday, Standard & Poor's lowered its outlook to negative for the AAA ratings of the bond insurance units of Armonk, New York-based MBIA and Ambac.

The $30 billion of exposure for MBIA Insurance to CDOs linked to residential mortgage-backed securities that S&P listed in its report yesterday includes the CDOs-squared disclosed by MBIA, S&P said today in response to investor inquiries. A Dec. 14 analysis by Moody's also included the exposures, Jack Dorer, an analyst at the New York-based ratings company, said in an e-mail message.

Bond Risk

Credit-default swaps for MBIA soared as much as 145 basis points to 625 basis points, the widest ever, before narrowing to 568 basis points, according to prices from CMA Datavision in London. That means it costs $568,000 a year for an investor to protect $10 million in MBIA bonds from default for five years.

One-year contracts surged to 1,050 basis points, prices from broker Phoenix Partners Group show. That implies investors are pricing in a 20 percent chance of default by March 2009, according to a JPMorgan Chase & Co. valuation tool used by Bloomberg.

Contracts on MBIA's bond insurer, MBIA Insurance, climbed 55 basis points to 300 basis points after reaching 340 basis points earlier today, CMA prices show. Contracts tied to Ambac rose 17 basis points to 582 basis points, according to CMA.

``How is confidence expected to return to the capital markets when these types of surprises continue to pop up?'' said Peter Plaut, an analyst at New York-based hedge fund manager Sanno Point Capital Management.

Market Overreaction

The Markit CDX North America Investment Grade Index, a benchmark credit-default swap index linked to the bonds of 125 companies including MBIA Insurance, rose 1 basis point to 78.5 basis points, according to Deutsche Bank AG in New York.

Potential losses from the CDOs-squared are ``hardly the kind of hit that should cause severe spread widening or the stock to crash,'' Barclays Capital credit analyst Seth Glasser said in a note to clients today. He said the CDOs MBIA disclosed yesterday may be less risky than investors are betting.

Fitch's rating review on MBIA is more aggressive than actions by Moody's and S&P. Both of those companies affirmed MBIA's AAA insurance rating with a negative outlook. Moody's and S&P also didn't set a deadline for MBIA to raise additional capital.

Fitch cited deterioration on some of the $22 billion of securities MBIA insures that are backed by second-lien mortgages. MBIA announced last week it was setting aside $500 million to $800 million to cover expected claims on those bonds.

Warburg Pincus Investment

On Dec. 10, MBIA said Warburg Pincus LLC agreed to purchase $500 million of new shares at $31 each and to ``backstop'' a private placement rights sale for an additional $500 million in an effort to bolster capital. Three days later, MBIA in a regulatory filing said the deal was contingent on performance-specific covenants and referenced a schedule of undisclosed conditions.

Warburg had been provided details of the CDOs-squared before the deal, MBIA said in its statement today. Chuck Dohrenwend, a Warburg Pincus spokesman, declined to comment.

Stress Test

S&P ran a stress test to determine the losses bond insurers would take on securities backed by subprime mortgages, including CDOs. Losses were projected at $3.1 billion for MBIA, $1.8 billion for Ambac, and $2.2 billion for Financial Guaranty Insurance Co.

MBIA's higher loss potential was attributed to the company's guarantees on securities backed by home equity loans, S&P said.

MBIA Insurance stands behind about $652 billion of municipal and structured finance bonds. Ambac insures $546 billion of debt.

MBIA's disclosure explains why S&P and Moody's Investors Service turned more negative on the industry in recent weeks, Zerbe said. Last month, Moody's said MBIA was ``unlikely'' to fall below its target capital level for an AAA bond insurer despite downgrades of securities backed by subprime mortgages. Ambac had been flagged as ``moderately'' likely to need more capital.

``This disclosure completely changes our view of MBIA being a more conservative underwriter relative to Ambac,'' Zerbe wrote.

CDOs have accounted for the biggest portion of the more than $70 billion in writedowns in the past two quarters at the world's biggest banks. CDOs-squared have lost the most on a percentage basis among CDOs linked to subprime mortgages, New York-based Merrill Lynch & Co.'s third-quarter disclosures showed.

Another related story on this that you might find interesting:

Shares of MBIA Fall As Bond Insurer Details The Exposure to Collateralized Debt Obligations
December 20, 2007: 08:09 PM EST

NEW YORK (Associated Press) - Shares of bond insurer MBIA Inc. plummeted in Thursday morning trading after the company detailed the exposure to the troubled credit markets.

MBIA shares fell $7.07, or 26.2 percent, to close at $19.95 Thursday. Earlier in the session, shares hit a 52-week low of $18.84.

MBIA said its total exposure to bonds backed by mortgages and collateralized debt obligations is about $30.61 billion. Included in that exposure is a pool of about $8.14 billion in CDOs backed by a combination of other CDOs and mortgages, which some analysts consider the riskiest part of an investment portfolio.

CDOs are complex financial instruments that combine slices of assets and other debt. The value of the mortgage-backed bonds and CDOs has been declining rapidly in recent months as the underlying debt has increasingly defaulted. Many CDOs and mortgage bonds are backed by subprime mortgages, given to customers with poor credit history, which have been among the worst-performing loans.

Morgan Stanley analyst Ken Zerbe said the size of MBIA exposure was surprising and riskier than he previously thought. Zerbe recommends avoiding investing in all bond insurers until they can accurately assess the final size and scope of their mortgage and CDO losses.

On Wednesday, Standard & Poor's affirmed its "AAA" rating on MBIA but placed the company on a negative outlook. A negative outlook means the company has a one in three chance of being downgraded in the next two years.

S&P said it fully incorporated MBIA's full exposure to mortgage bonds and CDOs when it affirmed the bond insurer's rating Wednesday.

Shares of MBIA had traded between $24.62 and $76.02 during the past year
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Richard Graham
New member
Username: Richg

Post Number: 11
Registered: 6-2007
Posted on Friday, December 21, 2007 - 7:47 pm:   Edit PostPrint Post

This is a fascinating and downright scary one. It has the potential to blow all business plans out of the water, or indeed under it. The potential problems go way, way past the economic problems of boom bust. Let’s hope that the expected gloom in the future is solely related to credit greed and not a more far reaching and irreversible problems.
I think that Argentina has the potential to absorb a hell of a lot, but I doubt it is politically mature enough to make the key economic decisions that will enable the country to be fully sustainable in the wake of a serious energy crisis, climate crisis etc. etc.
Personally I am looking to make my business fully self sustainable (for my bar/restaurant in Mendoza). Intending to whack solar panels on the roof when the outlay justifies the return. I will be growing food at the family finca etc. etc.
In a context of Mendoza, after a year here, my impressions are that people don't understand the opportunity they have to be truly self sustainable if the solids hit the fan. If you look at the potential problems of my home country the UK, The Netherlands….God forbid Bangladesh, the Northern Sahara the list continues as we all know. It's a potential paradise here.
I think this makes me a “neo flower powerite”, but still a capitalistic one!
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Username: Welcometomendoza

Post Number: 85
Registered: 7-2007

Posted on Saturday, December 22, 2007 - 6:46 am:   Edit PostPrint Post

source: tml?_r=1&oref=slogin&ref=business&pagewanted=print

December 22, 2007
Big Fund to Prop Up Securities Is Scrapped

Some of the country’s biggest banks have pulled the plug on a plan backed by the Treasury Department to rescue troubled investment vehicles that were leveled by the subprime mortgage crisis.

The decision came Friday after it became clear that neither the banks nor the structured investment vehicles were willing to create a giant fund to bail out the SIVs.

The reversal is a setback for Treasury Secretary Henry M. Paulson Jr., who had urged the banks to create the so-called super SIV to keep the crisis in housing-related debt from worsening.

A separate proposal by the Bush administration to modify home loans for troubled borrowers has also met with skepticism.

“It is somewhat politically embarrassing for the administration,” said Bert Ely, a banking industry consultant. “The mortgage modification program is much more significant and will get much more media attention if it doesn’t get the results that have been promised. That discussion will put the SIV plan into ancient history.”

At the Treasury’s behest, Bank of America, Citigroup and JPMorgan Chase hammered out the SIV plan this fall in hopes of avoiding a sharp sell-off in securities owned by these vehicles. Such a fire sale might rock the already jittery credit markets.

Originally it was thought that the giant fund, called a Master Liquidity Enhancement Conduit, or M-LEC, might raise as much as $80 billion to buy assets from the SIVs. But it quickly became clear that the fund would be scaled back or scrapped. Many of the 30 or so troubled SIVs moved to solve their problems themselves, sharply reducing their holdings of asset-backed securities. Many banks, meantime, were reluctant to commit financing to the super SIV.

As recently as Tuesday, leading banks and BlackRock, which was to manage the super SIV, said they were committed to the rescue fund. During the past two days, however, bank representatives and senior Treasury Department officials began to discuss whether to abandon the plan. Mr. Paulson was briefed before they made the final decision Friday afternoon.

Still, major banks left open the possibility that the super SIV could re-emerge if necessary. “The consortium will continue to monitor market conditions and remain committed to work collaboratively on any appropriate solutions, including activation of the M-LEC, if needed,” the group said in a statement.
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Advanced Member
Username: Saint

Post Number: 284
Registered: 5-2005

Posted on Saturday, December 22, 2007 - 11:04 am:   Edit PostPrint Post

I believe there is a 50% / 50% the USA will slip into a recession in 2008. Some experts are already predicting that we started a recession this month. Time will tell.


Source: omy_pimco_dc;_ylt=AgQVKTj6LC9WfeAkOpaOsFyyBhIF

PIMCO's Gross says U.S. in recession: report Fri Dec 21, 8:18 AM ET

The U.S. economy this month has fallen into a recession, which should last for the next four to five months, Bill Gross, chief investment officer of the world's largest bond fund manager, told the Financial Times.

"If I had to be bold I'd say we began a recession in December," he said in an interview posted on the paper's Web site on Thursday.

The median forecast for growth in the U.S. gross domestic product in the fourth quarter of 2007 is a 0.9 percent annualized rate, according to a Reuters poll, sharply slowing down from a 4.9 percent rate in the third quarter.

Growth is seen sputtering largely because of the ailing housing sector, crippled by rising defaults on mortgages and the difficult lending environment.

Gross, who founded Pacific Investment Management Co or PIMCO, said the government's efforts so far to blunt the impact of the credit crisis have not been enough.

Two weeks ago the Bush administration unveiled a plan to slow the rate of home loan foreclosures by offering some homeowners a five-year freeze on mortgage rates.

"What needs to be done is something fairly radical compared to Republican orthodoxy, which means spend money and absorb the deficit as opposed to pretending that you're fiscally conservative."


For those of you who don't know who Bill Gross is..he is a pretty sharp guy/investor. He is a very intelligent and savoy guy that runs the world's largest bond fund. Here is a good article below that he wrote:


The woven tangled web of subprimes has claimed more than its share of victims in recent months. Homeowners by the hundreds of thousands, to be sure, but also those that created, packaged, insured, distributed, and ultimately bought what should have been labeled "junk mortgages," but which by a masterstroke of marketing genius were given a more respectable imprimatur. "Skim milk masquerades as cream," warned Gilbert & Sullivan a century ago and sure enough, modern day subprimes packaged into financial conduits with noms de plume such as "SIVs" and "CDOs" pretended to be AAA rated cubes of butter. Financial institutions fell for the charade hook, line, and sinker and now we all suffer the consequences. Defaults are rising, the dollar’s sinking, and good Lord—even Google’s stock price is going down. Something must really be wrong here.

It is. What we are witnessing is essentially the breakdown of our modern day banking system, a complex of levered lending so hard to understand that Fed Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August. My PIMCO colleague, Paul McCulley, has labeled it the "Shadow Banking System" because it has lain hidden for years—untouched by regulation—yet free to magically and mystically create and then package subprime mortgages into a host of three-letter conduits that only Wall Street wizards could explain.

As I’ve noted before, it is certainly true that this shadow system with its derivatives circling the globe has democratized credit. And as the benefits of cheaper financing became available to the many, as opposed to the few, placating and calming waves of higher productivity and widespread diversification led to accelerating economic growth, incomes, and corporate profits. Yet, as is humanity’s wont, we overdid a good thing and the subprime skim milk has soured.

Still, to equate rancid milk with a breakdown in the modern-day banking system is a bit much, don’t you think? Aren’t our central bankers coming to the rescue with lower interest rates and doesn’t Treasury Secretary Paulson finally have a plan to steady Citibank and friends with a "Super" SIV as well as a bailout plan to fix subprime yields and keep homeowners in their homes as opposed to on the streets? They do, but what may be needed more than cheap financing or SIV bailouts is a return of confidence to a shadow system built on fragile foundations. Financial conduits supported by a trillion dollars of asset-backed commercial paper were constructed on the basis of AAA ratings that whispered—nay shouted—that these investments could never fail: no skim, just crème de la crème. Now, as the subprimes undermine these structures and the confidence in them, it is a stretch of the imagination to suggest that 75 basis points of interest rate cuts by the Fed will bring back the love. As the commercial paper market shrinks by hundreds of billions a month, central banks worldwide are facing a giant stress test of the modern-day shadow banking system. The publicized and photographed overnight "runs" on Countrywide and the UK’s Northern Rock in mid-August were nothing compared to what’s taking place in the shadows of the real banking system. Credit contraction, with its inevitable companion of asset destruction, is spreading with the speed of an infectious bacterial disease.

How does one protect "deposits" during a run that no one can see? To be blunt, what does this mean for your pocketbook? Commonsensical analysis has only to ask what investments did especially well during the shadow’s formation in order to understand where future losses may lie. Home prices have been the obvious first hit—down 5% nationwide already, with perhaps another 10% to go over the next several years. Following in lock-step have been financial stocks with subprime exposure to be joined in short order by consumer-based equities as jobs and disposable income falter. These investments thrived as the shadow worked its voodoo and now its curse will sap money from the pockets of any and all who believed in its black magic. Importantly, add to the list of investment victims the strength and viability of our national currency. The SIVs and CDOs of years past supported the dollar at unrealistic levels as foreign investment in the hundreds of billions powered into our markets. Now with confidence waning, the visible but unphotographable run away from George Washington into the Euro, the Yen—anything but the dollar—is underway. Protecting an American-made pocketbook should begin by understanding that purchasing power is more likely to be enhanced via investments in strong, not weak, currencies.

And too, as the shadow unravels, bond investors have been barraged with a host of changing relationships that present a tantalizing menu of attractive arbitrage possibilities against U.S. Treasuries—the star "flight to quality" performer in an environment where almost all bonds are viewed with suspicion. Even Agencies, the step-sisters to Cinderella Treasuries, have been avoided due to billion dollar write-offs at Freddie and FNMA. Swaps—in third place on the quality ladder, yet still reflective of LIBOR yield levels offered by the world’s best banks—provide 70+ basis point premiums or more to Treasuries across almost the entire yield curve. Agency-guaranteed mortgages, reflecting higher levels of assumed volatility, present 150 to 175 basis point pick-ups. What appear then, to be strikingly low yield levels for U.S. Treasuries, are not being reflected by the rest of the U.S. high-quality bond market. Fed ease has lowered Treasury yields, but for the rest of the market—the segment that influences the bottom line of U.S. corporations, homeowners, and consumers—not much has changed. Those that claim that the current cycle of Fed ease will inevitably—and shortly—lead to vigorous economic growth do not really have their ears to the ground or their eyes on their Bloomberg screens. The Fed needs to bring Fed Funds levels down steadily and significantly more in order to counteract the contraction of the shadow banking system which has imposed, and will continue to require, higher risk premiums for non-Treasury securities in an increasingly risky financial environment.

The ultimate destination of Fed Funds is dependent on the state of the domestic economy which, in turn, will be influenced by the direction and level of U.S. housing prices. Chairman Bernanke and his divided band of governors will have to feel their way along this treacherous path with canes in hand—not totally blind, but significantly hampered by a lack of historical context which might point the way to the ideal rate via precedent as opposed to feel. Nonetheless, there are theoretical guidelines which may help to validate or invalidate current assumptions reflected in Fed Funds futures contracts which currently forecast an ultimate floor of 3¼% sometime late in 2008. Traditionalists would point to the "Taylor Rule" which formulaically computes a neutral Fed Funds yield based on divergences of real GDP and inflation from "potential" and "target" levels. Since these levels are somewhat variable and subjective, there is no one number that a computer can spit out, but nonetheless, using reasonable assumptions, neutral Fed Funds levels somewhere in the 4% "+ or –" range are produced. Assuming the Fed would have to drop below neutral to stimulate a faltering economy, the 3¼% Fed Funds futures forecast does not seem unreasonable.

My own methodology incorporates historical cyclical evidence as well as a rather commonsensical conclusion based upon the evolution of the leverage-wrapped shadow system described in opening paragraphs. First of all, history would point out that Fed easing cycles during prior recessionary or near recessionary economies have invariably dropped to 1% Fed Funds rates when calculated on a "real" or inflation-adjusted basis. With PCE core levels at 2%, a destination of 3% would therefore be a reasonable current target. Secondly, one can easily compute a "neutral" real Fed Funds level by simply averaging the spread between funds and core inflation over a period of time long enough to incorporate the ups and downs of cyclical influences on inflation and GDP. Such a history should produce the real Fed Funds level required to keep the economy growing at a reasonable non-inflationary rate typical of the last decade—a logic quite similar to that incorporated in the Taylor Rule.

The average real short-term rate using this methodology over the past 8 years has been 1½%. Commonsensically, this 1½% real rate is the neutral rate that has pumped life into our new finance-based economy with its complicated shadow banking system. It is logical to me therefore, to assume that 1½% is the neutral rate required to keep the future Shadow oiled and properly functioning. If so, then 2% core inflation and 1½% real Fed Funds require a drop to at least 3½% just to maintain current momentum. To restart a near recessionary economy we may need to eventually go down to 3% or lower.

Forward-looking bond investors should understand that the shadow banking system has been built on leverage and cheap financing and that to keep it from imploding, a return to Fed Funds levels closer to those of 2003 may be required. While the Fed is not likely to repeat its 1% "deflation insurance" levels of that year, current Fed Funds futures which predict a 3¼% bottom are not likely to be correct either. Standby for a tumultuous 2008 as the market struggles to move from the shadows back into the sunlight of sounder banking and financial management, accompanied by Fed Funds levels at 3% or lower.

William H. Gross
Managing Director


As I posted before, more and more Asian and Middle Eastern countries will be on a spending spree buying up our banks, institutions and real estate. These banks and financial institutions are forced to sell big pieces of their firms to these cash rich countries.

Merrill Lynch is in talks to sell u$s 5 BILLION of it's firm to Singapore. Incidentally, Singapore also announced earlier this year they would buy a u$s 2 BILLION stake in Barclarys PLC.

Abu Dhabi Investment Authority bought a $7.5 BILLION stake in Citigroup Inc.; the Government of Singapore Investment Corp. invested $9.75 billion in UBS AG; and this week China Investment Corp. paid $5 billion for a stake in Morgan Stanley.

Expect to hear more of these types of deals. The Chinese are going to play a HUGE influence on the economy of the world in the future. They are buying up billions of dollars in strategic and important banks and investment companies throughout the world. It's not not USA and UK banks either. They have already started buying up banks in South Africa as well (Standard Bank).

You are looking at a real life game of "Global Monopoly" in the making.....

As I've posted for many years those individuals that have the ability to do TRUE due diligence and project what is going on around the world have the ability to do extremely well even in down cycles. There IS a reason why some hedge fund and investment companies have 400% returns in 2007 alone. As I've always advised, don't necessarily believe everything you hear from your government or the banking system. Question authority and be very aware of what is going on around you.

When one of the biggest investors in the world is laying out lines like, "How does one protect "deposits" during a run that no one can see?" ... keep these kinds of things in mind.

There is no excuse these days to blame someone else during a downfall. There is SO MUCH FREE information out there via the power of the internet to research that there will be no excuse during a down cycle. The only way to be prepared is taking actions ahead of time.
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Advanced Member
Username: Saint

Post Number: 285
Registered: 5-2005

Posted on Saturday, December 22, 2007 - 5:06 pm:   Edit PostPrint Post

Here are a few more good articles on the real estate mess in the USA.

I can confirm that the "deals" are indeed out there. Personally, I'm waiting until the end of 2008 to start buying in the USA but the "vultures" are out there. I have a client who recently got transferred to California and he needed a home to live in. Get this. He bought a house in a very good area for $300,000 that sold less than 3 years ago for $625,000. The purchase was from a bank and the house was going through foreclosure. Personally I think the property probably will get cheaper but he wanted to buy to live so the purchase was sound. The bank he mentioned to me was desperate to sell before January 1 as they wanted to unload that bad debt off their books for the year. The scarey thing as it turns out is the previous owner wasn't some deadbeat. It was a fairly upper middle class American professional but he had "gambled" and purchased 3 homes with ARM's that readjusted higher and simply couldn't afford them.

Read the story below of the family that still just got a 100% mortgage. NO MONEY DOWN. They were wise to get a 30 year FIXED mortgage but still you are seeing banks giving out 100% loans which will eventually stop. Banks already have started to ask for big deposits now and many Americans don't have these deposits. Yet, the scarey thing is many Americans buying homes still don't know the difference between a fixed rate or adjustable rate. I've said a long time ago many Americans don't know how to read their credit card statement yet alone the huge stack of mortgage closing papers. Still scarey people don't know the difference. Should people like this really be given 100% no money down mortgages?


Climb Aboard the Bus!
Cesar Dias Takes Interested Home Buyers for a Ride on his "Repo Home Tours" ory?id=4041552&page=4

With home foreclosures on the rise, one man is making the best out of a bad situation.

Cesar Dias, who has been in real estate 18 years, is making sure that the foreclosed houses in his hometown of Stockton, Calif. are getting sold, in a quite unusual way.
Dias leads the weekly "Repo Home Tour," where he fills two large, brightly colored buses with prospective buyers looking for houses with big price reductions. There is almost an art to the way he makes the home-buying experience fun.

He tempts prospective homebuyers with sweets and good cheer as if the whole thing's a party, then loads the whole crowd onto a couple of buses as if they're all going on break.
But if you ask Cesar Dias why he conjured up Repo HomeTours three months ago he'll tell you it's not about money, or profits, or exploiting the misfortune of others, but about saving neighborhoods in Stockton.

Many of the foreclosed properties are in still thriving communities, where the homes are dressed up for Christmas, and where the ice cream truck still rolls through, but where the occasional homeowner got in too deep and lost it all. Dias believes he is providing a necessary service.
"We have an abundance of properties," said Dias. "And banks have to sell, and we have to provide buyers."

With this simple logic, Dias believes he is saving homes. And many of the homes in Stockton need all the saving they can get. This was a town that was born in the California Gold Rush, and over time has experienced the all too typical real estate boom -to-bust.

There was a housing construction boom partly fed by people who could not afford the expensive houses in San Francisco, 60 miles away. As more and more homes were being built, prices went down and homebuyers were finding homes they could afford, or so they thought.

Many homebuyers simply bought to turn a profit; heedless to the bust that would inevitably come as homeowners could no longer afford their mortgage payments.

According to RealtyTrac, a group that monitors real estate, Stockton had the highest rate of foreclosures of any metropolitan area in the nation between last July and September.

Foreclosures Good News for Some

If there is good news for anyone in that statistic, it would be for people like Elissa and Jon Hernandez, who were on Dias's tour this week. The Hernandez's have been renting for years but believe they can finally afford to own a home, thanks to the decreased prices of the foreclosed homes in Stockton.

In fact, one of the houses displayed on the tour was a two-story, 2,600-square-foot house that was purchased for $504,000, but now the bank that owns it is only asking $285,000. Hearing about these price drops is part of the thrill of the tour. Participants have a sense that they might just get lucky and have a home drop right into their laps.

It happened for Daniel and Debbi Noel. They had been living in a one-bedroom rental with air mattresses in the living room since their boys were little kids. Now all four were on the tour, just to celebrate how great shopping foreclosures can be.
It was made even better because Dias threw them a party for their first day in their new house, the first that couple has ever owned. The Noels were thrilled to get the house—apparently a lot of people were looking to buy it.
"We settled on the home for $185,000. It was on the market for $179,000," said Daniel Noel.

With all of the joy at getting a new home, sometimes it's easy to forget about the poor previous owner who lost the home. "It hadn't crossed my mind," Daniel Noel said of the previous owner's loss. "I look at it as more or less an opportunity."

The Hernandez's see it as an opportunity as well and refuse to apologize for buying a foreclosed home. "We get ourselves into positions and if we can't get ourselves out, it's our responsibility to do what we have to do," said Jon Hernandez.
Daniel Noel's wife could put herself in the place of the old homeowners. "If it was us and we were in whoever's shoes who had this house, yeah I feel for them."

Cesar Dias does feel for the old homeowners as well, but believes it is all part of the business. "In every business there's casualties and there's an influx of new buyers."

A Vicious Cycle?

The homes that families like the Hernandez's and the Noels are snatching up are empty, because their previous owners took on mortgages that were too big for them, or became too big when their adjustable interest rate ticked upward. The assumption has to be that this crop of buyers will not repeat those mistakes but there are no guarantees that the new owners won't fall into the same trap.

The Noels themselves took on a hefty mortgage. They paid with no money down and therefore borrowed the entire value of the house at 7 percent interest. While it's a lot, Daniel Noel believes they can handle it.

"It's a 30-year fixed, $1,600 a month, which is good at 100 percent financing," Daniel Noel said of the home.
The Hernandez's have not committed yet to buying, but it seems like they still have a few things to learn about mortgages. When asked if they were planning to get an adjustable or fixed mortgage, Jon Hernandez admitted that "I personally don't know the difference."

Even if you can handle and understand the mortgage, getting a foreclosed house is not necessarily getting a bargain. It doesn't really matter what the last guy paid for it. What matters is what the next guy will pay -- and no one really knows if prices are done dropping yet.

Buying now takes an optimist. People like John Escove, who was along on the ride, looking for investment properties.
"When you see a house like the one we saw with the swimming pool for $225,000, that's going to sell right away," said Escove. "And they'll have multiple offers on it. That's just a bargain."

And while the foreclosure tourists are certainly happy to be shopping for a bargain, one wonders what the neighbors think of the colorful road show home-buying circus. It doesn't bother Stockton resident Don Bailey.

"I don't care who sells it, you know, just sell it," said Bailey.

It's an answer that could have been scripted by Cesar Dias. No one likes an empty house. But in Stockton there are lots of them, and they're on the tour.

Median home price in L.A. County, state off 12%

By Gregory J. Wilcox

Article Last Updated: 12/21/2007


With the credit crunch eroding the real-estate market, the median price of a home in Los Angeles County and the rest of California plummeted a record 12 percent from a year earlier, a trade association said Friday.

Sales of existing homes also continued their double-digit plunge, said the Los Angeles-based California Association of Realtors.

In Los Angeles County, the state's biggest market, the median price of a previously owned house dropped in November to $520,960 from $590,790 a year earlier, the report said. Sales fell 36.5 percent.

Statewide, the median price sank to $488,640 from $554,500 a year earlier.

A separate report prepared by the association and market tracker DataQuick Information Systems showed that only 41 out of 295 cities and communities in California - less than 14 percent - showed an increase in median home prices from a year earlier.

Robert Kleinhenz, the association's deputy chief economist, attributed the price declines to potential buyers having trouble obtaining jumbo loans. These are typically used to buy houses costing more than $417,000, the amount that will be purchased by mortgage giants Fannie Mae and Freddie Mac.

"It's very hard to figure out when that's going to be resolved because it has to play out globally in financial markets around the world," he said of the credit crunch.

"We'll probably still see very weak sales here in California because of our reliance on jumbo loans."
However, Kleinhenz expects prices to level off soon, both locally and statewide.

And when the credit issue is resolved, he said, the state's median should again rise above $500,000.

Statewide, sales fell 36.2 percent last month on an annualized basis, meaning that 287,600 properties would change owners this year at November's sales pace.

The association also showed that:

In Ventura County, sales fell 55.3percent and the median price slipped 6.1 percent to $623,510.

In the High Desert, which includes the Antelope Valley, sales plunged 52 percent and the median price fell an annual 21 percent to $262,650.

There were 15.3 months of inventory - the length of time it would take to deplete the supply in the current market, more than double a year ago.

Thirty-year fixed-mortgage interest rates averaged 6.21 percent last month, down from 6.24 percent a year ago.
Adjustable-mortgage interest rates averaged 5.48 percent in November, down from 5.51 percent last year.

The median number of days it took to sell a single-family home was 63 days, five fewer that a year ago.

"I don't see much change in this trend. It's not very good news," said Jack Kyser, vice president and chief economist at the Los Angeles County Economic Development Corp.
"Right now the news is not encouraging. No wonder people are not out shopping," he said.

East Bay losing jobs


Article Last Updated: 12/22/2007

URL: i_7787065

The East Bay economy, battered by the meltdown in the housing and mortgage markets, has lurched into a deepening employment slump, according to a government report released Friday.
The Alameda County-Contra Costa County region lost 1,800 jobs in November, adjusted for seasonal changes.

The setback comes on the heels of job losses in September and October. All told, the East Bay has lost jobs for three months in a row. During that period, employers have erased a seasonally adjusted 4,200 jobs, according to the state's Employment Development Department.

"The job market is very dismal," said Robin Gardner, a Fremont resident who said he has been looking for work as an administrative assistant. "I average sending out about 50 resumes a day. This past month, I've gotten one interview per week, maybe. I won't be enjoying this Christmas."

Why is this happening? It was only a year ago that the East Bay was the economic leader of the Bay Area. But the residential real estate wreckage has engulfed at least a portion of the region's economy and job market.

"There is a continuing housing sector slowdown," said Howard Roth, chief economist with the state's Department of Finance.

"I don't see the housing problems slowing down yet."
In January of this year, four key industries tied directly to housing — residential construction, specialty construction, real estate, and credit intermediation, which largely consists of mortgage agents, loan officers and other realty finance workers, created 100 jobs over a one-year period, an analysis of the EDD report by this from Business 1 newspaper showed.
But by June, these four industries had produced annual job losses of 5,100. And by November, those four industries, compared with the same month in 2006, had lost 10,300 jobs.
"This has definitely affected the broader job market," said Michael Bernick, a Milken Institute Fellow who specializes in employment policy. "There have been significant layoffs in mortgage banking" in the East Bay.

The Alameda-Contra Costa region has suffered a steadily worsening weakness in job creation throughout 2007. And the pace of the area's job gains have eroded in tandem with the disastrous employment losses in housing.

"The numbers clearly indicate that the housing market has gone beyond just impacting construction and financial activities," said Jon Haveman, a principal economist with Beacon Economics, which tracks regional markets.

In January, the region added 19,500 jobs on a year-to-year basis. In June, though, the annual rate of job growth had slowed to 12,300. And by November, the East Bay had gained only 3,700 jobs compared to the year before, a paltry 0.3 percent increase in annualized job growth.

In comparison, California managed job growth of 0.6 percent over the year.

"Retail is down, professional services, primarily management, are down. Financial activities, the information industry, they are all being hit," Haveman said.

Even worse, a drastic economic downturn could afflict the economy of many regions, such as California and the Bay Area, and the East Bay in particular, that have been bolstered to a great degree by a once-hot housing market.

"The bursting of housing bubbles traditionally lead to recessions in the United States, and this is the housing bubble to beat all housing bubbles," Haveman said. "We are not surprised at all that the economy is slowing down dramatically."

That uncertainty has left more than a few job seekers nervous. Victoria, a San Ramon resident who asked that her last name not be used, said she has had few responses to her job postings on multiple Internet employment boards.

"It's been pretty difficult to find a job," Victoria said.
Until mid-2006, Victoria worked in an array of jobs in the housing finance and real estate industries. Her most recent stint was at World Savings, whose parent was taken over by Wachovia Corp.

"I'm pretty open to any kind of job," Victoria said. "Real estate is not a good market any more. A bunch of companies are laying people off. I will definitely consider getting into a new field."

A survey of workers by Spherion Corp., a staffing services firm, suggests that the uncertainties in the job market have rattled employees.

"Employees are unlikely to look for a new job," said Joan Van Donge, a Spherion regional vice president. "Their confidence in their ability to find a new job is down. They believe the economy is a little bit weaker."

Still, some job sectors look pretty promising, despite the housing woes.

"Health services are strong, business services not related to the mortgage industry look good, education, leisure, hospitality and some parts of manufacturing are looking good," Van Donge said. "We also see strength in biotech and pharmaceuticals."


Credit crunch begins to squeeze municipal borrowings

By: ZACH FOX - Staff Writer

Investors stand to lose, as well, if they sell short

NORTH COUNTY -- The mortgage crisis has seeped into the municipal bond market, threatening to drive up borrowing costs for government issuers and reduce the value of investor portfolios, analysts said Friday.

In order to secure lower interest rates, governments buy insurance policies that raise the credit rating of bonds, which municipalities such as city and county governments sell as debt in order to raise funds.

Several of the biggest firms that sell those insurance policies are having trouble, because they also insured securities that hold subprime mortgages -- loans to home buyers with poor credit who are caught in a historic rise in defaults and foreclosures.

This week, the three agencies that effectively determine interest rates on bonds by grading credit ratings -- Moody's, Standard & Poor's and Fitch Ratings -- have published reports with negative expectations for four major insurance companies that cover at least 1,088 North County bonds worth hundreds of millions of dollars.

"This is probably the largest event that has ever occurred for bond insurance companies," said Howard Mischel, managing director of Standard & Poor's. "This is sort of like the 500-year storm for them."

The insurance companies will lose their top credit ratings if they are not able to raise money within four to six weeks to cover losses expected from the mortgage crisis, Fitch Ratings reported this week.

A lower credit rating for the insurance companies -- and corollary lower bond ratings -- could cost govermental issuers more money immediately if their bonds have adjustable interest rates, said David Litvack, managing director of Fitch Ratings.

City officials with Poway, Escondido and Temecula said all of their bonds have fixed interest rates, which are not affected by a lower credit rating.

For the insurance companies, a lower credit rating could put them out of business, but it will have little effect on the issuers, analysts said.

It will, however, make the bonds worth less for investors and could decrease the value of mutual funds and 401(k) programs, they said.

And it is likely to make future borrowing slightly more expensive for issuers, analysts said.

"It will have an impact. I don't think it will cause cities and states to close down schools and museums, but it adds a level of pressure on spending by municipalities -- a small level of pressure," Litvack said.

Poway will consider over the next 12 months whether to issue development bonds that could range between $20 million and $35 million, said Peter Moote, assistant director of administrative services.

Escondido will not issue bonds for three to four years, and the only one slated to start in four years is a $15 million water bond that is subject to change, said Gil Rojas, director of finance.

Vista could sell between $30 million and $40 million next year to finance its sewer systems, said its finance manager, Tom Gardner. He also said any insurance company's lower credit rating will not affect Vista's recent sale of $116.4 million in debt.

Palomar Pomerado Health, inland North County's public hospital district, is in the middle of a $1 billion capital expansion project, with about $250 million of bonds that were scheduled to be issued over the last few weeks.

A hospital spokesman and a board member contacted Friday said they didn't know whether the deal had been completed. Finance executives were not available.

Southwest Riverside County also has at least 183 municipal bonds insured by companies at risk of losing their top credit rating. It was not clear Friday whether cities in the region were planning bond sales anytime soon.

Cities buy bond insurance so they can secure better credit ratings, which reduce interest rates and more than offsets the insurance premiums. If the insurance companies fold, municipalities or public agencies looking to borrow in the future will have to either pay higher premiums to the remaining insurance companies or pay a higher interest rate, analysts said.

But Bill Ackman, founder of New York-based Pershing Square Capital, said he expects municipal entities to borrow at the same low rates without paying for any insurance.

Ackman said municipal entities have been rated lower than they deserve and never needed insurance in the first place.

"Taxpayers have been paying for bond insurance when they don't need it. It's crazy. It's a complete scam," he said.

Other analysts said a lower rating on the bond insurer will reduce the credit rating on the bond itself. That is likely to decrease the bond's value if an investor wanted to sell it before it expired, said Steve Heaney, managing director of Stone and Youngberg, a Solana Beach-based law firm that deals with municipal bonds.

But, he said, if an investor holds the bond, the final payout by the issuer will be the same. The insurance company only comes into play if the issuer does not have enough money to pay its debts, which city officials said is highly unlikely.

"Look at the housing market -- if you live in the house for the next 20 years, it made money and do you really care that it has declined 20 percent this year? Well, no, but you still lost value this year," he said.

The credit rating agencies will scrutinize the companies closely because they suspect insurance firms do not have enough money to pay out all the mortgages expected to default over the coming months.


Condos suffer as housing slumps

By Brian Wargo / Staff Writer

More midrise condo projects in Las Vegas have been postponed as part of the continuing shakeout of the housing industry.

The number of condo units suspended jumped 21 percent in the third quarter from 3,877 to 4,688, according to the latest numbers released by consulting firm Applied Analysis.

There were 4,598 planned units for sale, down from 6,091 at the end of the second quarter, a 24.5 percent drop.

With financing harder to come by for developers, there were more than 20,000 units suspended or canceled through the end of the third quarter. There were more than 14,000 units postponed or canceled at the end of the first quarter.

Most of the attention over the past year has been on the cancellation of high-rise projects on the Strip, but more affordable midrise projects of four to nine stories away from the glamour of Las Vegas Boulevard were supposed to play a greater role because of the high cost of land and need for greater densities.

The fourth-quarter report is expected to show additional cancellations and the suspension of midrise projects such as Spa Lofts, 147 units planned in the southwest valley, analysts said.

The prices of new homes and existing homes have fallen, giving local buyers some incredible bargains that hadn't been available and further competition for the condo market that is also a lifestyle choice.

"There is a lot of competition in the marketplace, and it is difficult for buyers to be willing to pay the premium for a project when there are 27,000 resale units on the market today," Applied Analysis Principal Brian Gordon said.

The numbers don't reflect the the demise of the midrise condo market in Las Vegas but simply a delay of what will become a more important part of the housing market, said Steve Bottfeld, executive vice president of Marketing Solutions, which tracks the housing market.

Bottfeld said the suspensions and cancellations were prompted by ill-advised projects that were overpriced, by lousy floor plans that were either too small or didn't offer upscale features and by developers who couldn't retain prospective buyers before contracts were written. Developers need to sell 50 percent to 70 percent of their units to obtain construction loans.

"You add in problems with (the credit crunch), foreclosures and consumer confidence, and you have a recipe for a tough time," Bottfeld said.

In its latest statistics tracking the third quarter, Applied Analysis reported there were 13,033 condo units under construction, led by MGM Mirage's CityCenter.

There are 7,219 existing condo units, up from 5,849 at the end of the second quarter.

Location counts: 2,565 of those existing units are on the Strip; 1,992 are on Las Vegas Boulevard, south of Interstate 215. Another 2,155 are off-Strip, but in the resort corridor, 387 are in suburban areas and 120 are downtown.

The failure of some midrise projects off the Strip has been offset by successes such as Sullivan Square and Manhattan West that show the concept can work, Bottfeld said. About one-quarter of new sales this year are condos, and Bottfeld said he expects that number to increase to one-third in 2008.

"Somewhere along the line people will say there is not enough demand or the market is not ready for it, but that's not the case," Bottfeld said.

Sales have slowed for midrise projects like the Mercer, where JDL Development of Chicago continues to push ahead with its 113-unit project even though it is just short of selling 50 percent of its condos.

JDL President Jim Letchinger said some projects have been hurt because investors have left the market. Because projects have been canceled, some buyers are reluctant to purchase unless the developer has a solid track record or the condos are under construction and near completion, he said. Letchinger said he is counting on that mentality for selling the rest of his units at the Mercer, which will open at the end of 2008.

The condo market along the Strip is expected to be driven by projects like CityCenter, where there are known developers and amenities such as casinos that make such projects more attractive.

Third quarter statistics: The closing price of units sold in the third quarter averaged $694,600 or $539 per square foot. That's up from a second quarter average of $814,000 or $507 per square foot.

At the end of the third quarter, there were 854 luxury condos on the market, up 19 percent from the second quarter. The units had an average asking price of $830,800 or $624 per square foot. That's the same price as the second quarter.

Forty-six percent of those units are high-rise residential, 36.4 percent were condo-hotel units and 17.3 percent were midrise residential.
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Advanced Member
Username: Saint

Post Number: 286
Registered: 5-2005

Posted on Tuesday, December 25, 2007 - 3:18 pm:   Edit PostPrint Post

There are several similarities between Japan's real estate mess that happened in the early 1990's and the mess going on with the USA. Any one that followed the real estate mess in Japan knows that it took MANY years to get sorted out. In Japan the government and the banking system tried to cover up the mess and they tried to intervene which ultimately caused it to take longer to get sorted out.

The same can be said about the USA now with the USA government not just letting everything unravel itself out. Many banks are still not being transparent about the extent of the toxic mess with their portfolios.

Here is an EXCELLENT article from the Economist that points out several of these similarities.

Been there, done some of that

Dec 13th 2007 | TOKYO

From The Economist y_id=10286992

(PS -- Keep in mind I believe you need a membership with the Economist to read it but I'm copying and pasting it below)

Lessons from Japan's financial crisis should worry, and embarrass, America

ANOTHER month, another bank in trouble, another raised estimate of bad assets in the financial system, and another move by the central bank to try and contain the problem: to observers in Japan, America's spreading credit crunch has an eerily familiar ring.

Though differences between the subprime crisis and the bursting of Japan's own property bubble after 1989 are inevitably great, the similarities are striking. As Kazuto Uchida, chief economist at Bank of Tokyo-Mitsubishi UFJ, points out, both the Japanese and American bubbles were inflated at a time of financial experimentation and easy credit. America saw a huge growth in the securitisation of mortgage assets and “structured investment vehicles” when the Federal Reserve was providing cheap money.

Similarly, Japan in the mid-1980s faced pressure from the United States to liberalise its markets. That sparked a wave of “financial engineering”, and the proliferation of new products such as derivatives. The cocktail was given added fizz by American pressure to revalue the yen: in response to a rising currency, the Bank of Japan (BoJ) cut interest rates, flooding the economy with cheap cash. All of which reinforced an impression that the economy had broken free from the usual boom-and-bust cycles.

Crucially, both were property-related bubbles, commercial in Japan and residential in America. Ironically, after the BoJ raised rates and burst the bubble, American bankers and policymakers were quick to lecture the Japanese. With four-fifths of Japanese lending ultimately related to property, Americans were incredulous that banks had been foolish enough to lend against collateral for which the value could go down as up; in the United States, they said, banks lent against cash flow, the best gauge of a borrower's ability to repay a debt.

Japan got into the mess by assuming land prices only rose (in cities they have since fallen by about 70%). But American financiers have made the same silly assumptions, gaily advancing money to “ninjas”: people with no income, no job and no assets. Even if some local property markets tanked, they figured, a nationwide bust was almost unthinkable. They were very wrong.

One reason the approach of both crises was widely missed was that most of the warning signs were not at parent banks but in affiliates, subsidiaries and other murky offshoots. In Japan such affiliates were often the parent bank's biggest customers. Yet these did not feel bound to make provisions against souring assets. After all, if things really came to a pass, they believed the parent would bail them out. Also, much of the big banks' lending went to smaller banks, which lent the money on—to subprime borrowers. This chain of property lending kept problems at arm's-length for too long, says Tetsuro Sugiura, chief economist at Mizuho Research Institute. “Had we had integrated balance sheets reflecting the whole picture of banks' lending, we would have been able to recognise the problems much sooner.” That might ring a bell.

The ability of financial crises to spread out from their spawning grounds is also all too familiar. Once Japan's banks were seen as tainted, they were unable to raise funds in the short-term money markets. As a consequence, they scaled back lending to corporate clients (including those overseas), which quickly felt the pain. Unable to raise money from banks or in the capital markets, Japanese companies stopped lending to each other: trade credit, which had accounted for about a third of all lending, dried up.

Meanwhile, depositors took their money out of banks and stuffed it in the post office or under their mattresses. This aggravated the crisis in the banking system. The first estimate of banks' bad loans made by the Ministry of Finance in the early 1990s put them at ¥8 trillion ($8 billion); a decade later, banking analysts reckoned the figure was closer to ¥200 trillion.

Some will argue that the speed with which American banks and their regulators have addressed the subprime crisis renders all other comparisons invalid. For Japan dithered mightily in tackling its problems. At first, it was assumed that property prices would soon resume their happy rise. Until at least 1994, regulators actively colluded with banks to hide the scale of bad loans. It was not the late 1990s that the government stepped in to bail out the banking system, and it only got serious about banks tackling their bad loans after 2002—12 years after the bubble burst.

Undoubtedly America's fast-moving crisis has bred a quicker response. Yet Japanese economists and central bankers see familiar dangers in market-propping intervention that clouds transparency and prevents asset prices from quickly reaching a new equilibrium. The administration's desire to cap some mortgage rates is one example. More worrying, they say, is its backing for the “superfund” proposed by Citigroup, Bank of America and JPMorgan Chase into which all sorts of toxic assets might be poured, out of sight and out of mind. But no Schadenfreude exists in Japan. After all, the subprime crisis also threatens the economic recovery that Japan desperately desires.


Also, those of you that follow my posts know that I have predicted that property in the UK is overvalued and will fall. You will also note that in the last year I have told how the UK will go through similar problems as the USA real estate market as banks were too quick to loan out money to people that should NOT have purchased real estate.

I stand by my prediction that you will see clear problems in the UK real estate market in 2008 and 2009. I've already posted a bit in detail of what is going on in the UK if you go back in the Argentina real estate section you can read some of my posts.

Now, you are seeing signs of what I posted about. Read the article below that came out last week. I predict you will read about more stories like this and other problems in the UK.

Take note when you start reading things in the mainstream press about USA and UK financial institutions like, "118,000 will not be able to access their money for up to six months". EVERYONE thinks the same thing. "My bank or mutual fund will NEVER freeze my assets!". That simply is NOT true anymore these days and investors should be aware of it. You MUST understand what is going on in the financial markets around the world. The thing is that many funds that invested in real estate in the USA and the UK MUST start selling their assets now because intelligent investors are demanding to cash in and they want their CASH. What does this mean? It means that many funds MUST sell their real estate holdings and this means that real estate prices in the UK should start falling at a good clip over the next few years. As I mentioned before, it's over valued there.

Also, something truly frightening is what if after the 6 month period this company says, "the timing is still not right to redeem redemptions and it will be ANOTHER 6 months"? As I posted before, we are in unprecedented times here. Understand and know what is going on so you are prepared and protected.


December 21, 2007

Friends Provident freezes property fund

· More than 100,000 unable to access their money

· Other trusts could face stampede for withdrawals

The global credit crunch claimed another victim yesterday when insurer Friends Provident suspended withdrawals from its £1.2bn property fund, prompting fears that billions of pounds held in unit trusts are now under threat.

The insurer said investors in the fund, 118,000 people, will not be able to access their money for up to six months. It blamed the freezing of assets on a "general sharp decline" in the commercial property market "brought about by the credit crunch".

The fund invests in office blocks and retail developments and usually holds a cash buffer of around 10-15% of assets to meet demands for withdrawals. But it said yesterday the buffer had fallen to 5% of the value of the fund after a wave of redemptions, giving the company little choice but to suspend the fund.

Spokesman Jim Murdoch said the only alternative would have been a fire sale of property investments, which would be against the interests of policyholders.

Fears are now growing of a domino effect among other property funds as investors seek to withdraw their cash. "We are the first, it happens to be us, but this is a problem across the industry," said Murdoch.

Britain's biggest property fund, with £3.2bn run by Norwich Union, revealed last week that its cash buffer had fallen to 7.5% from 17.5% in September. But it said yesterday that trading was continuing as normal and that it was meeting any requests for redemptions. Scottish Widows said cash reserves in its £1.3bn property unit trust had fallen to 6.5% but it can borrow another 10% to meet withdrawals in exceptional circumstances.

Around £15bn is invested in property unit trusts, with much of the money pouring in during 2006. Billions more are invested through pension funds held by millions of company employees. But over the past six months they have tumbled in value, some by as much as 20%.

The credit crunch has raised borrowing costs, making many debt-financed property deals no longer attractive. Banks hit by the credit crunch are expected to cut jobs, reducing tenant demand in the crucial City office market, in which most of the UK's property funds are invested. A downturn in consumer spending growth is also making retail shopping developments less attractive to property investors.

The City regulator, the Financial Services Authority, said yesterday it was closely monitoring the situation. "We are discussing the issue with the industry as a whole and individual funds are also talking to us," said a spokesman.
The behaviour of small investors and their financial advisers over the coming days will be crucial in determining whether yesterday's suspension by Friends Provident will lead to a run on other property funds.

Tim Ames, director of Cathedral Financial Management in Exeter said: "Private investors are panicking and are drawing serious amounts of money out of property funds right now. If it continues, as I'm sure it will, the situation will get a lot worse over the next three months.

"We always knew this bubble was not going to last and have been reducing our clients' exposure since January. Commercial property should never have been more than 10% or so of anybody's portfolio but I know of advisers who have had 100% of their client's money in property. They are going to have an interesting Christmas."

The suspension of a unit trust would be a dramatic development in an industry that has weathered the global credit crunch remarkably well. A spokeswoman for the Investment Management Association said: "There has never been a closure of an authorised unit trust. The last suspension was on 9/11 and that only lasted 24 hours.

"You have to inform the FSA which will only allow it if it is in the interests of all unit-holders. The problem in the real estate market in recent months has been the lack of property buyers but now there is more evidence of investors willing to buy."

Friends Provident said it would write to customers with investments in the property fund and would lift the suspension as and when market conditions improved. Most of the assets frozen came in via pension and investment bond products.

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Username: Saint

Post Number: 290
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Posted on Thursday, December 27, 2007 - 5:18 am:   Edit PostPrint Post

I've posted about the possibiliy of the dollar's value continuing it's downfall. There is still a lot of uncertainty. Much depends on what China and Japan do in the future. Here is a pretty good article that describes the situation.


The Economist

The falling dollar

Losing faith in the greenback

December 1, 2007

How long will the dollar remain the world's premier currency?

THE long-run value of all paper currencies is zero. That is a fond saying of Bill Bonner, goldbug and publisher of the Daily Reckoning, a contrarian financial newsletter. So why should the dollar be any different? Mahmoud Ahmadinejad, Iran's president, seems to think the long run is now: two weeks ago he decried the dollar as a “worthless piece of paper”. And Jim Rogers, a famously shrewd investor, asks why anyone would buy dollars.

America's currency has been infected by the sense of crisis that bedevils its economy and financial markets. Speculative selling of the dollar is close to an all-time high, reckons Stephen Jen at Morgan Stanley. Many believe—and some evidently hope—that the greenback might be on its way out as an international currency. Worrying parallels are seen between the dollar's recent fall and the decline of sterling as a reserve currency half a century ago.

The dollar's value against the basket of leading currencies tracked by America's Federal Reserve has recently been at an all-time low. Against a broader range of currencies, the dollar has lost a quarter of its value in the past five years. Its decline has been especially marked against the euro. At one point in 2002 the euro was worth 86 cents; today it buys $1.48.

That currencies rise and fall and test records is hardly unusual. What lends the dollar's decline an air of crisis is that the world's bloated currency reserves are crammed with depreciating dollar assets. Foreign-exchange stockpiles have almost tripled to $5.7 trillion since the beginning of the decade. China alone has $1.4 trillion of reserves. Japan's $1 trillion or so make it the second-largest holder.

In this period of swelling reserves, the dollar has retained its pre-eminence. It still accounts for nearly 65% of identifiable currency-stockpiles, according to the latest IMF data. This is broadly in line with its historical share (see chart). Factor in the dollars hoarded by China and Middle Eastern oil exporters (not included in the IMF breakdown) and the dollar's share may be higher still.

Subprime currency

The dollar's place as a reserve currency always seems to be questioned when it falls. Weakness in 1977-79, 1985-88 and 1993-95 was each time met with predictions that governments were about to switch their reserves into another currency. A burst of high inflation, which undermined the dollar in the late 1970s, made that slide as serious as today's scare is. Between 1978 and 1980 the Treasury sold $6.4 billion of “Carter bonds”, mostly denominated in Deutschmarks, to raise funds to defend the dollar. In January 1980 the gold price reached a record $835 (around $2,250 in today's prices) as investors sought an alternative store of value. And when the dollar fell to ¥81 in 1995, many—including this newspaper—saw it as the beginning of the end of its reserve-currency status.

The dollar has weathered these storms. But now it faces a nasty squall that combines both cyclical and structural blasts. Its decline in the past five years has imposed a huge capital loss on foreign-exchange reserves. If this becomes too painful, central banks may be tempted to cut their losses and dump their dollars, causing a slump in the currency's value. The lure of selling is made all the greater by the knowledge that other central banks are overloaded with dollars too. Those that get out first have more chance of saving their capital.

America's thirst for overseas funding is another reason to fret. For years it has spent more than it earns, running up large, persistent current-account deficits. Last year the shortfall in America was a whopping 6% of GDP. Bridging that gap requires foreigners to buy dollar assets—bonds, stocks or property. But the more overseas debt that America runs up, the greater the risk that it will partly default on its obligations, either through currency weakness or inflation.

These vulnerabilities are not new but they are made worse by an economy that is turning sour. Losses on subprime mortgages have intensified the housing downturn in America and poisoned its credit markets. The threat of recession has prompted two interest-rate cuts, and more reductions are likely. Faltering growth and falling interest rates make for a weak currency, particularly when growth prospects elsewhere seem rosier. And the downgrades to credit-related securities once deemed top-notch have hurt the reputation of America's capital markets.

America's downturn poses other problems too. The oil-rich Gulf states are thinking of ditching their currency pegs with the greenback. These links have obliged them to buy dollars, so as to prevent their own currencies from rising. The dollar peg has made it hard to curb inflation, especially in fast-growing oil economies, whereas a less rigid exchange-rate regime—say, a peg with a basket of currencies—may allow a more flexible interest-rate policy. Such a regime would also crimp the demand for dollars at a time when confidence in the currency is fragile. All this may not bode well for the dollar's status as the world's reserve currency.

However, even if this is an awkward time for the currency, it need not be a catastrophic one. The fear that the dollar could be swiftly supplanted as top dog is based on the idea that one currency will always have a near-monopoly: if everyone holds dollars chiefly because everyone else does, you could imagine how a falling share of global reserves might reach a point when central banks all suddenly switch to a new currency standard.

The dollar's favoured position in international trade owes something to this kind of network effect. Global markets in commodities are priced and transacted almost exclusively in dollars, because it is convenient for buyers and sellers. But whatever Mr Ahmadinejad thinks, oil exporters would not get more income if commodities were priced in euros or pounds.

The competing pressures of supply and demand set the oil price: the dollar is just an easy way of keeping score. The convention of quoting in dollars is often employed when the currency of one or more trading partners is not used. Once such a standard is set, there are costs to shifting to a new one. But the benefits to America of issuing the world's favoured transaction currency are easily exaggerated. Advances in financial technology mean that a given volume of trade requires a much smaller dollar-float than in the past.

The confidence factor

The role for the dollar as an international means of exchange is entirely different from its role as a reserve currency. Reserves are held to buttress confidence in a country's own currency, not as a float for global trading. As a backstop, reserves need to be easily convertible (so they can be used as an emergency source of liquidity) and a good store of value. The dollar, with its large and liquid capital markets, meets the first criterion even if it has failed the second—at least, recently.

Barry Eichengreen, a professor of economics at the University of California, Berkeley, argues that there is no reason why a single currency should dominate reserves as the dollar has. Before the era of the dollar standard, he points out, reserves were in a handful of currencies. On the eve of the first world war, when Britain was the greatest trading power, the pound's share in official currency reserves was all but matched by the combined share of the French franc and German mark. After the war a three-way split was maintained, with the dollar replacing the mark.

If the dollar's dominance is to end, two or more currencies are likely to share the crown. Those who take a grand sweep of history are backing China's yuan as a big reserve currency of the future. The dollar's immediate rival, however, is the euro. In several important respects—the euro area's size, the depth of its capital markets and its share of world trade—it has the attributes of an ideal reserve currency (see table below). Unlike America, the euro area has the added attraction of a broadly balanced current account.

The euro has already made inroads into the dollar's territory. At its launch in 1999, its constituent currencies—the mark, franc, lira, etc—accounted for less than a fifth of the world's official reserves. Its share has since increased to around a quarter, even as total currency reserves have swollen. The euro area is less dependent on oil imports than America is and it sells more to oil exporters as well as to fast-growing economies such as China and Brazil.

The euro's attractions may be somewhat superficially enhanced at the moment. It has risen sharply in value, flattered by cyclical forces that have favoured it over the dollar. But only a year ago Italy's sluggish economy and fiscal problems inspired talk about a break up of the euro. Just five years ago the euro was considered irredeemably weak.

But although the near-term outlook may be favourable to the euro, its prospects in the medium-term may not be so bright. The euro's appreciation is already causing strains within the currency zone. In the coming decades the euro zone's workforce is set to age faster than America's, which will hamper its economy and add to its fiscal pressures. There is also the question of how much trust investors will put in a currency with no central fiscal authority to stand behind it.

Since the title of reserve currency can be split, the dollar's share in global currency reserves is probably too big—whatever happens to foreign-exchange rates. Many of the countries that have built large stocks of dollar assets by pegging their currencies to the greenback are now battling with inflation. Sticking with the peg would mean importing the policies of recession-threatened America and feeding inflation still more. Yet abandoning the peg only adds to the pressure on the dollar.

A compromise is to be weaned off the dollar, with a peg made up of a basket of rich-world currencies, including the greenback. This would give dollar-peggers more freedom over their monetary policy—they would no longer have to mimic the Fed slavishly—while allowing them gradually to slow their purchases of dollars.

Is a dollar rout avoidable? An optimist would say that central banks, having spurned the chance to diversify out of dollars when a euro could be bought for 86 cents, are unlikely to want to switch now when the price is close to $1.50. Against conventional benchmarks like purchasing-power parity, the euro looks dear against the dollar.

So it could be a bad time to swap from one horse to another. To the extent that dollar-holders act like an informal cartel, then the biggest dollar-holders will set an example. Japan seems unlikely to start selling its huge dollar reserves—if anything it might intervene to prevent the dollar falling further against the yen. A crash might be averted if China holds fast too, because it recognises how self-defeating dumping dollars would be to such a large owner of American assets.

Yet a pessimist would counter that a revaluation of emerging-market currencies against the dollar could easily turn disorderly. Although economic logic may argue against selling dollars at a cyclical low point, central banks have sometimes been hopeless portfolio managers: witness their shift out of gold just as its price hit a low. Yes, the dollar looks cheap, but currencies often overshoot. So it would be foolish to say where its decline should stop.

Averting a crash

Despite the anxiety and gloom, some straws in the wind suggest that the dollar's decline may soon slow. In the past few weeks it has regained ground against a handful of important currencies, including the pound and the Australian dollar. America's trade balance is narrowing, despite the effects of expensive oil imports, suggesting that a weaker currency is already working to correct imbalances.

As a rule, central banks cannot intervene to determine exchange rates, but as Morgan Stanley's Mr Jen suggests, some sort of official action has often preceded turning points in the world's foreign-exchange markets. If he is right, then a change in rhetoric or even co-ordinated intervention may be the signal the markets need before they stop believing that the dollar is destined to fall further.


Also, notice that property prices have INDEED been falling in the UK the past 4 months. Note that I'm not some perpetual "BEAR" on the USA or UK. I only started posting on USA values and I forcasted the sub-prime mess that was about ready to happen about 2 years ago. I recently (last year or so) went "bearish" on the UK property market which also appears to be coming true as well. Property prices there have gone down there for their 3rd consecutive month in a row now.

Things move in cycles and it's important to understand these cycles ahead of time if you want to fully capitalize on them. As I always said before, there are plenty of ways to make money even (or especially) in down markets around the world if you are prepared for them.


Biggest monthly house price decline for 12 years

Published: 02 December 2007

More evidence has emerged that the property market is turning sour.

The Nationwide has reported that house prices slumped 0.8 per cent in November – the highest monthly fall seen by the building society since 1995.

Fionnuala Earley, chief economist at Nationwide, said: "Poor affordability, weaker expectations for house-price growth and the effect of earlier increases in interest rates have all affected demand in the market."

However, Nationwide does not expect the decline to turn into a crash. Instead, it is predicting that prices will flatline in 2008. "With rates on the way down and the continued issue of undersupply of housing in the UK market," said Ms Earley, "the underlying fundamentals are perhaps more positive than the recent swings in sentiment might suggest."

Meanwhile, the Bank of England has said the number of new mortgages taken out is at a three-year low. In total, just 88,000 home loans were approved by lenders in October – 31 per cent lower than for the same month last year.

The Royal Institution of Chartered Surveyors (Rics) said the sharp drop in new mortgages tied in with the experience of its own members."The housing market is slowing sharply. However, we still expect most of the fall-out from the current round of turmoil in credit markets to be felt in terms of lower levels of activity, rather than outright house price declines," commented Simon Rubinsohn, chief economist at Rics.

"Typically, prices only tend to decline in a meaningful way when forced selling leads to a glut of supply."
Mr Rubinsohn added that the definite weakening in the housing market strengthened the case for the Bank to cut interest rates when it meets this week.

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Username: Saint

Post Number: 293
Registered: 5-2005

Posted on Friday, January 04, 2008 - 1:48 pm:   Edit PostPrint Post

More depressing news on the USA Economy.

January 4, 2008

US jobs growth skids to near halt, recession feared

By Glenn Somerville

Source: 29415320080104?rpc=44&sp=true

WASHINGTON, Jan 4 (Reuters) - U.S. jobs growth skidded to a near-halt in December and the unemployment rate hit a two-year high, according to a government report on Friday that raised recession fears and chances of more interest-rate cuts.

The Labor Department said only 18,000 new non-farm jobs were added last month, the weakest performance since August 2003, while the jobless rate jumped to 5 percent from 4.7 percent in November -- the largest monthly rise since October 2001 in the wake of the Sept. 11 terror attacks.

"The unemployment rate moved up in a shocking way and that's sort of political dynamite that may make the Fed more prone to easing than otherwise," said Pierre Ellis, senior economist at Decision Economics in New York.

Ellis said the U.S. central bank was more likely now to cut rates by a half percentage point than a quarter to add stimulus to a clearly flagging economy when it meets at month's end.

The data rattled financial markets already fearful about rising recession risks. Stock prices were sharply lower at midday, with the Dow Jones industrial average .DJI down about 200 points in early afternoon. The dollar's value fell and government bond prices soared.


There was a consensus of opinion that the Fed will have to keep cutting interest rates in a bid to rescue the economy from the continuing drag from a depressed housing sector and an unusual reluctance on the part of financial institutions to lend.

The central bank's policy-setting committee meets on Jan. 29-30. It already has cut its benchmark federal funds rate 1 full percentage point since mid-September.

Bush administration officials hit the television circuit to press their case that it was not unusual for the pace of job creation to slow after a protracted period of growth.

"It's just tougher to get high (jobs) growth when you're at the mature stage of a business cycle and that's where we are now," White House Council of Economic Advisers Chairman Edward Lazear said on CNBC television.

"That doesn't mean that it's going to stop but it does mean that job growth is going to be slower than we saw over the past few years or so," Lazear added.

President George W. Bush, who told Reuters on Thursday he is considering a stimulus package for the struggling economy, was scheduled to meet top financial officials, including Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, on Friday to get an update on strains in credit markets.

A report at mid-morning from the Institute for Supply Management, showing its services index fell slightly to 53.9 in December from 54.1 in November, took some sting out of the jobs figure -- if only because the fall was not as large as feared.

The jobs report, however, fell far short of the already low expectations on Wall Street, where economists had looked for a 70,000 non-farm jobs gain.


All the job growth in December came from government hiring, while private industry posted a 13,000 job loss, the first contractions in private-sector employment in nearly 4-1/2 years.

For all of 2007, payroll employment growth averaged 111,000 a month, down from 189,000 a month in 2006.

During December, manufacturing industries shed 31,000 jobs and construction businesses cut another 49,000. There were 31,000 more government jobs and 44,000 were added in education and health services, but retail industries cut more than 24,000 jobs.

Rick Meckler, president of Libertyview Capital Management in Jersey City, New Jersey, said the Fed now will be forced to cut rates even if some members fear it might fan inflation.

"The risk to the Fed has always been between growth and inflation, and this seems to tip the scale toward sustaining growth and worrying about inflation another day," Meckler said. "It makes rate cuts not only likely but extends them."

Weekly hours of work were unchanged at 33.8 in December. The factory workweek contracted to 41.1 hours from 41.3, and overtime hours dropped to 3.9 from 4.1 in November.

Richard Yamarone, chief economist for Argus Research in New York, said the the soft jobs numbers apparently reflect a "skittish" attitude among businesses about hiring when the economy's prospects are doubtful.

But he noted that harsh winter weather may also have played a role in the weaker-than-expected December jobs picture. "Most of the nation was iced over," Yamarone said. (Additional reporting by Steven C. Johnson, Al Yoon and Herb Lash in New York; Editing by Andrea Ricci)
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Post Number: 1431
Registered: 12-2004
Posted on Friday, January 04, 2008 - 5:00 pm:   Edit PostPrint Post

And a nice interview at Pimco website subprime/mortgage related. Perhaps of interest to those dealing in real estate in Argentina too...
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Post Number: 294
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Posted on Friday, January 04, 2008 - 10:26 pm:   Edit PostPrint Post

Something that some people would find interesting (and something that I posted about before) is that Argentina had a record year in 2007 of new car sales. I always look at those numbers and to me it's a good indicator of the economy.

The numbers are quite astonishing. There were 570,000 new car sales in 2007. That is just new car sales figures alone and not counting the estimated 1.4 million used cars that were sold as well in 2007. I'm one of those people that bought a new car in Argentina in 2007. Something I found interesting is out of my good friends, most of them also purchased new cars as well.

I remember my first year that I came in Buenos Aires was in 2002 and it was a devastating time. New car sales from 2001 was almost 200,000 (actually 199,819). Then:

2002 - 96,951 new cars sold
2003 - 143,273
2004 - 288,527
2005 - 385,805
2006 - 450,040
2007 - 570,000
2008 - Projected Estimate of 620,000 new cars

Out of all those numbers only about 31% of some type of financing was used to close the deal. Credit is increasing here and becoming more available so these numbers should go up drastically. I hope some of you find this as interesting as I do.
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Posted on Friday, January 04, 2008 - 11:37 pm:   Edit PostPrint Post

Some more grim reports on the USA real estate market below.

Single-Family Home Prices Plunge 15% In November

By SHANNON BEHNKEN, The Tampa Tribune
Published: January 1, 2008 family-home-prices-plunge-15-in-november/

TAMPA - The real estate market is ringing in the New Year on its sourest note yet.

Not since the spring of 2005 have Tampa Bay area home prices been this low. The median sales price of previously owned, single-family homes in the Tampa Bay metro area plunged 15 percent to $189,100 in November, the worst drop among Florida's major metro areas. A year ago, the median was $223,400, according to data released Monday by the Florida Association of Realtors.

The month-over-month snapshot also stung: Prices dropped 9.5 percent from October, when the median sales price was $209,000.
November's median sales price is the lowest since April 2005 and marks the first time it has dipped below $200,000 since mid-2005, when prices surpassed the milestone for the first time in June.

Although it's not surprising that home prices fell in November, real estate experts weren't expecting the cut to be so deep. Some analysts had predicted Bay area prices to fall by as much as 10 percent more, but they had called for the cuts to happen gradually during 2008.

So does this mean the Bay area's real estate market could rebound earlier than previously expected?

Mike Larson of Weiss Research in Jupiter doesn't think so. He still expects prices to drop 10 percent in 2008.
"Tampa is suffering from this real estate boom hangover," he said. "We need even bigger drops to get buyers off the fence."

One bright spot in the numbers was home sales. The metro area of Tampa, St. Petersburg and Clearwater saw 1,644 homes change hands in November. Although that's 30 percent fewer than a year ago, it still leads all other areas in the state.
Statewide, the median sales price slid 10 percent to $215,800. The median is the point at which half the homes sold for less, half for more. The numbers of homes sold statewide slid 30 percent to 8,106.

Miami reported a 4 percent drop in prices. However, in number of sales, the city was last. Only 263 homes sold in November, a 59 percent drop from the same month last year.

The steepest price drop in the state was in Punta Gorda, where prices fell 18 percent to $177,300, from $215,100 in November 2006. There were 154 homes sold, or 29 percent fewer than November 2006.

In Orlando, the metro most similar in size to the Bay area, prices dropped 9 percent to $239,000, compared to $263,600 during the same month last year. There were 1,108 sales in November, a drop of 35 percent year-over-year.

But not everyone is disappointed in the median sales price data.
"I think this is a good thing," said Deborah Farmer, incoming president of the Greater Tampa Association of Realtors. "Now, we'll have more affordable housing."

Farmer said she doesn't expect prices to fall much lower, and thinks 2008 will be a "pivotal year" for area real estate.
"I think we've seen the worst," she said. "I don't see this market dropping another 10 percent. And, someone who's owned a home for three to five years should still do OK."

Area home sales hit 13-year low ness/epaper/2008/01/01/a1d_homesales_0101.html

Palm Beach Post Staff Writer

Tuesday, January 01, 2008

Sales of existing single-family homes in Palm Beach County plunged last month to their lowest level on record - at least a 13-year low - as the once-vigorous housing boom continued to go bust, according to a Florida Association of Realtors report released Monday.

Buyers of single-family homes closed on a mere 459 sales in November, down 13 percent from the 525 sold in November 2006, the association said. That's the lowest number since the association started keeping records in 1994.

The median price of a single-family home in Palm Beach County came down to $345,700, a 7 percent drop from November 2006, when the median price was $370,400, the association said.
"Now that market conditions have improved, some postponed activity should turn up in existing home sales over the next couple of months," said Lawrence Yun, senior economist for the National Association of Realtors, "and I expect sales at fairly stable to slightly higher levels."

His remarks drew fire on Monday from Jack McCabe, a frequent analyst on public television business segments and president of McCabe Research and Consulting in Deerfield Beach.

"The only voice suggesting that conditions are going to improve is the realtor association," McCabe said. "It is the prediction of every home builder, mortgage lender and banking analyst that 2008 will be one of the flattest years, if not the worst year, for real estate in this country."

Nationally, sales of previously owned homes inched up in November, but that didn't change the overall bleak picture for an ailing housing industry that has been suffering through a painful slump.

The National Association of Realtors reported Monday that sales of existing single-family homes, condos and townhouses rose 0.4 percent in November from October, to a seasonally adjusted annual rate of 5 million units. Over the past 12 months, however, existing home sales have plunged 20 percent, underscoring the troubles in the housing sector.

On the Treasure Coast - Martin and St. Lucie counties - the sale of single-family homes fell 25 percent in November to 230, the Florida Association of Realtors said.
The median price of an existing single-family home in the Treasure Coast fell 17 percent, to $206,300 from $247,600 in November 2006.

"Martin County is in much better shape than our surrounding counties," said Dave Derrenbacker, president of the Realtor Association of Martin County.
Martin has done a good job of controlling growth over the years, he said.

"As a result of these actions, our supply-and-demand situation will correct itself quicker," Derrenbacker said.
In Palm Beach County, the supply of unsold homes - called "inventory" in real estate-speak - has risen to astonishing levels as the housing boom continues to go bust.
"Fifty-five months!" McCabe said.

Actually, there's a 57-month supply - nearly five years - of single-family homes in Palm Beach County, based on the current pace of sales, according to Illustrated Properties Real Estate. The South Florida brokerage tracks listings in the Regional Multiple Listing Service.

The sale of existing condominiums in Palm Beach County fell 17 percent to 347 from 420 in the same month a year ago, association records show. The median price of an existing condo fell 19 percent, to $177,400 from $219,800, the Florida association said.

The Treasure Coast provided one of the few bits of good news in the November report. Sales of existing condos in Martin and St. Lucie counties rose a healthy 28 percent to 68 from 53 in November 2006.

The median price of existing condos on the Treasure Coast rose 6 percent to $185,000 from $174,000 in November 2006.
Statewide, Miami had the biggest decline in home sales, 59 percent year over year, the report said - to an amazingly low 263 sales from 645 in November 2006. Only one market - Fort Walton Beach - had an increase in sales, a mere 1 percent year over year.

Looking at prices, Punta Gorda had the biggest drop percentage-wise, an 18 percent decline, the report said. Tallahassee was the only market to show an increase in price, but only 1 percent, according to the report.

More families face home foreclosure in Orlando area in 2008
Stephen Hudak | Sentinel Staff Writer -lforeclosure0108jan01,0,1665140.story

January 1, 2008
TAVARES - Shannan Buttner knows that 2007 has been a record bad year for foreclosures in Lake County, because it has been a record good year for her.

Through the first 11 months of this year, banks and other lenders foreclosed on 1,812 properties in Lake County, more than double last year's total, when 878 foreclosures were filed here, according to figures compiled by Lake County Clerk of Courts Neil Kelly.

The bane for overextended borrowers has been a boon for Buttner, 43, whose small business, Expert Process Service in Umatilla, delivers the bad legal news.
She said she has hired three new employees in the past four months to keep up with the work.

"It started picking up at the end of last year and just avalanched this year," Buttner said. "It's a sad thing for a lot of people."

The surge in mortgage foreclosures reached record levels nationally during the third quarter, according to the Mortgage Bankers Association, which expects the deluge to continue.

Many of the recently filed foreclosures here -- a Lake County record 277 filings in November -- involve people who borrowed money at low "teaser" rates that have begun to adjust upward, court records show.

The new, higher rates have boosted monthly payments for some borrowers by as much as a third.

Circuit Judge T. Michael Johnson, one of four judges in Lake County who preside over foreclosure cases, blames both borrowers and lenders for the crisis.

Some people wishfully bought homes they obviously could not afford. But they got money from mortgage companies who gambled, too, Johnson said.

"For a period of time there, all you needed to qualify for a [home] loan was a pulse," he said.

Circuit Judge Mark Hill said some people even borrowed money for their down payment.

"Those people don't have a dime in the house," he said. "When that's the case, it's easy to walk away from your obligation."

Hill said that every month since May has been a record month for foreclosure filings in Lake County.

The increase in the number of foreclosure cases has forced the clerk's office to shuffle its staff to file, scan and distribute the legal notices to delinquent borrowers, their homeowners associations and other lien holders.

"We are making every effort to meet the increased demands with existing resources," Kelly said. "So far, this has been accomplished by redistributing staff and increasing overtime."

As the holidays approached, some judges began delaying foreclosure sales of occupied homes until January, reluctant to evict families at Christmastime.

But many soon-to-be-foreclosed homes in Lake County are already vacant. Some were vacation or investment homes, owned by foreign speculators, betting on a quick flip and big bucks.

A few never made a single payment once the mortgage rates shot up, court records show.

Foreclosure sales and hearings will resume this year in hordes.

Circuit Judge Mark Nacke, for instance, will hear more than 80 foreclosure cases during the second week of January.

Another 13 scheduled cases were canceled because the bank and the borrower worked out a new payment plan or because the borrower filed bankruptcy.

As foreclosure filings increase, Buttner and her staff of document-serving messengers increasingly find the job more difficult.

Three of her employees have had guns waved at them by people angry and frustrated by the news that they will be tossed from their home for nonpayment.

"We're getting more and more avoiders," she said. "You know they're in the house. You can hear them inside. They just won't answer the door. We just keep going back and back. Sometimes it takes eight or nine times."

But the cat-and-mouse game doesn't last forever, Buttner said.

After the eighth time, a foreclosure notice is published in the local newspaper's legal classifieds. lifornian/21_20_9612_31_07.txt

Record foreclosures in '07 -- Real estate wave ebbs, leaving thousands of homeowners washed up and in debt

By: CHRIS BAGLEY - Staff Writer
Record numbers of Southwest County homes fell into foreclosure in 2007, and the growing stock of bank-owned houses hammered at prices that had already begun to fall from eye-popping highs.

Homeowners in Riverside County defaulted on more than 26,000 mortgages between October 2006 and September 2007, with the numbers rising higher in each three-month period, according to one research firm.
Lenders have continued to seize houses at an alarming rate; banks own nearly 1,900 houses in Southwest County, representing about 28 percent of the houses listed for sale locally, according to one statewide database of foreclosure properties.

In the last six months, agents say, those lenders have grown more willing to cut prices to recoup some of the loans they made. That has helped to push the median sale price in Riverside County from more than $430,000 in the summer of 2006 down to less than $360,000, a level most neighborhoods hadn't seen since late 2004. Lenders are selling hundreds of houses for much less than that.

"If there's a silver lining, it's the fact that you can get a single-family home now in the high 200s," longtime real estate agent Gene Wunderlich said. "That's hopeful."

Reviews of real estate databases and interviews with agents suggest those prices are drawing a mix of first-time buyers, buyers who are trying negotiate their way out of much larger loans on much larger houses, and investors. Such buyers ---- aided by sellers' resignation to lower prices ---- have begun helping to keep most houses from languishing on the market for more than two months, in contrast to the three- and four-month waits that were common among sellers in 2006 and early 2007, agents said. The pace of sales has picked up in the last three months, too.

Still, the housing slump of 2007 left thousands of unemployed construction workers and thousands of underemployed real estate agents in its wake. Builders started just 11,400 homes in Riverside County in the first 11 months of the year, compared with 23,700 in the same period of 2006 and 31,900 through November 2005, according to industry data. Chris Thornburg, a Los Angeles-based economist, said he expects related layoffs to continue well into 2008.

Agents and economists have called the foreclosure wave a massive hangover from overly generous home loans and lax lending standards that persisted into 2006. Economists, particularly, have pointed to buyers' growing tendency to stretch their finances to get into the most expensive possible houses and then hope that rising values would allow them to refinance into safer loans after two or three years. The flattening of sale prices since late 2005 has rendered that strategy disastrous for many who bought since then.

And a habit of refinancing mortgages to buy swankier cars and bigger trucks also has left many families washed up, economists say.

That has already begun to change, with local cities noticing significant declines in taxable sales at home-improvement warehouses, furniture stores and new-car dealers, three of the largest contributors to their budgets.

"We as a nation are in this massive savings hole," Thornburg said. "Consumers are spending beyond their means in large part because they feel rich, and that's in large part due to the housing market."

In that respect, Thornburg said, a recession in 2008 could actually be a good thing. Still, he said, he doesn't expect one. Unemployment in Southern California has remained below 6 percent even amid massive losses in the real estate and construction industries.

Rather, Thornburg said he expects the region's real estate bubble to continue deflating over the next two years, with prices remaining stagnant for another couple of years before heading back up in 2011 or 2012. Economists have generally pointed to the giant disparity between Southern California home prices, which have risen by 80 percent to 100 percent over the last five years, and incomes, which have risen by only 10 percent to 40 percent. To some extent, economists say, prices will just have to wait for incomes to catch up.

The current foreclosure wave contrasts with past waves in that it hasn't followed mass layoffs on the scale of those that followed the downsizing of the region's defense industry in the mid-1990s, economists have said.

Foreclosures have been concentrated somewhat among modestly priced houses aimed at first-time buyers, though large and elegant houses have hardly been immune to the epidemic. Funded by taxes, mosquito-control specialists regularly toss handfuls of pesticides into 230 green, murky swimming pools in the southwestern and central sections of the county, including many located behind houses that last sold for $400,000 to $700,000.

Wunderlich said many in the real estate industry are on edge over the number of recent home buyers whose monthly mortgage payments are due to rise in the next few months. Depending on how large that number turns out to be, many more families could end up losing their homes next year. Wunderlich said he hopes the market will pick up after that.

"Thank God, this year is wrapping up," Wunderlich said. "It can't wrap up soon enough."

Home sales tumble 20% in U.S.
The decline is from November 2006. But month-over-month transactions rise slightly.
By Peter Y. Hong, Los Angeles Times Staff Writer
January 1, 2008 n01,1,6641073.story?coll=la-mininav-business&ctrac k=1&cset=true

Nationwide sales of previously owned houses and condominiums fell 20% in November from the same month a year ago, according to data released Monday. But the month's sales were up slightly over October.

The National Assn. of Realtors saw the October-to-November rise as an indication that the housing market might be approaching a bottom. Lawrence Yun, the organization's chief economist, called the modest bump up in sales "a sign that the housing market is stabilizing."

Sales of existing single-family homes, condominiums and townhouses rose 0.4% in November from October, to a seasonally adjusted annual rate of 5 million units, the association reported. Prices for all types of homes dropped 3.3% in November from a year ago.

The nationwide declines in sales and prices were consistent with trends in California. The California Assn. of Realtors and the research firm DataQuick both reported last month that November home sales and prices slipped in the state from year-earlier levels.

The state realty organization had reported a 36% drop in statewide sales from the previous November, and a 12% year-to-year price drop. In Southern California, November sales fell 43% from the previous year and prices dropped 10% according to DataQuick.

DataQuick also reported a slight October-to-November sales pickup in Southern California. But DataQuick President Marshall Prentice cautioned that a single-month increase may not be significant: In 1994, November sales also rose from the previous month, but sales and price then resumed their declines in following months.

Despite the upbeat National Assn. of Realtors assessment, other economists continued to predict further weakening of the housing market.

"Every little wiggle does not mean the market is stabilizing," UCLA Anderson Forecast Director Edward Leamer said of the national October-November uptick. "We've got to take a few months before we know; one month does not a trend make," he said. Leamer does, however, think the sales volume of houses in Southern California may be bottoming out, but prices will continue to fall for about another year, he said.

Robert Shiller, a Yale economist who co-founded the widely cited Case-Shiller index of housing prices, said in an interview with the Times of London that housing prices in California and Florida could fall 35%. "There is a good chance this housing recession will go on for years," the newspaper reported Monday.

According to the Case-Shiller index, prices in 20 U.S. metropolitan areas have already fallen 7% since their peak in 2006. Los Angeles and Orange County prices have dropped 9% from their September 2006 peak, according to the index.

Los Angeles economist Christopher Thornberg, principal of Beacon Economics, has predicted a 30% drop in Southern California home prices from their peak. Of the latest national figures, he said: "What I want to know is: How many of those are foreclosures? That's not stabilization; that's the market getting worse." /719884,2_1_AU31_FACES_S1.article

The mortgage meltdown

As credit crisis grows, more homeowners seeking help to make payments

December 31, 2007


If the stack of mortgage bills on your mail table rivals the pile of packages under your Christmas tree, Bettye DeRamus wants to see you.

"Do not wait until it goes into foreclosure to seek help," said DeRamus, the director of Aurora-based Consumer Credit Counseling Services, who takes on roughly 50 clients from five counties per month thanks to the growing credit crisis. "Once it gets behind, it's so difficult to catch up."

DeRamus had more resources and repayment programs to offer her clients in 2007 after mounting foreclosures nationwide became impossible for lenders and government agencies to ignore. But the number of people who needed that kind of help continued to increase at a breakneck pace.

Foreclosure proceedings filed in Kane and Kendall counties, which jumped to 1,600 in 2006 after hovering around 1,000 for years, approached an unthinkable 2,700 in 2007.

"From Big Rock to Burlington to Sleepy Hollow, no area doesn't have a foreclosure," said Lt. Tom Bumgarner of the Kane County Sheriff's Department, whose coworkers are stretched thin monitoring the resulting paperwork. "There's no town or village in the county that hasn't been touched by this."

Only about a quarter of foreclosure proceedings in this area tend to end with the home being auctioned off in court. But even homeowners who escape that fate must skimp on necessities, declare bankruptcy or struggle for years to escape a mountain of debt.

Most of the homes affected by the mortgage crisis were sold between three and five years ago. Around that time, lenders began courting people with lower incomes and spottier credit histories. They competed to offer sub-prime loans -- high-interest mortgages to riskier clients -- that offered borrowers artificially low monthly payments for the first several years.
In the Fox Valley, where developers were building homes at least as fast as residents could move into them, lenders were only too eager to follow that trend. Over the past two years, as area homeowners have started reaching the end of the low-payment period, they have seen their payments skyrocket. DeRamus says she has watched some clients' bills double, from $500 to $1,000 a month.

When those bills pile up, lenders wonder why their clients took on a debt they could not repay. Borrowers usually trace mortgage defaults to an unexpected hardship like unemployment or illness.

Regardless of where the blame rests, however, the problem has become so pervasive that state and federal legislators are looking at ways to keep Americans from drowning in debt.

Officials want to both restrict the kinds of loans lenders can offer and hatch programs to help borrowers pay back their debt.
DeRamus said repayment plans offered by lenders and sometimes facilitated by government agencies have helped her put borrowers back on the road to financial stability.

"We've had several clients who, once they came in, we were able to contact the lender," DeRamus said. The borrowers then drew up a strict budget, she said, and arranged to spread their monthly payments over a longer period of time.
"Those clients are back on track now," said DeRamus, who is careful to count successes in an otherwise bleak picture. "That's the goal."
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Advanced Member
Username: Saint

Post Number: 297
Registered: 5-2005

Posted on Saturday, January 05, 2008 - 4:07 pm:   Edit PostPrint Post

I’m afraid stories like the one below will become more and more common. The bankruptcy rates should drastically increase in 2008 in the USA. You have a situation where people start losing their jobs and it’s going to get a whole lot worse.

Already the number of jobs in construction, the real estate industry, financial industry and banks is going to drastically decrease. It’s so bad in construction that many illegal aliens from Mexico find it’s not even worth it to come to the USA anymore as there aren’t so many jobs for them anymore. The construction industry where many of them worked is completely dead. You know it’s bad when that happens.

Personal bankruptcies rising in SD County

By: CHRIS BAGLEY -- Staff Writer

January 4, 2008

Rising mortgage obligations drove up personal bankruptcy filings dramatically in 2007, according to the San Diego branch of U.S. Bankruptcy Court and North County attorneys.

About 7,640 debtors filed Chapter 7 or Chapter 13 petitions in the local court last year, an 83 percent increase from 2006. Personal bankruptcy filings jumped 40 percent nationwide to more than 800,000, according to the American Bankruptcy Institute, a research group based in Alexandria, Va.

The numbers are modest by historical standards -- less than half of what was filed in 2005 in the San Diego court, which covers San Diego and Imperial counties.

But growing numbers of debtors will probably collapse under mortgage obligations in the next year, the bankruptcy institute said in releasing the report Thursday. North County attorneys said mortgages had been the overwhelming factor in their growing caseloads.

Many borrowers bought homes between 2004 and 2006 using adjustable-rate loans, and have seen payments increase beyond their ability to pay, San Marcos attorney Mary Cavanagh said.

"There was this unspoken assumption of 'Well, the bank wouldn't lend me money if I couldn't pay it back,'" Cavanagh said. "The number of inquiries I've had regarding bankruptcies has absolutely skyrocketed. You have a tremendous rise in costs, and salaries aren't rising as quickly."

Solana Beach bankruptcy attorney Albert Gross said he had fielded a call just Friday morning from a woman whose income as a mortgage broker had fallen over the last couple of years, leaving her unable to make payments on her own condominium. She moved in with her parents and found someone to live in the condo, but the rent was still $700 short of her own mortgage payment, Gross said.

Such mortgage burdens loom large, court documents show:

One divorced mother owes $441,000 on her home in San Marcos, which is now valued at $430,000, according to her Chapter 7 filing on Aug. 10. She also owes $16,000 on her Scion car and $31,000 to credit-card companies.

One Escondido resident owes $580,000 on his house, which his Chapter 7 filing valued at $500,000 last month. He also owes $34,000 on the new Lexus he bought last January, and $30,000 on a 2006 Chevrolet Silverado that's now worth about $10,000.

The increase in bankruptcy filings last year followed a historical low in 2006, attorneys said. Many debtors who were sitting on the fence in 2005 went ahead and filed before new rules took effect in mid-October of that year. More than 5,000 petitions were filed that month, compared to a monthly average of 350 in 2006.

The new law, which followed an eight-year campaign by banks, retailers and credit card companies, mandates an income test to measure a debtor's ability to repay obligations.

Consumers deemed to have insufficient assets or income can still eliminate debts through a Chapter 7 bankruptcy. A process known as "means testing" also considers basic costs of living such as rent and groceries. But those with income above their state's median income who can pay at least $6,000 over five years are forced into Chapter 13, where a debt repayment plan is ordered.

In response, credit-card companies and other creditors have changed their collections strategies, said Bill Parks, a Vista attorney who represents both creditors and debtors. Creditors can now wrangle out at least a portion of what's owed without taking the risk that the debtor will file a Chapter 7 petition, thus wiping out the entire debt.

"They feel that and know that, and they're willing to be a little more aggressive," Parks said. "They know the other side has limited options."

Still, the pendulum on bankruptcy law could soon swing the other way.

As defaults and foreclosures grow, congressional Democrats have been pushing for an expansion of bankruptcy judges' authority to reduce the size of home loans. Under existing law, bankruptcy judges can't modify loan terms on a bankrupt borrower's primary residence, but are permitted to do so for mortgages on second homes.

Democrats say legislation allowing judges to do so could help more than 500,000 homeowners avoid foreclosure, while Republicans and the mortgage industry say expanding this power would make lenders far more reluctant to extend home loans.



In the future in the USA many cities and states will have shortfalls because properties are all going to be worth less so property taxes will be less. To add insult to injury, most people when they pay their tax bill for 2007 will have big tax assessments on property. That's because in most states the property was assessed last year so although property prices have dropped off, many people will have even bigger property tax bills than last year.

Then you factor in that many consumers will spend a lot less in 2008 and the budget shortfalls should be plenty.

California Leads Borrowing Cost Rise on Housing Slump (Update1)
By William Selway


Jan. 4 (Bloomberg) -- From Sacramento and Albany to Boston and Tallahassee, politicians in state capitals across the U.S. are wrestling with the biggest increase in borrowing costs in three years as they struggle to shore up budget deficits widening on the national housing slump.

The extra yield investors require on 10-year bonds from California, Florida, Massachusetts and New York relative to benchmark tax-exempt rates doubled since July to the widest since at least 2004, according to data compiled by Bloomberg. California's gap grew to 0.44 percentage point from 0.20 percentage point, adding $24 million in extra interest over 10 years for every $1 billion borrowed.

The cost to borrow for roads and schools is rising as property values drop and consumers cut spending, reducing sales- tax revenue that funds about one-third of state budgets. Thirteen states face cash shortfalls totaling $30 billion next fiscal year, the Center on Budget and Policy Priorities, a Washington research group, said in a Dec. 18 report.

``We're looking at 2008 as a very tough year,'' said Craig Elder, a fixed-income analyst with Robert W. Baird & Co.'s private wealth unit in Milwaukee, which oversees $60 billion in assets, including municipal bonds.

Officials in 24 states said the housing slump is cutting tax receipts, according to a survey released last month by the National Conference of State Legislatures. Respondents in 18 states said they are concerned the trend may continue through the middle of 2008, three times as many as a year earlier.

Worst Performance

State and local government bonds had their worst performance in eight years during 2007 as investors sought the safety of Treasuries. Municipal debt gained 3.29 percent, while U.S. government bonds rallied 9.06 percent, according to Merrill Lynch & Co. indexes.

Florida bonds due in 2017 yield 0.27 percentage point, or 27 basis points, more than benchmarks, up from 10 basis points in July and more than 10 times the difference in February, according to a Bloomberg index of state general obligation debt.

The difference in yield, or spread, between 10-year bonds sold by New York and benchmark rates rose to 32 basis points, up from 13 basis points in July and triple the levels of 11 months ago. Spreads on Massachusetts bonds of the same maturity grew to 20 basis points from 9 basis points in July and 1 basis point in February.

Rising yield premiums mean higher debt costs for taxpayers because some states may need to increase borrowing to pay for projects as reserves diminish.

`Tight on Cash'

``Should the economy slow and cause states to be tight on cash, there could be more issuance for capital projects that may have been funded by budget surpluses in the past,'' New York- based Bear Stearns Cos. analysts Jerry Solomon and Hannah O'Brien Rupert said in a Dec. 13 report. ``Many municipalities will be forced to rely on public finance for projects that cannot be postponed.''

In Florida, which doesn't have an income tax, the Legislature slashed $1 billion out of the current fiscal year's budget because the sluggish housing market will cause revenue to decline for a second consecutive year.

Maryland raised taxes by about $1.3 billion a year. Indiana Governor Mitch Daniels ordered state agencies to hold back spending by 5 percent.

New York Governor Eliot Spitzer must close a $4.3 billion hole in next year's budget, up from $3.6 billion projected in August, according to the state's Division of Budget.

Wall Street Losses

The New York agency cut its estimate for personal tax collections by $500 million in the current year and $650 million in fiscal 2009 beginning April 1 amid losses on subprime-related securities by Wall Street banks, which generate about 20 percent of the state's tax revenue. Earnings at the seven largest financial firms based in New York City fell almost 65 percent in the third quarter from a year earlier, according to an October report by state Comptroller Thomas DiNapoli.

A survey by the National Governors Association and the National Association of State Budget Officers found states were tapping reserves, curbing tax cuts and raising spending at a slower pace.

State spending will expand 4.7 percent to $686 billion during the current budget year, the smallest increase since 2004, the survey said. Revenue growth from sales and income taxes may slow to 2.9 percent from 5.6 percent last year.

Home prices in 20 metropolitan areas fell 6.1 percent in October from a year earlier, the biggest decline in at least six years, according to the S&P/Case-Shiller home price index released in December. Americans who fell behind on their mortgages rose to a 20-year high in the third quarter, while new foreclosures hit a record for the second consecutive quarter, the Mortgage Bankers Association said in a report last month.

Forecasting Slowdown

``States are going to be challenged by the economic slowdown, the housing downturn and the amount of impact it will have on revenue while spending needs continue to grow,'' said Richard Raphael, who follows state credit ratings for Fitch Ratings in New York.

The economy's growth slowed to about 1 percent during the final three months of the year from 4.9 percent in the third quarter, according to the median of 63 forecasts in a Bloomberg News survey. For all of 2008, the economy is expected to grow 2.3 percent, the survey shows.

The Federal Reserve's Open Market Committee said in the minutes to its interest-rate policy meeting on Dec. 11 that recent economic evidence points to an ``intensification of the housing correction and some softening in business and consumer spending.''

A government report released today showed U.S. payrolls rose by 18,000 in December, the least since August 2003, while job gains for all of 2007 were the fewest in four years.

California Yields

The housing slump is forcing states to dip into cash stockpiled when the real estate boom helped pull municipalities out of the slump that followed the bursting of the Internet stock bubble.
States added $52 billion to their reserves from 2003 to 2006, according to the state budget officers group. They cut taxes and boosted spending that fell below the rate of inflation after the 2001 recession. Improving finances also led to higher credit ratings for California and New York.

Yields on 10-year California bonds fell more than half a percentage point relative to benchmarks to a low of 12 basis points in 2006 from 79 basis points in 2003.

California had its credit outlook changed to ``stable'' from ``positive'' in November by Standard & Poor's, signaling the state is unlikely to get a higher debt rating after two upgrades to A+ since 2003. Governor Arnold Schwarzenegger said in December he will declare a fiscal emergency to reduce the $3.3 billion shortfall in this year's budget.

Extra Interest

The state, the biggest borrower in the $2.6 trillion municipal market, plans to sell about $8 billion of bonds by June and $12.7 billion in the fiscal year beginning July 1, 2008, not including refinancings, according to figures released in October by Treasurer Bill Lockyer.

The extra yield demanded by investors since July may add $497 million in interest on the planned borrowings, assuming an average maturity of 10 years.

Much of the budget news is already priced into the debt, making state bonds attractive, said Philip Fischer, a municipal bond analyst at New York-based Merrill Lynch & Co.

Cheap Bonds

During the economic slump that began in 2001, spreads on California's bonds didn't widen to the levels they're at today until rating companies lowered their assessment of the state. Florida's spreads reached a high of 31 basis points in 2004, while New York's peaked at 40 basis points the same year.
``The market has anticipated credit deterioration everywhere,'' Fischer said. ``The bonds are already very cheap.''

Unlike earlier in the decade, when the stock market crash touched investors across the country, the effects are mainly hurting states that benefited most from the real estate bubble.
``Housing prices and the boom was broadly felt and the downturn, in terms of going from hyper growth to correction, is most evident in the states that had the biggest run-up,'' said Raphael at Fitch.

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Board Administrator
Username: Admin

Post Number: 1435
Registered: 12-2004
Posted on Saturday, January 05, 2008 - 7:43 pm:   Edit PostPrint Post

Mike, I read most of these articles... but still can't see a real bargain. Do you think there will be a time when stuff will 'liquidate, liquidate, liquidate' as if in an auction with no reserves? In 2001, we had to liquidate in an open auction an old family property of about 10 bedrooms (an entire floor) located at Callao and Cangallo. It went to the martillero for about usd $55,000. Will we see this 'throwing the towel' type of abdications or everything gets cooked within the Banks and pools of investors?
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Advanced Member
Username: Saint

Post Number: 300
Registered: 5-2005

Posted on Sunday, January 06, 2008 - 9:20 am:   Edit PostPrint Post


I truly believe the true "bargains" will happen when there is a lot of blood in the street. When there is such a tremendous fear of the unknown that people continue to wait on the sidelines. Honestly, I don't know if it will come down to the situation that you described. There are huge differences between the Great Depression and today. There is such an abundance of wealth that has been accumulated over the years. Not just in the USA, but especially around the world. There are so many millionaires, multi-millionaires and billionaires today that didn't exist before. Especially consider the growing number of wealthy people that are popping up in traditional "poorer" or less developed countries like India, Brazil, Russia, China and the Middle East.

Also, consider in the situation you described, it was an unprecedented time of financial upheaval in Argentina where banks closed, assets were held, etc. I can assure you if the same type of thing happened in the USA there will sure be chaos that makes what happened in Argentina look like a girl scout party. Again, I'm not saying it will ever happen BUT IF something like that happened where you had bank runs or people started pulling out their deposits in massive amounts you can be sure there will be "issues".

I do think there will be a day when it gets worse than anyone thought possible. I'm not saying it will be tomorrow, next year or even 5 years from now. However, anyone that has taken a basic economics class knows there are huge consequences for someone (whether it be an individual or a nation) to continue to spend money they don't have. At the end of the "game" there are serious consequences.

We are just getting a glimpse today of what happens when the world-wide credit market freezes up. Imagine it on a bigger scale more global level if that happens. There will be big disruptions. But you know what? There will always be very wealthy people and intelligent investors waiting on the sidelines ready to pounce on distressed properties/real estate, stocks/bonds, mutual funds, corporations, etc. The difference is there is so much wealth from sovereign nations today that these people can (and will) pick up distressed assets at bargain basement prices. And the huge advantage is these sovereign nations and ultry wealthy have time on their side. They can wait years or decades whereas the average individual investor doesn't have the patience or wants very "quick returns".

As I mentioned in my previous posts, look at countries like China and Singapore and Middle Eastern countries buying up all our banks and financial companies. These nations have billions and billions of dollars to go on a global spending spree. They have years and decades to ride things out. At the end of the day, they end up buying up more and more of our country, our companies and our assets. That is the harsh reality whether people can see it or not. I'm not necessarily saying that is a bad thing but remember years and decades before it was the USA doing those types of things not the other way around.

I mentioned it before but I'll mention it again. The way I look at it, I like giving examples. It's like a big game of Monopoly what is going on right now. Just as in the board game of Monopoly, at the end of the "game" those that build up their assets will be better prepared by the end of the game. Those that don't play the "game" properly end up with no money, paying "rent" to other "players" and eventually end up broke and walking away from the game. It's an easy way to see what is going on. Granted it's not so simple to look at it but try to look at things using examples as it makes things easier to understand.

I mentioned before, crashes and disruptions are needed in any society because it keeps "greed" and reality in check. The truth remains that there was no "reality" in the USA real estate market the past several years and that is why they are experiencing such pains now.

I'm not sure if you will see really desperate "blood in the street" type situations but I think it's a real possibility that most people in their lifetime will see a big disruption in the USA that they thought wasn't imaginable before. I never go by what "experts" say because in my experience I found they are often wrong. (Especially those that work for the government of any nation). The government isn't in the business of giving out depressing information month after month so they say things like "things are contained" "things are not as bad as we thought" "next month/quarter/year will be better and will drastically improve". Just once I would like to hear a government with serious problems say things like, "We are having unprecedented problems and this is NOT a desirable situation. The reality is many people will lose their houses and there isn't really anything we can do about it. People should contain their spending and be prepared for instability".

How many times have you heard that?? Never.

Again, I'm not a gloom and doom type person. I'm an optimist but I'm also a realist. I knew this sub-prime mess was going to happen. About 2 years ago was the big wake up call and I saw it developing. In 2002 I saw the turn around potential for Argentina and that paid off. I like to take a very long term vision on everything that is going around me and I still see problems for the USA ahead.

Will there be firesale prices? Maybe. No one knows how low they will go but it's clear to see by looking at the general real estate situation that things can take a big pop in a relatively short amount of time. And when they do there will be "vultures" (i.e. value investors) waiting on the sidelines to swoop them up.

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Board Administrator
Username: Admin

Post Number: 1437
Registered: 12-2004
Posted on Sunday, January 06, 2008 - 6:30 pm:   Edit PostPrint Post

Thank you, Mike.

I found this link for Morgan Stanley 2008 outlook for the global economy and also came across Saxo Bank's predictions of oil at $175 and drops of 25% and 40% in US markets and China's respectively before the summer.

(Message edited by admin on January 06, 2008)
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Username: Arial

Post Number: 120
Registered: 10-2006

Posted on Monday, January 07, 2008 - 6:32 pm:   Edit PostPrint Post

Re Gloria's concern about "everyone" saying buy gold. Decided to move the discussion here.

As I understand the market, commodity bull markets last a long time--18 to 20 years. This market just started right after 2000. I think it's pretty certain that precious metals have a ways to run yet. Just my opinion.

It is true that one sign of a top is when we hear people say to buy--but I think it is usually your friends, neighbors, relatives (who never buy commodities) and hair dresser.
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Advanced Member
Username: Saint

Post Number: 302
Registered: 5-2005

Posted on Thursday, January 10, 2008 - 9:16 pm:   Edit PostPrint Post

This article below goes along with what I've been saying over the past 2 years. You have developing countries that are contributing to global demand. Read below. I find it very interesting that the World Bank is saying that developing countries' contribution to global demand is three times more important as the contribution from the USA. Now, that is pretty interesting and should make people realize just how fast the world is growing and how less and less is depending on what the USA does.

"Developing countries, if you add them all up now, are basically the same size as the United States," said Hans Timmer, co-author of the bank's annual "Global Economic Prospects" report.

"But they are growing more than three times as fast, and that means that their contribution to global demand is more than three times as important as the contribution of the United States," he said at the launch of the report in Singapore." _prospects.html?printer=1

Poorer Countries to Offset US Slowdown

Wednesday January 9,

By Gillian Wong, Associated Press Writer

World Bank: Developing Economies to Cushion US Slowdown in 2008

SINGAPORE (AP) -- Continued robust expansion in developing countries will help offset a slowdown in the United States this year amid concerns of a possible recession in the world's largest economy and oil prices will gradually decline, the World Bank said Wednesday.
The Washington, D.C.-based international bank forecast global growth to moderate to 3.3 percent this year from 3.6 percent in 2007.

"Developing countries, if you add them all up now, are basically the same size as the United States," said Hans Timmer, co-author of the bank's annual "Global Economic Prospects" report.

"But they are growing more than three times as fast, and that means that their contribution to global demand is more than three times as important as the contribution of the United States," he said at the launch of the report in Singapore.

Not only has the resilience of developing economies mitigated the slowdown in the U.S. economy, it has also helped reduce global trade imbalances by sucking up American exports with the help of a cheaper U.S. dollar, he said.

The bank said there were concerns that a faltering U.S. housing market or further financial turmoil could push the U.S. into recession and weaken demand for the products of developing countries.

"We still don't know exactly how many corpses are there still in the financial markets, and how big, ultimately, the losses will be," Timmer said.

The bank believes, however, that the spillover from problems in the U.S. housing market on consumer demand will be limited. It expects the U.S. economy to regain momentum and lead to a pick up in world output, which it predicts will expand by 3.6 percent in 2009.

Gross domestic product growth for developing countries is expected to ease to 7.1 percent in 2008, while high-income countries are predicted to grow by a modest 2.2 percent, the bank said.

Timmer warned, though, that some developing economies were in danger of overheating, which would be exacerbated if interest rates come down sharply as a result of a U.S. economic slowdown, creating excessive liquidity in the global economy.

If capital flows turn away from the United States because of the problems there, the funds will end up "somewhere in the developing world and that mechanism could create new bubbles or expand bubbles already in the making," he said, citing the Shanghai market and stock markets in India as examples.

The Shanghai Composite index soared 97 percent last year, making it the world's best-performing major benchmark index. It also became the second most popular place for initial public offerings behind New York.

"You can argue that that kind of an increase is probably not sustainable," Timmer said.

Further sharp declines in the U.S. dollar were also a potential threat, despite the boost provided to USA exports. A less robust greenback provokes increased uncertainty and volatility in financial markets and increased trading costs, resulting in weaker export and investment growth worldwide, the report said.

And while a weaker dollar would benefit developing countries with dollar debt, it would also impose losses on those that hold dollar-denominated assets, the bank noted.

To alleviate poverty, the report urged developing countries to harness better technology, saying that rapid technological progress in developing nations has helped to reduce the proportion of people living in absolute poverty from 29 percent in 1990 to 18 percent in 2004.

"Technological progress increased 40-60 percent faster in developing countries than in rich countries between the early 1990s and early 2000s," said Andrew Burns, lead economist and main author of the report.

"Developing countries have a long way to go, given that the level of technology that they use is only one quarter of that employed in high-income countries."

The World Bank also said oil prices are likely to decline gradually this year and next as record crude prices weaken demand.

A barrel of light, sweet crude surpassed $100 a barrel on the New York Mercantile Exchange for the first time last week.

The World Bank's report predicted that a barrel of crude oil will cost $84.10 on average this year and fall by 6.8 percent to $78.40 a barrel in 2009. It estimates that the average price of crude oil last year was $71.20 a barrel.

"If you look at the fundamentals, there is scope for lower oil prices," said Timmer. "We forecast more or less a sustained, gradual decline."


Also, regarding GOLD prices. Like I said before, I'm not adding to my existing holdings at these prices but I'm not off loading nor selling gold positions right now. With everything going on in the world there is really no reason to go bearish on gold prices.

Sentiment both in the USA and the Europe are fairly gloomy. Look at countries like Japan as well. The Nikkei has lost over 20% in less than 6 months! And almost 5% of that was in the first WEEK of 2008. Gold hit $891.40 an ounce this week. It should go over $900 this month.

Until I see any reason to become bearish on gold I'd hang on to positions rather than taking gains.

Cheers all.
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Advanced Member
Username: Saint

Post Number: 305
Registered: 5-2005

Posted on Friday, January 11, 2008 - 4:47 pm:   Edit PostPrint Post

As I mentioned last night....Gold would go over $900 this month. I did NOT expect it to hit $900 a day after I posted it but it was pretty close today. Like I said...nothing really going on with the economy and around the world to make me go bearish on Gold. 180665020080111

UPDATE 7-Gold hits record high near $900 on safe haven bids
Fri Jan 11, 2008

NEW YORK, Jan 11 (Reuters) - Spot gold surged to a record just shy of $900 an ounce on Friday as investors poured into the market, driven by uncertainties in financial markets and inflation fears amid signals that aggressive U.S. interest rate cuts may be on the cards.

The value of gold as a safe-haven investment was boosted by worries of further write-downs among major financial institutions and credit market meltdown in the United States, the world's biggest economy.

The run higher in gold spurred on other precious metals, with platinum hitting a record high and silver surging to 27-year peaks.

Spot gold <xau=> hit a record $898.00 an ounce, but later trimmed gains to $896.40/897.10 in New York at 2:15 p.m. EST (1915 GMT), compared with $889.90/890.60 quoted in New York late on Thursday.

The most-active U.S. February contract GCG8 briefly breached $900 an ounce, hitting a record $900.10 per ounce. It settled up $4.10 at $897.70 an ounce.

"Clearly, there are some concerns about the financial system. And, I think, in that environment, there are some asset diversification and asset shift into gold," said Caesar Bryan, portfolio manager of GAMCO Gold Fund in New York.

"It's just a lot of uncertainty, not just in the subprime mortgage areas, but in other areas as well. As long as the uncertainty prevails, I think gold is an interesting investment," said Bryan, who oversees more than $550 million of assets under his fund.

U.S. stocks fell sharply on Friday in late afternoon trade, with the benchmark blue-chip Dow Jones industrial average .DJI down about 250 points, or 1.8 percent, at 12,600.

"Basically, this is very much a continuation of the pattern that we've been seeing, which is flight-to-quality demand. Another 250-point drop in the stock market is certainly contributing to gold's strength," said Bill O'Neill, a partner in LOGIC Advisors in Upper Saddle River, New Jersey.


On Friday, sharply higher corn, wheat and soy prices, after bullish U.S. agricultural acreage data, also lifted gold, which is used by investors as a hedge against inflation.

"Very bullish grain report this morning certainly contained inflationary implications, and I think it's supportive as well," O'Neill said.

Dealers and analysts said that, while the speed of bullion's current rally had raised the stakes for a corrective sell-off, bullish sentiment was solid.

"There are a number of drivers that support safe-haven buying and continued investment demand. That ranges from geo-political tensions and expectations for higher inflation to broader macro-economic concerns," said Suki Cooper, metals analyst at Barclays Capital.

The dollar remained on the defensive against the euro after U.S. Federal Reserve Chairman Ben Bernanke said on Thursday that the central bank was ready to take "substantial" measures to shore up a slowing economy.

The Fed has already cut rates a full percentage point since September. Lower interest rates dent the dollar's yield appeal -- raising gold's profile as an alternative investment.

In the physical sector, fears of further rises ignited buying from jewellers in Indonesia and Thailand, but retail investors in other parts of Asia, especially Japan, cashed in on their holdings to take advantage of sky-high prices.

The key gold futures contract for December 2008 delivery <0#jau:> on the Tokyo Commodity Exchange hit an intraday high of 3,182 yen per gram, its best level since March 1984. It ended 51 yen higher at 3,168 yen.

Platinum <xpt=> hit a record $1,564 per ounce and was at $1,562/1,566 an ounce, up from $1,550/1,555 late in New York on Thursday.

Silver <xag=> rallied to a 27-year high of $16.29 an ounce, before dipping to $16.21/16.26 an ounce, up from its previous finish of $16.12/16.17.

Palladium <xpd=> lagged the other precious metals, but was still firm, trading at $375/379 an ounce, down from its Thursday's close of $373/376.

For factboxes on how to invest in gold, major price drivers and key milestones, please double click on [ID:L1049327] and [ID:L2383621] (Additional reporting by Atul Prakash and Veronica Brown in London, Chris Kelly in New York and Lewa Pardomuan in Singapore)
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Username: Welcometomendoza

Post Number: 99
Registered: 7-2007

Posted on Saturday, January 12, 2008 - 5:49 am:   Edit PostPrint Post

Here is an interesting story out on what 1 million bucks will buy you these days:

What $1 Million Buys in Homes Worldwide
by Matt Woolsey
Friday, January 11, 2008

Home prices in many parts of the world swelled last year, with Eastern European and Scandinavian markets leading the way with double-digit growth.

The result? On foreign soil, $1 million buys less than ever.

In London, it'll get you a one-bedroom, one-bathroom flat in Primrose Gardens. You'll save on cabs, however; the building is steps from the Belsize Park tube station. In Hong Kong, $1 million buys a three-bedroom, 825-square-foot apartment in a high-rise between the residential areas of Aberdeen and Pokfulam.

Shoppers in New York don't get much more space. A 647-square-foot Turtle Bay condo, not far from the United Nations, nips the seven-figure mark, and some may say justly: The property features a 45-square-foot balcony, white oak floors and 11-and-a-half-foot ceilings. looked for million-dollar properties representative of the world's offerings and found a range of apartments, townhouses, lofts and vacation homes on every continent, excluding Antarctica. In emerging markets like South Africa or Egypt, $1 million might buy a small estate. In major cities like Paris, Sydney and Dublin, you're likely limited to apartments.

Costly City Dwellings

In places such as these, convenience of commute, access to leisure pursuits and the prestige of a prime address like Kensington or the Sutton Place means that prices will grow so long as wealth does.

"The growth of wealth in recent years is a real and substantial trend," says Liam Bailey, head of residential research for London-based property adviser Knight Frank. "Over the next five years, we believe the trend of growing wealth and greater wealth concentration will continue."

And if it comes in the form of pounds sterling and euros, American real estate as a result looks incredibly cheap. One example: the luxurious residences at The Plaza in New York--many listed for upward of $10 million--are filling fast with Europeans.

But it's not just marquee properties that are going to overseas investors. Jonathan Miller, director of research at Radar Logic, a New York real estate research firm, estimates that one-third of Manhattan condo sales over the last year have gone to foreign buyers.

However, those who prefer to stay home should fare just as well. That's because, while U.K. prices have spiked almost 10% this year, according to Savills, a London-based real estate research firm, both mature and growing markets have outperformed it.

"It is not just the emerging markets such as Poland and Bulgaria that are enjoying strong growth," says Charles Weston-Baker, director of Savills' International Residential Department. "Traditional markets such as Canada, Sweden and Spain all outperformed the U.K."

Here, though, buyers of million-dollar prices still get more than they would for a comparably priced property in London. In Montreal, $1 million buys a three-bedroom, three-bathroom, Art Deco-style home with a deck overlooking rear gardens and three fireplaces.

A good investment? It's likely. Although "price growth this year will be lower," says Bailey, "we predict prime markets will outperform mainstream markets by quite a margin."

Copyrighted, All rights reserved.
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Advanced Member
Username: Saint

Post Number: 307
Registered: 5-2005

Posted on Saturday, January 12, 2008 - 10:13 am:   Edit PostPrint Post

I'm posting some more interesting articles on real estate trends around the world. You will read several of them re-enforce what I said was going to happen in the USA and also the UK.

Many people ask me why I take the time to post things on the internet on various message boards. The reason I've always posted on message boards was to share information. I've always believed knowledge was POWER. Each person controls their own financial destiny. At the end of the day you can't blame anyone else (government, family, friends, financial advisor, etc). People have the power to research, research, research these days.

People are always amazed at the amount of reading I do but I always tell them if you are a serious investor you have to do lots of research and know what is going on and try to predict what will go on in the future. Too many "investors" only buy something they read about in some newspaper or magazine or a hot stock tip their friend tells them about. The dawn of the internet and technology has been amazing but the negative side is that we went from very expensive broker assisted trades that made it difficult and expensive to cheap $9 online stock trading that any one and their brother can basically "gamble" and many don't really know (nor care) what they are buying or selling. For those of us that traded with expensive brokers before online trading became available it really made you think if you really wanted to make a trade and the cost. Now you just click and hit "buy" and pay $9. That is something to consider. m

January 9, 2008

Home prices in the United States declined in 2007 for the first time since the depression years of the 1930s. VOA's Barry Wood recently visited North Port, Florida, a Gulf Coast city deeply impacted by a housing boom turned to bust.

Across America home foreclosures have reached a three-decade high, as problem borrowers have been unable to meet their mortgage payments. Treasury Secretary Henry Paulson recently unveiled a government program to address the problem. "We are working aggressively and quickly, utilizing the available tools and creating new ones, to help financially responsible but struggling homeowners," he said.

Under the program, several hundred thousand distressed borrowers may be eligible to have their mortgage interest rates held steady for five years.

Here in North Port, Florida, a boom town with a large Ukrainian community, more help may be needed. Too many homes were built. Many home prices doubled from 2000 to 2005, but they have now come down by as much as 30 percent. Sarasota Herald-Tribune reporter Stephen Frater says the air quickly came out of a speculative bubble. "There are hundreds of unfinished houses," he noted. "There are thousands of vacant lots. There is no city center. There are infrastructure issues."

Unfinished homes discourage prospective buyers and push prices lower. Homeowner Harry Bourne, who lives next to one of the unfinished homes, says the market is dead and he cannot sell. "If I wanted to sell it, it would require me to lose, you know, about [$10,000-$15,000]. So, at this moment I'm willing to stay and stick it out," he said.

Harry Bourne is lucky. He has a steady job and is making his mortgage payments.

Jimmy Claydon, facing foreclosure, says the crisis is getting worse. "People owe more than the property is worth," he explained. "So they're unable to sell the properties. So they have to stay, or they have to go into foreclosure."

With prices still declining, the distress level in North Port is rising. Reporter Stephen Frater says it is likely to be many months before property prices level off. "I think North Port inventory levels are so high, and some of the structural and infrastructure are so massive, that I think they have quite a bit further to go before they hit bottom," said Frater.
The wave of foreclosures continues with public auctions becoming increasingly common. Analysts say that America's housing slump is likely to last until 2009. id=46540

Condo Meltdown

Lender seeks foreclosure on WPB’s new Whitney project

The Whitney, a newly built condo development in downtown West Palm Beach, has joined the growing number of developments hit with foreclosure lawsuits.

California-based lender iStar FM Loans is seeking to foreclose on about 146 unsold units, or about two-thirds of the 210-unit building, which was completed in mid-2007.

The developer, Evernia Properties LLLP, has been in default since July, according to the lawsuit filed in Palm Beach Circuit Court.

The lawsuit does not specify the amount owed by the developer, but a letter attached to the complaint and sent by iStar to the developers on Oct. 30 demanded payment of about $37 million. Each additional day the balance is unpaid is costing the developer more than $12,000 in interest, according to the letter.

The Whitney is an eight-story building at Evernia Street and South Dixie Highway and is a prominent part of the residential development in the city’s downtown. It has 55 one-bedroom units, 107-two bedroom condos, 12 three-bedroom units and 17 penthouses. Prices range from the mid-$200s to about $600,000.

The principals behind Evernia Properties are first-time developers Enrique Dillon, Ricardo Djmal and Ricardo Weinstein, who also are investors in another project under foreclosure, the Villa Mare & Yacht Club Residences in Boca Raton, a 160-unit conversion project that defaulted on a $50 million loan from Ocean Bank. The bank alleged in a June lawsuit that the borrowers stopped paying the $60 million loan 11 months after they borrowed the money to pay for the $57 million property.

Dillon, a native of Argentina who was a computer exporter and principal of several technology-related businesses before becoming involved with real estate developments, is chief executive officer of Evernia Properties. He did not return messages left on his cell phone or an e-mail seeking comment.

Evernia Properties obtained a $52.5 million loan from California-based Fremont Investment & Loan in December 2004 to start the Whitney. After part of the loan was paid off, Fremont assigned the loan to iStar, which closed on the acquisition of the loan two days before its July 1, 2007 payment-in-full due date.

In addition to the loan bought by iStar, the lawsuit also seeks payment for additional money iStar had to disburse to “protect its interest” in the building. On Dec. 20, the lender advanced about $117,000 so the developer could pay various bills, including about $40,000 to Florida Power & Light and more than $8,000 to the city of West Palm Beach.

Sources familiar with the development who spoke on condition of anonymity said iStar did not intend to foreclose on the property when it purchased the loan but had to do so when other pending lawsuits against the developer prevented unit sales from closing.

The claims were filed by contractors who wanted to get paid for their services. Normally, contractors hold a lien, or have a right to the property being developed, as a way to secure their payments. Like the lender, contractors that hold an interest in the property can stop the closing of a unit by not authorizing the release of the lien on the unit.

Nathan Nason, an attorney at the West Palm Beach-based law firm Nason Yeager Gerson White & Lioce, which is representing lender iStar, declined comment.

Bovis Lend Lease, a construction company that built several prominent South Florida projects including Met I, Ten Museum Park and the Four Seasons Hotel in Miami, filed liens against Evernia Properties seeking the remaining $2.86 million of a $43 million contract for the construction of the Whitney. The claims were filed Oct. 15 and Nov. 14.

Since Nov. 14, no units have closed at the Whitney, according to Palm Beach County public records.

Bovis is not the only company claiming its interest in the property. Among other contractors and subcontractors are General Electric and Rinker Materials, which are owed $42,000 and $4,114, respectively.

A call to Bovis’ local office in Miami was not returned. Mary Costello, senior vice president of corporate affairs at Bovis’ corporate office in New York, declined comment.

Rosalia Picot, the owner of a real estate consulting, sales and marketing firm based in Miami, who is familiar with the project and has known Dillon for about four years, said, “She heard [from brokers and others familiar with the project] the contractor was not getting paid and refused to complete certain parts of the units. And the lender was not getting paid because there were no closings.”

Picot, who handled sales for 610 Clematis — a rival development owned by Miami-based BAP Development, which sold the site upon which the Whitney was built to Evernia Properties — said her firm is keeping track of closings and legal challenges in some developments in West Palm Beach.

“It’s incredible how slow closings are happening,” she said. “They are just dragging and dragging.”

The Whitney started marketing efforts in 2003. Closings started in July.

The Edge, a nearby 307-unit project on South Australian Avenue, began closing on sales in August last year. Only about 135 units have closed so far, according to Palm Beach County records.

“We used to be able to close a project in 2½ months,” Picot said.

About 200 of the 210 units at the Whitney are under contract, said Maribel Alvarez of Altima International, who handled the marketing and sales for the property and lives on a unit she purchased in the development. Of those, 64 have closed, according to county records. Thirty-seven lawsuits from contract holders seeking to get out of contract have been filed.

John Jorgensen, an attorney at the Palm Beach Gardens based law firm Scott Harris Bryan Barra & Jorgensen, is representing 13 of those buyers.

“They are unable to close contracts because of liens,” he said. Some of his clients filed suits before lien claims were filed.

If the property is foreclosed, contract holders would be entitled to half of the deposit — 20 percent of the purchase price — on the unit. Under the contract, the developer had to keep half of the deposit in an escrow account and the other half could be used for construction.

“We’d have to fight to get the other 10 percent,” Jorgensen said.

Many buyers still want to close but cannot because of “lien issues,” Alvarez of Altima International said.

“I get calls everyday,” she said. “People want to know what’s going on. They are waiting to move in.”

Builders get creative to boost sales

Since the real estate slump began, many builders have rolled out unusual plans to boost business, from free luxury car leases to free pools. Now, some are hoping discounted prices will produce the sales volume they've been seeking.
Travel to four of Centex Homes' Hillsborough communities and find houses starting in the low $120,000.

The deal, which ends March 9, includes Southshore Falls in Apollo Beach as well as several neighborhoods farther north.
The sale comes just weeks after the S&P/Case-Shiller Home Price Index named the Tampa metropolitan area the weakest market in the country in price growth. Miami came in second.

While Centex's Sarasota division has yet to release any plans for a similar sale, many local builders and developers have started offering buyer incentives in hopes of kick-starting the stagnant market.

One of the biggest issues in bolstering the market is eliminating the excess inventory and getting back to a more normal supply of housing.

Builders are finding prospective home buyers have higher expectations and want lower prices. Many are giving them just that.

Homebuyers just print a coupon off the Lee Wetherington Companies' Web site and receive a free 42-inch flat screen television with their purchase. In addition, the builder has 15 inventory homes and 10 models for sale at discounted prices. At least two of the models, which started in the $2 million range, have been discounted $300,000.

The Founders Club, where Wetherington is already offering some discounts, is offering an incentive plan of its own. Buyers of developer-owned lots will receive a $30,000 equity social membership to the exclusive Founder's golf and social club.
So far, the offer has attracted quite a few buyers, said Sharon Ross, director of sales at The Founder's Club.

"This is giving them a gift of friendship and activity and maybe something they wouldn't have done for themselves," Ross said.

As local traffic has picked up, Bruce Williams Homes has crafted an incentive plan aimed at the local home buyer looking to move.

"Most of what we've heard is, 'Yes, I want to buy a new home but I have one to sell,' " said Beth Day, Bruce Williams Homes' assistant vice president of marketing.

The company's "8 Step Sales Solution" aims to attract buyers on the fence. After buyers sign a purchase agreement, Bruce Williams Homes will have a real estate agent prepare a competitive market analysis for their current home and help prepare the home for showings.

If the new home is completed before the old one is sold, Bruce Williams Homes will pay up to six months of mortgage payments on the new home. If the buyer's home sells before construction on the new home is complete, Bruce Williams Homes will pay rent and storage fees.

"More serious buyers are looking to buy especially at a reasonable price, this is just further incentive," Day said.
The company's new Cross Creek development in Parrish is underway and new models will open in time for the Parade of Homes.

Gibraltar Homes will also have several new models opening in time for the parade and co-owner Albert Sanchez thinks it will bring in even more traffic.

"New homes are 25 percent less than they were in 2004 and 2005," Sanchez said.

Several of the new models Gibraltar has underway are at Lakewood Ranch's Country Club East.

Lakewood Ranch allowed 20 percent reductions in lot prices in its new Country Club East community in an attempt to stimulate sales, Sanchez said. The reduction, which expired in December, didn't lead to any Gibraltar sales but it did start dialogues with a group of potential buyers.

"Our prices are already considerably lower than they were in 2004 and 2005. The current pricing is historically unprecedented," Sanchez said. tml

Levitt and Sons customers may be out deposits

If you put down money to buy a home from Levitt and Sons before the company went into bankruptcy, you won't be forced to wait around for the home to get built. But here's the catch: You may lose some -- or even all -- of your deposit.

Buyers who asked a judge to let them out of their contracts were rewarded Thursday, as U.S. Bankruptcy Judge Raymond B. Ray agreed to cancel about two dozen deals. But Ray warned those whose deposits weren't stashed in escrow accounts that it's too soon to know how much -- if anything -- they will get back.

Fort Lauderdale-based Levitt and Sons collected about $18 million in deposits on homes it failed to finish building, but only about $1.9 million was placed in escrow, said Jordi Guso, a Miami bankruptcy lawyer representing the builder. The rest went into Levitt's operating fund and was spent, Ray said during Thursday's court hearing in Fort Lauderdale.

Buyers who chose not to follow through with their purchase will get their escrowed deposits back.

Those whose deposit wasn't escrowed get a lien on the property they were set to buy. However, they will have to wait in line to get paid behind Levitt's lenders, as unsecured creditors. If there's no money left after secured creditors are paid, customers would get nothing.

Under bankruptcy law, Guso said, those who put down a deposit on real estate are entitled to a ''priority unsecured claim'' of up to $2,425.


''I'm optimistic we'll get a small percentage back,'' said Richard Gloor, a retired aerospace engineer, who along with his wife put down a $54,742 deposit down on a house that cost more than $500,000 in Lake Lanier in Georgia.

Gloor didn't see the need to have the money held in escrow, though he said he wasn't given the option. ''I was never worried about it. Levitt has been around since 1947,'' he said.
Levitt, best known for building the planned community Levittown in Long Island, N.Y., couldn't navigate the weak housing market and filed for Chapter 11 on Nov. 9.

Levitt already has abandoned about 4,000 lots secured by loans from Bank of America and Key Bank. The builder is working on getting as much as $10 million in financing from Wachovia to finish building homes in Florida, Georgia and South Carolina. A chief administrator has been appointed to oversee those projects.

But if Thursday's hearing is any indication, few buyers are interested in closing on homes, many of which have fallen into disrepair since Levitt stopped building last summer. All but one of 26 contracts were canceled.


''I think we're going to be seeing people rejecting contracts in droves,'' said Robert P. Charbonneau, a Miami lawyer who represents some customers. ``It appears Wachovia is dealing in good faith, but that good faith may be too little, too late for these folks.''

The next hearing on motions to reject purchase contracts is set for Feb. 19.

Ray agreed to appoint a committee to represent customers with deposits. Charbonneau said he will seek to serve as the committee's lawyer, and said he wants to learn why only $1.9 million of deposits was escrowed.

Guso, Levitt's bankruptcy lawyer, said the company complied with its obligations relating to the deposits and didn't do anything improper. l

Stock slump the latest of Beazer's woes

Some warned in 2003 that builders were selling too many homes. Too many unqualified buyers were getting mortgages with ballooning interest rates. And housing prices were rising too fast, too high.

But Beazer Homes USA, one of the largest and most aggressive builders in Charlotte, didn't see it that way.
"The so-called housing `bubble' is, in fact, a myth," it said in its fiscal 2002 annual report. "While many continue to wait for this bubble to burst, we agree with most respected economists that there has never been a national housing bubble in the U.S."

In 2005, Beazer cracked the Fortune 500 and ranked among the 10 biggest homebuilders in the nation.
But the good times didn't last.

Last year, foreclosures nationwide hit record levels, as many homeowners were unable to pay rising mortgages. In Mecklenburg County, Beazer built more houses in the past decade that have since foreclosed. Cascading foreclosures and a housing glut sank home prices. Banks put the brakes on easy credit, further dampening demand.

This week, shares of Beazer Homes USA dropped below $5, more than 90 percent off its all-time high just two years ago. Stock swoons in the housing industry were fueled by KB Home's lackluster earnings, followed by mortgage lender Countrywide Financial Corp.'s report on rising loan delinquencies and foreclosures.

The going is especially tough for Atlanta-based Beazer, which some analysts consider at risk of filing for bankruptcy protection. Among peers, Beazer had the highest percentage of investors shorting the stock -- those betting the share price will fall, according to a recent Goldman Sachs report.

Beazer is the only major publicly traded builder under federal investigation, triggered when the Observer ran stories about the company's business practices in Charlotte last year. Beazer admitted in October its employees violated federal housing regulations. Already late in filing third-quarter financial results from last year, Beazer said it could restate financial results as far back as 1999. An investment group has called for the CEO's ouster.

Beazer declined to comment for this story.
Once one of the biggest and more aggressive builders in the Charlotte area, the company is retreating. It has turned over legal documents to authorities, eliminated employees from its payroll, and written off losses on its balance sheet. The company that once declared housing bubbles were a "myth" now has far less to surrender.

Time of growth

Beazer emerged as a hungry growth-by-acquisition homebuilder shortly after it became a publicly traded company in 1994. It pushed south and west, launched its mortgage-origination unit and eventually doubled its national footprint to 21 states.The company's headquarters celebrated a culture of decentralization. "Our local managers, who have significant experience in both the homebuilding industry and the markets they serve, are responsible for operating decisions regarding design, construction and marketing," it reiterated in its 2003 annual filing with the federal government.

Former company managers from Atlanta to Phoenix told the Observer in recent weeks that Beazer gave regional operations a lot of autonomy.

Beazer's Charlotte team was hard-charging. The company entered the Charlotte market in 1987 with the purchase of Squires Homes. By 1997, local managers kicked it up a notch.

Led by Scott Thorson, whom former co-workers describe as "ambitious," the local branch sought to set a divisional sales record at its fledgling Southern Chase subdivision in Cabarrus County. Home prices started below $80,000, roughly half the Charlotte-area average. The unusually low sales prices were a strategic decision for Beazer -- build and sell homes for less.

Demand was "hot as a match," says former sales manager Barry Helms, who sold the first homes there.
Helms says he may have mentioned to customers back then that he was related to the former five-term Republican Sen. Jesse Helms, but acknowledges he's not sure he really is. The senator's relatives say no such relationship exists.
That wasn't the only pitch he used to woo buyers. To beat the division sales record, Helms had limousines ferry buyers to closings assembly-line fashion. "We moved three people an hour that day," he says.

Kelly Miles, a former Beazer builder, arrived in the mid-'90s to work on the Southern Chase neighborhood -- the subdivision where the Observer found high foreclosure rates and evidence that Beazer sometimes crossed the line between selling to people who could barely afford homes and selling to people who couldn't.

He remembers the company's go-go sales ethos. "We were told to do whatever it takes to get people in the door," he says. Sales goals were met, but housing quality suffered, he says.
Some residents who bought Southern Chase homes in 2001 have complained about mold in the carpet, cracked vinyl siding and rotten wood.

Beazer was aggressively helping buyers with down payments in some Charlotte-area starter-home subdivisions. It helped pay the first two years of home loans, an arrangement called a buydown. And it arranged loans that some buyers couldn't afford. The Observer found financial documents provided by four families showed their loans were arranged by Beazer Mortgage based on misstated debts or income. Knowingly falsifying that information is a federal crime.

(Beazer later told the Wall Street Journal that violations of housing regulations were concentrated "disproportionately" in North Carolina. BusinessWeek magazine, however, reported a similar income-inflating incident in the Washington, D.C., area.)

In 2001, letters signed by Thorson, then president of Beazer's Western Carolinas Division, offered Beazer homeowners $100 if they gave the company favorable scores on customer-satisfaction surveys.

If 90 percent of customers in a division said they would recommend the company to a friend, the division president's annual bonus increased 5 percent. A company that pays customers for responses that it publishes in securities filings may commit securities fraud by misleading potential investors.
Thorson, who recently left Beazer as president of its South Atlantic region, declined requests for comment.

Helms says he was in the room that day in Beazer's Albermarle Road office when the group brainstormed the $100 deal. "Too few customers were submitting the surveys," he says, which were tied to bonuses. "Those that did (submit surveys) tended to have bad experiences and their responses inevitably reflected poorly on the local team.

"They went too far with the idea," he says. "They should have just said, `We'll pay you no matter what you say, not just if you report nice things.' "
Helms and others say when Beazer's main office heard about the letters, it stopped the practice.

Beazer remained aggressive. It doubled its market share in Charlotte in 2002 when it bought start-up homebuilder Crossman Communities Inc. for about $500 million, which included $125.4 million in Crossman debt. Beazer also set aside about $40 million to settle water-damage and mold claims in Crossman homes in Indianapolis.

"We bought into the Kool-Aid," says Jonathan Smoke, a former Beazer senior vice president of strategy and innovation. "We double-downed ... on investing in land to meet demand. There was a lot of belief that it was going to be that way for 10 or 20 years."

The bubble bursts

By 2006, Beazer eliminated its Construction and Safety Evaluation or CASE team, which conducted unannounced building inspections. The company was trying to cut costs, says Ted Konechne, one of the company's CASE members who was based in Dallas.

"Every year there was pressure -- you had to do better than last year," he says. The "main strategy was to be where (large homebuilders) Centex and Pulte were.

"The greed," he says, "became out of control."
Despite the company's position that there was no housing bubble, by 2006 the housing ride was over.
"It was fun to work with them," says William Montgomery, Beazer's former vice president for internal audits in Atlanta. "They finally broke the top 10, but that's what brought them to their knees."

The company's local footprint has shriveled. Beazer last year filed for its fewest building permits for single-family homes in more than a decade. It has 11 projects in the Charlotte area. Some are entry-level homes, starting in the $130,000 range. Others are targeting more upscale buyers, with units starting from $350,000. The company has two townhouse projects, including the unfinished development on Morehead Street near Bank of America Stadium. The company graded the site, but not much work has taken place over the last several weeks.

Investment firm Goldman Sachs recently noted, "Builders will continue to face the headwinds of a declining housing industry -- an industry that is most likely to continue to decline until the U.S. is potentially in recession."

Beazer in recent months slashed its workforce, curtailed its product offerings, appointed a compliance team, and centralized marketing and accounting operations in hopes of getting the company back on track.

Will it be enough?

Beazer is the only company in its peer group to sue its creditors, after lending banks said the company was in default for failing to file financial results with the Securities and Exchange Commission. The company reached a settlement with creditors, but has yet to file its complete financial results.
Beazer had the highest cancellation rate of all major homebuilders in the fourth quarter of the fiscal year in 2007, when 68 percent of buyers backed out of contracts.

Vicki Bryan, an analyst with corporate bond research firm Gimme Credit, said the company's selected financial results in the last quarter "showed they had the worst performance" relative to other builders.

She ranked Beazer as most likely to file for Chapter 11 bankruptcy protection among its peers this year, followed by Hovnanian Enterprises and Standard Pacific Homes. All have a presence in the Carolinas.

"Beazer," she says, is "on the gurney."

Previous findings

Last year the Observer found 77 buyers in Beazer's Southern Chase lost homes to foreclosure in a subdivision of 406 homes. That was about one in five, far higher than the national rate.
Beazer also arranged mortgage loans for two-thirds of the buyers. The company used that control to arrange larger loans than some buyers could afford. That allowed it to include the cost of financial incentives in the price of homes. Some of Beazer's actions violated federal lending rules, the Observer found.

Ten Beazer developments in Mecklenburg County had higher foreclosure rates than Southern Chase, the most of any single builder.

Beazer fired Kenneth Gary, general counsel, in February for "personal conduct" that violated company policies.
Beazer fired Michael Rand, chief accounting officer, in June when the company caught him attempting to destroy unspecified documents during an internal investigation.

South Africa housing market 'cooling rapidly'
The property market is rapidly cooling after more than five years of double-digit house price increases, and political uncertainty could dampen things further, says an international review.

While South African house prices rose by more than 10 percent year-on-year in nominal terms, the inflation-adjusted figures were substantially lower, according to the Global Property Guide, a review of the world's housing markets for last year.

The annual house price increase in South Africa was 15,12 percent at the end of 2006, and stood at 12,52 percent at year-end last year.

However, after being adjusted for inflation, the nominal increase last year a more modest 3,77 percent.

Vietnam Real Estate sid=34868

Property fever continues to sweep HCMC

The New Year’s housing market in Ho Chi Minh City was off to a strong start Monday as around 3,000 prospective buyers scrambled to Nha Be District register for units in a new apartment block.

At around 8 a.m., Thanh Nien witnessed throngs of prospective buyers lining Nguyen Huu Tho Street to register for 580 apartment blocks to be built in District 2 by the HAGL Land Company.

Though registration is scheduled to last until Saturday, droves of buyers have already signed up.
HAGL Land said its staff was working overtime to handle the massive crowds.

One prospective buyer, Nguu Ngoc Bich, told Thanh Nien that she hoped to buy an apartment since she was convinced she could make a huge profit by reselling it.

Le Hung, HAGL Land’s director, said prospective buyers would be selected to draw lots next May to decide who would be eligible to purchase an apartment.

To participate in the lot-drawing portion, buyers are asked to open a bank account worth at least 30 percent of the apartment price, Hung said, meaning buyers must have at least VND1.6 billion (US$100,000) to draw lots for a 150 square meter apartment.

But such harsh requirements did little to dissuade people from flocking to register with the number of prospective buyers predicted to reach around 5,000 when registration wraps up on Saturday.

Hung also revealed that HAGL Land had opened the current registration in a bid to sound out the property market in HCMC to adopt workable business strategies for the year ahead.
The firm also said it was set to roll out around 1,500 apartments this year.

The property scramble will be expected to remain overheated in HCMC this year as the prices of many apartments have continued to surge.

From October to November last year, at least three property frenzies were reported in HCMC as prospective buyers rushed to deposit money for apartments built by Capitaland-Vista, Phu My Hung, and Van Phat Hung companies.

The HCMC government then ruled that these firms had “mobilized customers’ capital” – collecting deposits from prospective buyers – even before finishing the foundation of proposed apartment blocks.

The trio thus violated Vietnam’s housing laws and had to return the money to the buyers.

Major factors

Le Hoang Chau, vice chairman of the HCMC Real Estate Association, attributed the city’s ongoing property fever to three major factors.

First, HCMC’s strict ruling that companies cannot accept deposits from prospective buyers means that more people may flock to register for housing units.

Second, the government is set to amend its foreign housing policy meaning that foreigners will soon be allowed to buy houses in Vietnam.

Many speculators are stepping in to buy apartments, hoping to resell them to foreigners and rake in huge profits.
Finally, Chau attributed the galloping price hike of construction materials to the property frenzy. 1,0,5406139.story

Europe, too, being hit by subprime housing woes

Small $335,000 storage room highlights UK issue

January 11, 2008


Once upon a time, a former storage room the size of a walk-in closet went on the market in London's posh and exclusive Knightsbridge neighborhood for $335,000. With only 77 square feet of space and no electricity, the dilapidated "home" drew multiple offers.

Those were the heady days of 2006, when property sellers and their agents could pretty much name their price.

But now, home prices are slumping and fears of a recession in Britain are rising.

And the U.S. subprime mortgage market is being seen as the Grinch that stole Christmas -- even among people on the other side of the Atlantic.

Because the U.S. mortgages were packaged into securities and sold around the world, banks in Europe and elsewhere have suffered losses when Americans found themselves unable to pay.

The IKB Deutsche Industriebank in Germany had to accept an $11.1 billion government bailout a few months ago because of its U.S. mortgage investments, while the French bank BNP Paribas was forced to freeze withdrawals from $2.2 billion in investment funds because the crisis made it difficult to determine their true value.

The severity of Britain's downturn was first made evident by the demise of mortgage lender Northern Rock, which turned to the Bank of England for emergency funding in September, sparking the country's first bank run in more than a century.

The government continues to weigh prospective buyers for the lender.

The uncertainty has led to a global credit crunch as lenders have grown wary of issuing new loans.

In the United Kingdom, fears about a shortage of liquidity, coupled with the slumping housing market, have created a "toxic combination of head winds facing the economy," David Owen, chief European economist at investment bank Dresdner Kleinwort, told London's Daily Telegraph newspaper.

He said the chances of a recession in Britain in 2008 is around 50 percent, the same as in the United States.

"The chances of a recession in the U.K. next year are close to 50 percent, as they are in the U.S.," he said. Most troubling has been a rapid fall in British house prices after a decade in which they nearly tripled.

The Nationwide Building Society, a mortgage lender owned by its 19 million members, reported that home prices nationwide fell 0.5 percent in December after dropping 0.8 percent in November. That cut year-to-year price growth to 4.8 percent.

The situation is worse in London, according to data from Rightmove, a Web site that tracks property prices.

They show that in the month ending in mid-December, house prices fell by by 6.8 percent in London, which translates to an average decline of $56,000.

Howard Archer, chief economist for Global Insight in London, said that there's a very real danger that house prices could drop at least another 3 percent in 2008.

"Probably the biggest risk is that the economy slows sharply over the coming months and unemployment starts rising significantly," he said. "This would be liable to lead to a marked increase in the number of people having to sell for distressed reasons, particularly given the extent to which many households have had to stretch themselves to the limit to buy a house."

But Lucian Cook, director of residential research at the Savills real estate agency in London, said that because houses are still in rather short supply he expects price growth of 3 percent in Britain and 5 percent in London.

"The credit crunch has certainly affected market sentiment," he said. "But we do not predict prolonged or widespread falls in house prices."

Complicating the issue, Britain is home to perhaps the world's most overextended borrowers.

British consumers owe $2.7 trillion on credit cards, mortgages, and other consumer loans, more than the value of all the goods and services produced by the economy in a year.

"The initial impact of the credit crunch has been greater restrictions placed on unsecured or secured credit availability, especially for consumers or companies with less than perfect credit histories," said Hari Sothinathan, a senior analyst at the Knight Frank real estate agency in London. "On the more positive side, policy-makers are likely to keep the cost of borrowing lower than they would otherwise have done."

But for all the talk of falling house prices, many parts of space-starved Central London are still wildly expensive. According to Knight Frank, some exclusive properties in the Central London neighborhoods of Chelsea and Knightsbridge still fetch as much as $6,000 per square foot -- nearly twice what top-end properties are getting in New York.

Indeed the British media reported that the foreign minister of Qatar paid more than $200 million for a 20,000-square-foot penthouse at the new One Hyde Park development in Knightsbridge. The $10,000-per-square-foot price tag has apparently set a record. 8.html

Posted on Fri, Jan. 11, 2008

Troubled owners caught in a bind

January 11, 2008

FRESNO -- Thousands of Central Valley families are losing homes to foreclosure because:

a) They lied about their incomes to secure unrealistic loans.

b) Unethical loan officers took advantage of families by signing them up for risky loans they could not afford.

c) Their adjustable rate mortgages are resetting, resulting in much higher mortgage bills.

All of the above might contribute to the housing crisis, experts said at Thursday's first-of-its-kind San Joaquin Valley Housing Symposium. But all of those factors might be overcome if not for plummeting property values, the experts said.
Even when in trouble, people previously could refinance or sell. That's no longer a good option for many facing foreclosure, presenters said Thursday.

"Foreclosure is the freight train that runs over the homeowner," said Jeff Schrager of the No Homeowner Left Behind nonprofit organization based in Fresno. "I submit that we have a local disaster here. People are losing their homes on a daily basis."

Event organizers had no idea that the foreclosure crisis would become a significant theme when they began planning Thursday's housing symposium a couple of years ago. Back then, the real estate market still was riding a wave of record property value increases.

The valley, with its historically low wages compared with other places, became a breeding ground for subprime mortgages, some of which offered 100 percent financing, unheard of in previous generations. Groans rose from Thursday's audience of several hundred when presenters spoke of stated-income loans, called by some "liar loans."

"Which side of the table was lying?" asked John Olson of the Federal Reserve Bank of San Francisco, rhetorically. "Maybe both were. Some people inflated their incomes. Some borrowers were defrauded, with brokers writing in the incomes they wanted."

The presenters cited statistics showing San Joaquin, Stanislaus and Merced counties at the epicenter of the nation's foreclosure crisis for the past year. Federal officials say the housing slump may extend into 2009, and a California Building Industry Association economist last week predicted the Northern San Joaquin Valley housing market would be among the state's last to rebound.

Foreclosure sales throughout California reached an all-time high this week with a tenfold increase in properties sold at public auction, compared to a year ago.

Martha Lucey of ByDesign Financial Solutions, a credit counseling organization with offices in Modesto and Merced, said her office predicted an avalanche two or three years ago. People were spending more than they were earning and filling the gap by tapping home equity, she said. Most only started to seek counseling when dropping property values shut off that escape valve, Lucey said.

"It was difficult to figure out when (the crisis) was going to hit," she said. "We saw it hit in droves this year."
Some families fell victim because they had no contingency plan for events such as divorce, injuries, sickness or job loss for other reasons, Lucey said.

Life events driving foreclosures

"The foreclosures we're seeing in many cases are due to life events," she said. "Many homeowners planned for a best-case scenario and the best-case scenario didn't happen."
Though her counselors' highest hope is finding ways to save a family's home, they often have no choice but to settle for crafting an effective exit strategy, Lucey said, because owners many times wait too long to seek help.

Many economists in recent months have predicted a deepening disaster because of the 1.8 million subprime mortgages expected to reset in coming months. But Olson said the blame is shifting.
"We're finding that it's not resets, but it has much more to do with declining home prices that prevent people from refinancing or selling," he said.

Lynn Jacobs, Gov. Schwarz-enegger's director of Housing and Community Development, said people are mistaken if they see brown yards from multiple foreclosures in their neighborhoods and conclude that California has plenty of available housing.
"In fact, we're 2 million housing units short for our population," she said, and the number of low-income families unable to afford housing costs continues to rise.
Olson said maps of foreclosures in some Bay Area cities show distressed clusters, while those in the valley commonly spread across all neighborhoods.

Fresno's city housing and community development division sponsored Thursday's symposium, which also addressed issues ranging from green building standards to regional planning.

PS. Mendoza - I also saw that article. The sad truth these days is us$ 1 million isn't really a lot of money these days. Remember when we were all young and would hear the word "millionaire". The sad truth is a million dollars isn't so much these days with inflation.
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Advanced Member
Username: Saint

Post Number: 308
Registered: 5-2005

Posted on Sunday, January 13, 2008 - 11:37 am:   Edit PostPrint Post

Like I've been saying over the past year or so, we are in the midst of a global game of "Monopoly". I've talked in the past few months about the power, strength and ambition of these SWF's (Sovereign Wealth Funds). Now some leaders of various nations are only now starting to read the handwriting on the wall. These SWF's are going to become extremely powerful in the future. They try to keep a low profile but it's getting harder when they are buying up such big stakes in strategic companies all over the world.

The sad truth is that these leaders can't speak out too harshly against them because the reality of the situation is these SWF's are some of the only people right now that has the capital to buy up weak companies that desperately need cash.

Mark this post and look back several years from now and you will see what I am saying today will become a reality. Now, Chancellor Angela Merkel is intelligent because she can read the handwriting on the wall. She can see that all these very wealthy SWF's are buying up very strategic pieces of important companies all over the world. Look at China and Middle Eastern countries buying up all these banks and investment firms all over the world. Although most people can't see it, these people have a very real long-term strategy and it may not be in the best interests of the USA and the citizens of the USA nor the best interests of Europe.


"Government-owned investment vehicles control around $2-trillion (U.S.) and are expected to grow to $12-trillion by 2015.

In Germany, Chancellor Angela Merkel has been talking for months about legislation to shield German companies from state funds, especially from China, Russia and the Middle East." .20080108.wsarkozy0108/BNStory/International/home

Sarkozy vows to defend France against wealth funds

January 8, 2008

PARIS — President Nicolas Sarkozy vowed on Tuesday to protect French businesses from sovereign wealth funds and private speculators and urged a state bank to roll up its sleeves and help France defend its industrial interests.

Mr. Sarkozy's appeal came months after a national row over the independence of the state-owned Caisse des Dépôts et Consignations, which manages state pensions and has answered directly to France's parliament since the aftermath of Napoleon.
“There is no question of France remaining unable to react in the face of a rise in the power of extremely aggressive sovereign funds which only follow economic logic,” Mr. Sarkozy said.

“France must protect its companies and give them the means to develop and defend themselves. I want the CDC to be the instrument of this policy of defending and promoting the essential economic interests of the nation,” he added.

Mr. Sarkozy, a conservative politician who combines free-market rhetoric with industrial interventionism, was setting out his priorities for 2008 as he aims to deliver on campaign pledges following his election on a program of reform last year.

His industrial message borrowed from the protectionist arsenal drawn up by former Prime Minister Dominique de Villepin. But he avoided using the label of “economic patriotism” coined by his conservative party rival.

Mr. de Villepin urged the CDC in 2005 to use its role as the biggest single long-term investor in French stocks, alongside others, to boost his policy of fending off foreign hostile bids.
But the CDC refused to back down on its independence, and the policy gradually unravelled after Mr. de Villepin's government failed to prevent the hostile takeover of steel firm Arcelor.

Whereas Mr. de Villepin feared raids from the United States, the rapid growth of cash-rich funds in the Middle East and Asia has prompted policy makers to think again of ways of shielding firms.

Government-owned investment vehicles control around $2-trillion (U.S.) and are expected to grow to $12-trillion by 2015.
In Germany, Chancellor Angela Merkel has been talking for months about legislation to shield German companies from state funds, especially from China, Russia and the Middle East.

Foreign stakes in France include 6 per cent held by Qatar Investment Authority in media firm Lagardère SCA, which is a major shareholder in EADS NV, the maker of Airbus commercial jets and European defence systems including France's nuclear deterrent.

“Sovereign funds are welcome in France. They are already present ... but have to be transparent,” an aide to Mr. Sarkozy said.

He denied that Mr. Sarkozy wants to set up France's own sovereign wealth fund or wrest the CDC away from parliament, whose powers Mr. Sarkozy has actually promised to strengthen.
The head of a parliamentary panel that supervises the CDC backed Mr. Sarkozy's move, but said the CDC would stay independent.

“I think it is fine for the CDC to listen to the concerns of the government in the spirit of independence and while respecting competition rules,” Michel Bouvard told Reuters.
CDC's €37-billion ($54.43-billion) equity portfolio includes 2.25 per cent in EADS itself, ironically bought in a show of independence without telling the then finance minister, who later protested. A delayed row over the issue erupted late last year. At the same time as Mr. Sarkozy wants to shore up French companies in the private sector, his government is scouting for opportunities to raise cash by reducing stakes held by the French state, sources close to the matter said.

With public finances under strain, the French government will likely continue to trim state holdings in key companies like power utility Électricité de France, despite concerns over December's sale of 2.5 per cent, which commentators called a flop.

Other dossiers needing Mr. Sarkozy's approval in 2008 include the future of Areva Group, a state-owned maker of nuclear power plants. Mr. de Villepin ditched plans to sell off part of Areva for security reasons, but Mr. Sarkozy has called for a review as high oil prices stoke up worldwide demand for civil power reactors.

There is also renewed speculation over a group of mid-sized French defence and electronics companies such as electronics firm Thales SA, in which Mr. Sarkozy has a free hand.
Having brushed off interest from EADS, then flirted with conglomerate Safran SA, Thales is increasingly mentioned in political circles as a partner for Alcatel-Lucent, the struggling French-American telecoms equipment group.

Thales is 30.4 per cent owned by the government and 21 per cent by Alcatel-Lucent, which issued three profit warnings last year.
“It's precisely the type of dossier which needs a political push. If Sarkozy wants to get involved he can sort it out,” said a government source who asked not to be identified.
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Advanced Member
Username: Saint

Post Number: 310
Registered: 5-2005

Posted on Sunday, January 13, 2008 - 12:51 pm:   Edit PostPrint Post

Here is an interesting article as well. Not a good sign when consumers start missing payments or paying late on their credit cards and their auto loans and of course their house payments. 20080103?sp=true

U.S. Consumers Late Payers on Most Loans Since Recession

NEW YORK (Reuters) - Americans are falling further behind on consumer loans, with late payments rising to the highest level since the nation's last recession in 2001, data released Thursday show.

In its quarterly study of consumer borrowing, the American Bankers Association said the percentage of loans at least 30 days past due rose to 2.44 percent in the July-to-September period from 2.27 percent in the previous quarter.

The delinquency rate, which covers eight loan categories, was the highest since a 2.51 percent rate in the second quarter of 2001. Late payments on some types of loans rose to levels not seen since the 1990s.

The ABA attributed some of the summer increase to rising oil prices and the inability of thousands of homeowners to keep up with mortgage payments.

"Those little expenses that keep sucking dollars out of wallets every month are what have the most impact on people's ability to pay their consumer loans," Chief Economist James Chessen said in an interview.

"My concern is that delinquencies will continue to rise, because the housing problem will worsen, and disposable income will not stretch as far," he added. "Lenders will need to take a second or third look at any consumer loans they make."

Foreclosures set a record in the third quarter, the Mortgage Bankers Association said on Dec. 6. Many borrowers have struggled to make mortgage payments as their low initial rates reset higher, while falling home prices left others owing more than their homes are worth.

The ABA said its study covers more than 300 banks that have extended a majority of outstanding consumer loans.
Losses tied to mortgages and deteriorating credit markets are expected to hurt year-end results at large lenders such as Citigroup Inc ,Bank of America Corp ; Wachovia ; and Wells Fargo & Co, among others.

In the July-to-September period, the delinquency rate on home equity loans rose to a two-year high of 2.28 percent from 1.99 percent in the prior quarter, the ABA said. The rate of late payments on home equity lines of credit rose to 0.84 percent, the highest since the fourth quarter of 1997.

Meanwhile, late payments on "indirect" auto loans, which are made through dealerships, totaled 2.86 percent in the third quarter, a 16-year high.

Credit-card delinquencies fell to 4.18 percent from 4.39 percent in the second quarter.

"The hope is that will continue," Chessen said, "but that relies on job and income growth, which are tied to the strength of the economy."

The ABA study also covers direct auto, marine, mobile home, personal, property improvement and recreational vehicle loans.
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 27
Registered: 12-2007
Posted on Sunday, January 13, 2008 - 1:39 pm:   Edit PostPrint Post

ApartmentsBA....what do you see happing with Gold this year? I invested in some in 2004 and don't know how long to hold it.

Also, your post on payers being late on loans.....I read a similar article about two months ago. Alos I read that these bad loans are being "repackaged" and sold as they did with mortgage loans.....did you read/hear about this?

Roberto, you are sitting I see and waiting as I am for dirt cheap real estate. I saw on CNN this past Saturday that soon we may see "forclosure bus tours". I don't know if this will materilize, but my gut tells me that we will see real cheap real estate this year or in 2009. I'm stilling and watching the down fall and waiting for that chance of a life time to get here.
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Username: Saint

Post Number: 311
Registered: 5-2005

Posted on Sunday, January 13, 2008 - 2:04 pm:   Edit PostPrint Post


I posted on this in detail and my thoughts of gold in the "Preparing for the Next Crises" section so please look at what I wrote there. I'm not buying at these price levels. I too bought in 2004/2005 and some in 2006. I'm not adding to existing positions at these prices but I'm not selling either. Until I see some reason to go bearish on gold prices I won't sell. So far, there isn't anything to be negative on gold as the problems are adding up and actually it's causing hedge fund managers to go bullish on gold.

If I see something that changes I'll take some profits but so far I don't see that yet. I too think gold can hit u$s 1000 in 2008.

Yes, I also already posted in detail as well on the credit card debt that is being repackaged. Read my posts in detail as I don't want to post it again. Go through and read the sections carefully as I posted my thoughts on this as well. It's the next ticking time bomb I see in the future. The credit card debt that is being repackaged and sold is actually higher I believe than all the sub-prime housing loans problems going on now. I'm not sure of the exact numbers off the top of my head but do a search on this.

Also, I already posted as well on the "foreclosure bus tours". They already started in California. I have some clients that didn't take my advice and started buying real estate in the USA too soon because they saw prices dropping like a rock. As I posted before, watch the signs. With what is going on now, there is no reason to be bullish on real estate in the USA. There will be possibly another 2 million homes that go into foreclosure in 2008 and in 2009 as loans reset. Remember the USA government's bailout plan to freeze loans doesn't apply to all these investors that gambled and speculated. I believe a very small amount of people will quality for that bail out program. This only applies to people that live in their homes and that are current on their payments.

Also, remember that in just about every single area in the country (especially California and Florida) the past valuations are totally false. You had such fraud and abuse in the system and also real estate appraisers that just valued house prices higher than what they were truly worth. Remember this is very important to consider. You had a situation where the average janitor, maid, or other blue collar low paying professions were able to go out and get 100% loans on property. They were all buying and that was pushing up property prices artificially so many of the valuations were totally false and not true.

This occured in just about every city across America so this is a wide spread problem in every city. Major city, small city, wherever. Some areas are not as affected than others but this is why you are seeing a nation-wide decline in prices. These people NEVER should have been allowed to purchase in the first place.

So you compare a system like that with Argentina where everyone pays 100% cash on the table after they saved the money. That is a big difference. When I started purchasing up lots of real estate in Argentina starting several years ago people told me I was crazy but I pointed out this HUGE and fundamentally different structure of buying here. When you have all cash systems it prevents bubbles. It's very simple. You don't have the cash and it means you don't buy. Plain and simple. Compare that to the USA where everyone was allowed to get loans and to make it worse, after the 100% loans were given out, the prices on the home values were artificially pushed up every year and then the banks and lending institutions gave these people (that put NO money down in the first place) even more loans as "equity lines of credit" because supposedly their homes were worth more. So not only did the banks loan out the initial money to purchase but then more money on top of it!

Now, you have so many people in the USA that played the "home equity line of credit game" that they got dependent on this. It was almost like free money to them. They assumed that house prices would keep going up forever but what they don't realize is it was all this FALSE and IDIOTIC lending that caused prices to go up in the first place. Without all the silly loans, property wouldn't have appreciated like it did. The sad reality is a good chuck of people in the USA are upside down on their mortgages meaning they owe more money than what the house is worth. You will see this trend continue throughout 2008 as house prices continue to fall. Many Americans as I said before will NEVER see the title deeds to their properties. That is REALITY. The reality here in Argentina is all my friends and I and my clients that own real estate in Argentina all have the title deeds to our properties.

Certainly NO reason to be bullish on real estate in the USA now. Wait and prices should go down. The time to buy will be when there is "blood in the street". When many MORE people go into foreclosures, banks are itching to sell the properties and you have that flood of properties coming on the market cheap, the banks are all having problems as it is. Then add to the mix all the people that can't find jobs and the ones that have jobs that will be layed off in a number of different industries because of the slow down in the economy (recession). These people will also be falling behind on credit card loans, car loans and of course their mortgages.

Wait until all of these these culminate together to create a "perfect storm" type of scenario for buying. Remember, don't just buy real estate to buy real estate. Look at each area, look at your cash flow potential from rentals, the rental demand, the property taxes, insurance rates. Plug all of these things into a spreadsheet. Then also look at the capital appreciation potential and most important, really evaluate what your "end game" exit strategy and how long you will hold this investment. Remember, real estate is a long term investment.

Many fortunes will be lost and many fortunes will be made on this real estate fiasco in the USA.

Good fortunes to all.
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 28
Registered: 12-2007
Posted on Sunday, January 13, 2008 - 3:42 pm:   Edit PostPrint Post

Thanks are always clear and concise...I will go back and read in detail your recent posts.
By the way, I was just watching the news and they were talking about insurance companies looking out for arson.....people looking to cash in on their insurance instead of having to forclose. When I hear something of this magnitude, it clearly makes me see what desperate situations so many people find themselves in. I get mixed feelings as I hate to see people loose their homes, yet at the same time I feel that they got themselves into it. It is a bitter/sweet feeling as I look and see that their lose will be my gain.
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Intermediate Member
Username: Arial

Post Number: 121
Registered: 10-2006

Posted on Sunday, January 13, 2008 - 4:20 pm:   Edit PostPrint Post

There is a very enlightening book available that analyzes, in depth, the great depression of the 30s. It is entitled America's Great Depression--though it touches on other countries. For example, apparently France didn't come fully out of it until the 60s. Sometimes we can benefit from knowing a little history.

You can go to and pay $29.00 . . . or you can go to and download it free in PDF format.
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Board Administrator
Username: Admin

Post Number: 1447
Registered: 12-2004
Posted on Monday, January 14, 2008 - 2:56 am:   Edit PostPrint Post

Thank you, Arial. I always want to understand more about the Great Depression... will check on that.

Gloria, yes, I am waiting like many others but we actually need to move this year. We went from 1 bored guy with too much time on his hands to a now family of 4 (step-daughter, wife and son). So we need a little more space. I've never heard about the "foreclosure bus tours" but if Mike is correct we will all see some nice opportunities coming along...
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Advanced Member
Username: Saint

Post Number: 312
Registered: 5-2005

Posted on Monday, January 14, 2008 - 6:31 pm:   Edit PostPrint Post

It's NOT just sub-prime as I mentioned before. I started posting back in 2005 about the problems that would result from option ARM loans that most people didn't really understand. I predicted the problems that would come due not just from people that should have never gotten loans/mortgages in the first place but also to people that were making great incomes that were getting option ARM loans when they should have gotten a traditional fixed-term loan. Option ARM's made sense for VERY few people yet I saw a larger and larger amount of people getting them. I posted in various forums on the internet warning that this problem was going to happen.

The article below gives you a good idea of what is happening now.


Adjustable loans spur new worries

Defaults are climbing among option ARMs. Many require minimal monthly payments and no proof of income.

Los Angeles Times

January 14, 2008 an14,0,5555667.story?coll=la-home-business

The no-worries lending that inflated the housing bubble is resulting in a flood of soured option-ARM loans, adjustable-rate mortgages that allow borrowers to pay so little every month that their loan balances rise rather than fall, sometimes sharply.

Numbers from industry trackers suggest that these borrowers -- most of whom boast respectable and often top-tier credit scores and appear to have substantial incomes and home equity -- are starting to create a second tide of defaults for lenders swamped by the meltdown in sub-prime loans made to people with bad credit or overstretched finances.

Option ARM delinquencies are at double-digit levels in many areas of California, including the Inland Empire.

Calabasas-based Countrywide Financial Corp., the top option ARM lender, will be hit hard. Already reeling from the sub-prime mess, Countrywide was rescued from possible bankruptcy last week by Bank of America Corp., which agreed to acquire it for about $4 billion.

The option ARM trouble stems from the loose lending practices that inundated the sub-prime business. Loans often were granted on the basis of stated income, not proof of a borrower's income, giving rise to their nickname, "liar's loans."

"This is not a sub-prime crisis. This is a stated income crisis," said Robert Simpson, chief executive of Investors Mortgage Asset Recovery Co. in Irvine, which works with lenders, insurers and investors to recover losses related to mortgage fraud.

Option ARMs present borrowers with a choice every month: pay the interest due and some of the principal; pay interest only, leaving the loan balance untouched; or pay less than the interest due, making the loan balance rise.

After a specified time, typically five years, the options disappear and regular payment obligations kick in, often at a level two or more times the initial minimum. This jolt can occur after only three years if the borrower has been making the lowest payments and the balance rises high enough.

Traditionally, good candidates for stated-income option ARM loans were self-employed professionals, small-business owners and salespeople with complicated finances and fluctuating earnings. But many other people received them in recent years.

Simpson said loan officers routinely inflated earnings of workers with regular paychecks. On some written requests to confirm a borrower's employment, officers would specify that an employer should not provide a salary figure, he said.

Now the delinquencies are piling up.

The percentage of option ARMs with payments behind by at least 60 days in California is in double digits in the Inland Empire, San Diego County, Santa Barbara County, Sacramento, Salinas and Modesto, according to data provided to The Times by mortgage researcher First American Loan Performance.

The more recent loans appear to be faring the worst, reaffirming the conclusion that lending standards had become overly lax throughout the mortgage industry in the middle of this decade, as competition for fewer good loans intensified amid skyrocketing home prices.

In Yuba City, north of Sacramento, 15% of option ARMs made in 2005 were delinquent at the end of October, the Loan Performance tally showed, and in Stockton-Lodi the delinquency rate on option ARMs from both 2005 and 2006 was over 13%.

"It is astonishing how fast the credit deterioration has occurred," said Paul Miller, an analyst with Friedman, Billings, Ramsey & Co. who follows the savings and loans that specialize in these mortgages. "It took me and everybody else by surprise."

Miller said Downey Financial Corp. was "the canary in the coal mine." The Newport Beach S&L has specialized in making option ARMs since the 1980s and keeps them as investments. Option ARMs make up about three-quarters of Downey's loan portfolio, with most of the rest being similar loans that allow interest-only payments during the first five years but don't allow the loan balance to rise.

Miller thought Downey had shown prudence in cutting back on lending in 2006, when home prices stopped rising and competition intensified from option ARM newcomers such as Countrywide and IndyMac Bancorp of Pasadena.

But a key indicator of loan troubles -- the ratio of nonperforming assets to total assets -- shot up from 0.55% to 3.65% at Downey over the last year, with the dud loans on Downey's books growing by $80 million in November, Miller said. That number, disclosed last month, was larger than the entire amount of non-performers Downey had a year earlier.

The quality of option ARMs appears to have deteriorated quickly when Wall Street began buying them to create mortgage bonds in the middle of this decade, drawing IndyMac, Countrywide and others into the business, Miller said.

Loan Performance's study, which looked at loans bundled up by lenders and Wall Street firms to back mortgage bonds, found that 8.8% of such option ARMs made nationally in 2005 were 60 days or more in arrears as of Oct. 31.

In California, the 60-day delinquency figure for securitized 2005 option ARMs was 9.5%, compared with only 2.1% of the option ARMs from 2003.

Falling home prices and exaggerated appraisals are exposing the risks of stated-income ARMs, experts say. And many option ARMs were done with stated income during the boom. "When you combine one of the riskiest loans -- the option ARM -- with one of the riskiest loan features -- stated income -- it's not exactly a model for safety," said Redwood City, Calif., mortgage broker Steven Krystofiak, president of the Mortgage Brokers Assn. for Responsible Lending, who has testified to the Federal Reserve about high-risk loans.

"Yet they were extremely popular in 2004, 2005 and 2006, and some people were telling borrowers and investors they were safe."

Stated-income loans made during the housing boom have proved to be riddled with exaggeration, according to the Mortgage Asset Research Institute in Reston, Va., which investigates lending fraud.

The institute said one of its customers checked 100 stated-income loans against tax documents and found that nine in 10 of them overstated income by at least 5%.

"More disturbingly, almost 60% of the stated amounts were exaggerated by more than 50%," the institute reported, saying the mortgages clearly deserve their "liar's loan" handle.

Among critics of recent practices in granting option ARMs is Herbert Sandler, former chief executive of Golden West Financial Corp. in Oakland. Sandler's World Savings, now part of Wachovia Corp., was among California S&Ls that pioneered the use of option ARMs in the 1980s.

World Savings was known for making stated-income option ARMs, often to borrowers with lower credit scores than other lenders would permit. But unlike newcomers to the business, World limited its loans to 80% of the property's value unless the loan was insured, conducted its own conservative appraisals -- and kept the loans on its own books so it retained the risk of loss. Defaults were few.

The new wave of lenders "destroyed that loan," Sandler said, "and that's what disgusts me."

The problem created by adjustable-rate mortgages made to borrowers with good credit is attracting attention in Washington, where policymakers are trying to restore stability to the financial system.

Treasury Secretary Henry M. Paulson Jr. told a meeting of securities analysts in New York last week that mortgage lenders and bill collectors, who have agreed to a plan to fast-track loan modifications for sub-prime borrowers, should adopt "a systematic approach for adjustable rate mortgages other than sub-prime if it will benefit homeowners and investors."
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Advanced Member
Username: Saint

Post Number: 313
Registered: 5-2005

Posted on Monday, January 14, 2008 - 9:59 pm:   Edit PostPrint Post

For those posters that follow my posts you know that I've been talking about other nations (especially in Asia and the Middle East) that are buying up many banks and institutions. I've posted about Citigroup and Merrill Lynch amongst others. Well, it was bad enough that Citigroup had to sell a u$s 7.5 BILLION to Abu Dhabi but it seems now they desperately need another u$s 10 BILLION. They are in talks to get this additional funding from "sovereign wealth funds".

Merrill (the #1 brokerage firm) which recently got u$s 4.4 BILLION from Singapore needs another u$s 4 BILLION and is trying to get it from the Middle East.

In a very short amount of time you have seen foreign governments gobbling up u$s 27 BILLION in Merrill, Citigroup, UBS, Morgan Stanley and AG. Expect more of this to come as there should be increased write downs once these firms report their earnings (or lack of them).

The sad truth as I posted before is there is really nothing anyone can do. You read about Congress/Senate/President in the USA that have to support this as really there is no one else these banks to turn to. No one else has the money.

Remember before I said to distrust these banks. Many of them kept harping how they wouldn't touch the dividends and then you saw them cutting them at various banks. Citigroup keeps saying they won't touch the sacred dividend program but my guess is they will have to cut part of it. Even if they cut it in half they can save u$s 5 BILLION a year.

Don't forget about what I posted before on all these banks that have hedged their exposure with bond insurers. Some of them will go belly up and fail and this will add on more losses to these banks as well.

Eventually it's inevitable that you will have politicians that will cry fowl that so many foreign governments are buying up such big pieces of these banks and institutions. The fear is after all is said and done you have multiple foreign governments owning big pieces of our largest banks. It will be very difficult in the future to try to stop them from banding together to do what they want as they will have a good chunck of the companies. They have laws in place like the "Bank Holding Company Act" that limits the total amount or % that a single investor can own. That's why you see in the paper all these "4.9% stake" or 9.9% stake.

These banks and institutions like Merrill are so desperate for cash. Remember when all of these banks and the government not too long ago were saying things like "their liability was limited". "things were contained" "we don't expect any significant losses"? That has sure changed huh?

If the banks can't come up with these BILLIONS of dollars they need to start eliminating billions of dollars in assets to stay above their capital levels.

Also, someone posted before on this message board (I can't remember who right now) that banks and investment companies are the "experts" and you can't compete with the knowledge they have and all their "experts". I disagree with that. Personally all these "experts" are the ones that got themselves into this situation in the first place. Even when all of it should have been totally obvious and clear you had bonehead moves by banks like Bank of America investing $2 BILLION into Countrywide. Now, when they did that in August I scratched my head and thought it was the biggest mistake out there. They were investing in a company at the absolute worst time in the absolute worst industry that had the worst exposure!

That proved to be exactly what I thought. Since August they have lost $1.3 BILLION on their initial $2 BILLION investment. Talk about bad timing! And imagine...these are supposedly the "experts". It is a clear example of trying to "catch a falling knife".

A big concern for me is that about $600 BILLION in corporate debt is maturing this year in 2008 and it all needs to be refinanced (and a lot of this corporate debt is from the financial firms and banks).

We will see how all of this plays out.... But be aware of what is going on around you and keep your eye on all these SWF's buying up our banks and financial institutions.
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Intermediate Member
Username: Arial

Post Number: 122
Registered: 10-2006

Posted on Tuesday, January 15, 2008 - 2:17 am:   Edit PostPrint Post

I am currently on the coast in Central Florida. I attended a foreclosure auction recently, with my son, just to see what is going on. I was amazed to see a lovely, if modest, 3-bedroom house in good condition, on a pine studded winding street, surrounded by well-kept homes, backed up to a canal (drainage canal out of the Everglades but still very nice) on a large city lot, go for $65,000. It sold for $179,000 a few years ago, according to county records. How many years has it been since a person could buy a nice house in a nice area for $65,000?

And it has only just begun.
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Advanced Member
Username: Saint

Post Number: 314
Registered: 5-2005

Posted on Tuesday, January 15, 2008 - 6:29 am:   Edit PostPrint Post


Yes, there definitely are bargains that are starting. You have to selectively look and see. I have some friends that picked up some properties in California for HUGE mark downs compared to prices 2 years ago. There ARE many examples like the one you mentioned. As more homes go into foreclosure the prices should continue their downward shift on prices.

Keep in mind however there are many people waiting on the sidelines with cash waiting to invest. Much on the prices will be when these investors jump on and decide prices are as low as they will go. The general property prices won't start going up until the available inventory goes down and right now there is too much inventory available in most major cities.
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Advanced Member
Username: Saint

Post Number: 315
Registered: 5-2005

Posted on Tuesday, January 15, 2008 - 6:57 am:   Edit PostPrint Post

"Remember before I said to distrust these banks. Many of them kept harping how they wouldn't touch the dividends and then you saw them cutting them at various banks. Citigroup keeps saying they won't touch the sacred dividend program but my guess is they will have to cut part of it. Even if they cut it in half they can save u$s 5 BILLION a year." (I posted that last night)

Look at my prediction that I posted last night about Citibank. I KNEW they had to cut the dividend almost in half. Look what was announced this morning.

Also, look what I said about them continuing to get more and more owned by foreign countries. So Singapore, and Kuwait now own a few more billion dollars worth of Citigroup.

Also, look at the news this morning as well about Merrill getting another $6.6 BILLION in investments from Korea, Kuwait, and Japan.

Oh, by the way, look and see the announcement is in line with what I predicted at the end of 2007. They had no idea how much their losses would total. Their mortgage portfolio alone in the 4th quarter lost $18.1 BILLION in value!!

Citi Cuts Dividend After Posting 4Q Loss
Tuesday January 15, 6:43 am l?.v=2

Citi Cuts Dividend After Writing Down $18.1B and Getting $12.5B in Capital From Investors

NEW YORK (AP) -- Citigroup Inc. is cutting its dividend after posting dismal results for the fourth quarter, when the bank's mortgage portfolio lost $18.1 billion in value.
On the hunt for cash, the nation's largest bank said Tuesday it also got a $12.5 billion investment from outside investors, including $6.88 billion from the Government of Singapore Investment Corp.

Other investors were Capital Research Global Investors, Capital World Investors, the Kuwait Investment Authority, the New Jersey Division of Investment, shareholder Prince Alwaleed bin Talal of Saudi Arabia and former chief executive Sanford Weill and his family foundation.

The moves were widely anticipated on Wall Street after months of scrutiny over the bank's ratio of cash to debt. That ratio weakened when Citigroup lost money in mortgage-backed bond instruments called collateralized debt obligations and brought $49 billion in hemorrhaging funds known as structured investment vehicles onto its books.
As a result of the write-downs Citi lost $9.83 billion in the fourth quarter.
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Advanced Member
Username: Saint

Post Number: 317
Registered: 5-2005

Posted on Tuesday, January 15, 2008 - 5:29 pm:   Edit PostPrint Post

As mentioned, you're going to see some politicians worried about all these foreign governments and SWF's buying up all our banks. With the chunks so big now it's starting to become a concern to some including some politicians.

The thing is though as I mentioned before, they are really stuck because there really aren't too many others that have the funds (or especially the desire) to shovel money into these banks and financial companies. These foreign governments have a very real long-term strategy and plan. They have TRILLIONS of dollars and they are strategically buying up various banks and institutions.

The sad part is that without these investments, these banks would be in really really sad shape (not to say that they aren't in sad shape now). Like I posted before, I think most of us in our lifetime will see some sort of severe financial disturbance in the USA that no one ever imagined possible. For those of you that think there is no way this will happen. One example to look at is the real estate situation in the USA. Most people never thought it could deteriorate so quickly. The so called "experts" where handing out fistful of dollars to people that should have never been given this money. Everyone thinks that things like these will never happen until it happens.

Foreign Investments Spur Concern on Hill

Tuesday January 15, 5:23 pm ET

Proliferation of Multibillion-Dollar Foreign Investments in US Banks Raises Concerns

WASHINGTON (AP) -- Overseas state-run investment funds have sought to avoid regulatory scrutiny in Washington by taking small stakes in U.S. companies.

That strategy is likely to be tested, however, as the sheer number of investments -- five deals worth over $30 billion in just the past two months -- begins to set off alarm bells in Congress.

A backlash against foreign investment could be exacerbated by presidential and congressional elections, with candidates seeking to exploit fears of foreign influence over American businesses, especially with the economy potentially headed into a recession, analysts said.

"The environment (in Washington) is going to become more anxiety-ridden," Charles Johnston, an attorney at the Baker Donelson law firm, said. Johnston oversees the firm's international transactions group.

Nevertheless, there are plenty of defenders of foreign investment in the United States, with some analysts arguing that the purchases amount to a "vote of confidence" in the long-term health of the U.S. economy, even as individual banks and other companies struggle.

The flow of funds from overseas could bolster the U.S. dollar, and sovereign wealth funds are the type of long-term investors that can stabilize the financial markets, said Doug Rediker, co-director of the international finance group at the New America Foundation.

Todd Malan, president of the Organization for International Investment, said the purchase of beaten-down companies in the U.S. banking sector by overseas investment funds simply reflects a "classic buy low, sell-high strategy."

Malan's group represents U.S. subsidiaries of overseas companies, such as Nestle, Sony Corp. and Nokia Corp.

The latest investments by state-run investment funds, known as sovereign wealth funds, were announced Tuesday.

Citigroup Inc., the nation's largest bank, said it will receive nearly $7 billion in fresh capital from a sovereign wealth fund in Singapore, as well as investments from the Kuwait Investment Authority and Prince Alwaleed bin Talal of Saudi Arabia. And Merrill Lynch & Co. said two state-run funds -- the Kuwait Investment Authority and the Korean Investment Corp. -- and a Japanese investment bank would invest $6.6 billion.

Sovereign wealth funds, which are found mostly in the Middle East and Asia but also in European countries such as Russia and Norway, control an estimated $2.5 trillion in assets. Some experts predict their holdings could reach $12 trillion by 2015.

This fall, analysts noted that the sovereign funds were seeking to avoid regulatory scrutiny by structuring their deals in certain ways: the stakes were small, they did not include board seats or other levers of control, and they generally avoided sensitive industry sectors such as energy or government contracting.

Generally, acquisitions of less than 10 percent of a company that don't provide a board seat or other levers of control are considered passive investments and don't require review by government security agencies.

When an Abu Dhabi state-run fund last November purchased a 4.9 percent stake in Citigroup for $7.5 billion, Sen. Charles Schumer, D-N.Y., a critic of many previous foreign buyouts, praised the deal.

But Schumer sounded a more cautionary note Tuesday.

"As investments by sovereign wealth funds in American companies increase and the specter of control and undue influence by government entities looms, we have to be careful," he said in an e-mailed statement.

The Senate Banking Committee is likely to hold hearings on the funds later this year, aides say.

European governments have expressed open hostility to the funds. French President Nicolas Sarkozy said earlier this month that his government would defend "the primordial economic interests of the nation" against government-run funds, which he said "don't respect economic logic."

German Chancellor Angela Merkel pledged in August to closely monitor foreign investments in German companies.

Meanwhile, members of Congress are seeking more information on the funds. The Government Accountability Office, Congress' investigate arm, began an investigation last week into their size and scope. Sen. Richard Shelby, R-Ala., requested the investigation last fall.

But the GAO will also report on whether the funds' impact on the U.S. and global economies is being "effectively monitored," Yvonne Jones, a GAO official, said, and how U.S. law on foreign investment applies to the funds.
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Intermediate Member
Username: Arial

Post Number: 124
Registered: 10-2006

Posted on Wednesday, January 16, 2008 - 7:46 am:   Edit PostPrint Post

Been doing some research. Melbourne, Florida has 570 more foreclosures under way right now. (Remember we already attended one awesome auction.) That does not include mortgages still scheduled to reset. Nor does it include a tax sale coming up tomorrow for houses in property tax default.

Palm Bay (neighboring city) has 1,160 foreclosures in the pipeline. Don't remember the exact figure for Ft. Lauderdale, FL, but it is over 5,000. However, another area that is home to me is Billings, Montana (population about 100,000) with only 170 foreclosures. (Montana bankers are conservative.)

Does anyone know what is going on in Europe? I have read that some of the European countries are in similar straits.

It is hard for me to believe that this is not going to affect Argentina. Unless everyone who still has cash is going to head for Argentina. Which way will it go?
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Advanced Member
Username: Saint

Post Number: 318
Registered: 5-2005

Posted on Wednesday, January 16, 2008 - 4:15 pm:   Edit PostPrint Post


No matter how you slice it foreclosures will increase in 2008. NO ONE can try to argue that they won't increase. And if they do, these are the same people that were saying things like "the housing market problem is contained" back in mid 2007.

It's gotten so bad that now the politicians are trying to stop the lenders from foreclosing on people. People can try to blame their realtors, their banks or whomever but in the end THEY must take responsibility for their actions and getting a loan they didn't understand. When you see the government trying to interfere with the market, business and banks it's not a good sign. When you start throwing contract law out the window it's not a good sign.

Preventing foreclosures is a temporary "fix" but not a long-term solution and it's denying the problem at hand which is the fact that many people bought homes they simply can't afford. Even the normal monthly payments without going up to the full adjustable rate many people can't afford. You can prevent the banks from foreclosing temporarily but those people shouldn't have purchased in the first place and many can't afford the monthly payments.

The sooner the government and the banks deal with this problem the faster the market will turn around.

Here are some good articles: d=aUj_1y0pa04k&refer=home

Wells Fargo Profit Declines as Overdue Loans Increase

Jan. 16 (Bloomberg) -- Wells Fargo & Co., the biggest bank on the U.S. West Coast, said fourth-quarter profit declined 38 percent as companies, homeowners and consumers fell behind on $1.56 billion of loans.

Net income dropped to $1.36 billion, or 41 cents a share, from $2.18 billion, or 64 cents, a year earlier, the San Francisco-based company said today in a statement. Wells Fargo rose as much as 6.1 percent in New York trading as profit exceeded analysts' estimates.

``Wells doesn't have nearly the drama of the money-center banks,'' said Keith Wirtz, chief investment officer for Fifth Third Bancorp, which controlled 3.87 million Wells Fargo shares as of Sept. 30. ``Their issues relate to good old traditional credit problems instead of the capital markets.''

The bank suffered its first decrease in profit since 2001 after making it easier for some borrowers to receive home equity loans. The result was higher defaults amid a housing slump that Chief Executive Officer John Stumpf has called the worst since the Great Depression. The company said today that more borrowers are now falling behind on consumer loans.

Wells Fargo's annual profit declined 4.3 percent to $8.1 billion, or $2.38 a share. Revenue growth matched the company's 10 percent average over the past decade.

Shares Rise

The company added 90 cents, or 3.4 percent, to $27.39 at 12:04 p.m. in New York Stock Exchange composite trading. The bank's shares fell 27 percent in the past year through yesterday, compared with the 31 percent decline in the 24-member KBW Bank Stock Index.

Revenue increased 8.5 percent to $10.2 billion in the quarter. The provision for future loan losses almost tripled to $2.6 billion.

Net charge-offs, the cost of bad loans that won't be fully repaid, jumped to $1.2 billion from $892 million in the third quarter. Charge-offs for consumer loans, which include credit cards and automobile financing, rose 34 percent from the preceding quarter to $955 million.

``Given the weakness in housing and the overall state of the U.S. economy, it is likely that net charge-offs will be higher in 2008,'' said Mike Loughlin, chief credit officer, in the statement.

The economy will expand at an average 1.5 percent pace in the first half of this year, according to the median estimate in a Bloomberg News survey taken earlier this month. Federal Reserve Chairman Ben Bernanke and several of his colleagues last week said they're becoming more concerned about growth.
`Some Slowdown'

``There is some slowdown in the consumer market and some consumers are having difficulty servicing their debt,'' Chief Financial Officer Howard Atkins said in an interview. ``I don't want to say it's a big item in the overall scheme of things.''
The company is the No. 5 U.S. bank by assets. New York-based Citigroup Inc., the nation's biggest, reported the largest loss in the bank's 196-year history yesterday as surging defaults on home loans forced it to write down the value of subprime-mortgage investments by $18 billion in the fourth quarter.

Wells Fargo is the second-largest U.S. mortgage lender after Countrywide Financial Corp. Bank of America Corp., the second- biggest U.S. bank, said last week that it will buy Calabasas, California-based Countrywide for about $4 billion.

`Rational Pricing'

The acquisition ``should lead to more rational pricing,'' Atkins said. ``We've felt that the mortgage business probably needed to be consolidated.''

Wells Fargo's net interest margin, the difference between what the bank pays customers for deposits and what it earns on loans, increased to 4.62 percent from 4.55 percent in the third quarter. Deposits grew 8.2 percent in the past year, helping the bank rely less on other, higher-cost sources of funds such as bonds. Net new checking accounts increased 4.7 percent from a year earlier.

The bank raised its reserve for expected loan losses by $1.7 billion from the previous quarter, mostly because of more late payments on the bank's $84.2 billion in home equity loans. Most delinquent loans were purchased from third parties rather than sold through the bank's 3,298 branches, Atkins said.

Wells Fargo charged off $223 million in credit card debt, or about 5 percent of total balances, which is in line with industry standards, Loughlin said. Revolving credit and installment loan charge-offs, mainly auto financing, increased 14 percent during the quarter to $421 million. d=aimamP4idkdI&refer=home

Jan. 16 (Bloomberg) -- Ambac Financial Group Inc. ousted its chief executive officer, slashed the dividend 67 percent and will raise more than $1 billion to preserve its AAA credit rating after announcing the biggest-ever writedowns by a bond insurer.

Ambac, the second-largest insurer of municipal and structured finance debt, fell the most ever on the New York Stock Exchange, extending a 76 percent decline from the past 12 months. Ambac will report a loss after reducing the value of securities it guarantees by $3.5 billion, according to a statement today.

Director Michael Callen, 67, will become chairman and interim CEO, replacing Robert Genader, 60, who said three weeks ago that the dividend wouldn't be cut. Ratings companies are threatening to lower their rankings of Ambac and larger competitor MBIA Inc. after the companies expanded away from their traditional municipal-bond businesses into guaranteeing securities linked to subprime mortgages that last year began plunging in value.

``The perception is that their underwriting standards were insufficient and they weren't on top of their business,'' Janet Tavakoli, president of Tavakoli Structured Finance in Chicago, said in an interview. ``This announcement still just says `We're a black box. Deal with it'.''

Ambac, which put its AAA stamp on $556 billion of securities, probably will need more capital because the quality of the debt it guarantees will drop, Tavakoli said. Standard & Poor's yesterday changed the way it reviews subprime securities to increase its assumptions for losses in a move that may lead to more downgrades.

Genader, who joined Ambac from Citigroup Inc. in 1986, became CEO in January 2004 and chairman in July 2006. Callen, who has been an Ambac director since 1997 and was a Citigroup executive in the late 1980s, is president of Avalon Argus Associates LLC.

Shares Fall

Until 2007, insuring debt allowed Ambac to increase earnings and dividends every year for the past decade. Net income, which rose 17 percent in 2006 to $875.9 million, probably fell in 2007.

Ambac cut its quarterly dividend to 7 cents from 21 cents today and said it will report a fourth-quarter net loss of $32.83 a share when it releases earnings Jan. 22. The loss equates to more than $3 billion based on the 101 million shares outstanding.

Ambac's writedowns, which exceeded those announced last week by MBIA, failed to convince analysts that the worst is over.
``It's one thing to have a plan and another to have a plan that is credible and will be a long-term fix,'' said Donald Light, an analyst with Boston-based consulting firm Celent. ``Is this just a down payment in what's going to be a series of payments of uncertain length?''

Ambac shares fell $5.75, or 27 percent, to $15.39 at 12:39 p.m. in New York, the company's worst one-day performance. Ambac's decline has wiped out almost $8 billion of market capitalization. MBIA dropped $2.66, or 17 percent, to $13.39 today.

Risk Rises

The risk of Ambac defaulting on its debt rose, trading in credit-default swaps shows. Investors demanded 14.25 percent upfront and 5 percent a year to protect Ambac's bonds from default for five years, according to London-based CMA Datavision. That rose from 11 percent upfront and 5 percent a year yesterday.

Credit-default swaps are a way of speculating on a company's ability to pay its obligations. A buyer receives the face value of the insured debt in exchange for the underlying securities or cash should a borrower fail to adhere to its debt agreements. The credit-default swaps rise as investors' optimism diminishes.

It costs the equivalent of 1.33 percentage points more a year to protect Ambac debt from default before March 2009 than for five years, according to data compiled by Bloomberg and CMA Datavision, indicating investors are concerned bankruptcy may be imminent.

`Clock Ticking'

Ambac said the infusion of capital, which may include the sale of shares and convertible stock, will satisfy Fitch Ratings, which threatened to cut the company's AAA rating unless it raised $1 billion. The bond insurers are under scrutiny from Fitch, Moody's Investors Service and S&P to increase their capital after a slide in credit ratings of the debt they guarantee.

The loss of the AAA stamp of Ambac, MBIA, FGIC Corp. and other insurers would throw into doubt the ratings of $2.4 trillion of municipal and structured finance debt that the companies guarantee, potentially causing losses of as much as $200 billion, according to Bloomberg data. It would also cripple the insurers' ability to keep underwriting new bonds.

``The clock is ticking for all these companies,'' Robert Haines, an analyst with New York-based bond research firm CreditSights Inc., said in an interview before the announcement.

Ambac in December reinsured $29 billion in securities it guarantees, transferring the risk of default on that debt to Assured Guaranty Ltd. Reinsuring the debt freed up $255 million of capital backing those bonds, according to S&P. Ambac said today it may reinsure more of its bonds or sell debt securities .

Paying the Price

MBIA cut its dividend last week and raised $1 billion in the sale of surplus notes. The company last month said private-equity firm Warburg Pincus LLC would invest $1 billion. The Armonk, New York-based company was forced to pay a yield of 14 percent on the surplus notes, which state insurance regulators consider equity.

Bond insurers are paying a price for expanding beyond their traditional business of backing municipal debt. S&P estimated in December that the industry is at risk of losing about $18 billion on securities backed by subprime mortgages made to borrowers with poor or limited credit.

CDOs have accounted for the biggest portion of the more than $100 billion in writedowns since the third quarter at the world's biggest banks including Citigroup Inc. and Merrill Lynch & Co. Delinquencies on subprime mortgages contributed to downgrades on 2,007 CDOs in November alone, according to Morgan Stanley.

Billionaire investor Warren Buffett is taking advantage of the bond insurers' missteps by starting his own financial guarantor. /state_asks_court_to_halt_500_foreclosures_by_frem ont/

The Massachusetts attorney general asked a state court yesterday to block Fremont Investment & Loan from commencing foreclosure actions against 500 borrowers in Massachusetts.
Attorney General Martha Coakley had previously filed suit in October accusing Fremont of predatory and unfair lending practices, and yesterday attorneys from her office told a Suffolk Superior Court judge the state wants to review each mortgage that is subject to foreclosure and try to stop proceedings on any loans they believe were made fraudulently.
An attorney for Fremont, James Carroll, challenged the state's request. "We cannot hand over that decision-making power to the attorney general," he said. "That would be unprecedented."

Fremont has denied that fraud was widespread or systemic, and its attorneys yesterday said that in some cases loan brokers who worked for other companies, or the borrowers themselves, may have been culpable if some individual loans are found to be fraudulent.

Currently, Fremont has some 2,500 active loans in Massachusetts, Jean Healey, assistant attorney general, said in court. Fremont intends to file initial foreclosure actions on 500 of those, with more expected in coming months, she said.
Fremont was a leading provider of subprime mortgages, which offered loose qualifying standards to borrowers with poor credit or little down payments, but came with steep interest rates. Subprime loans are now defaulting in record numbers, spawning a mortgage crisis nationwide.

Many Fremont loans had lower teaser rates that rose after two years, often pushing borrowers' payments beyond their ability to pay.

Fremont mortgages were "a recipe for disaster," and Fremont was aware its mortgages contained "multiple layers of risk" to borrowers, Healey said.

In the request for an injunction, state lawyers argued the loans were "structurally unfair" and Fremont made them without regard to borrowers' ability to pay.

The state initially sought the injunction against Fremont Dec. 27, after it said Fremont pulled out of a voluntary agreement granting the state the right to review foreclosures.

Fremont's Carroll said it pulled out of the agreement because the state failed to fulfill its obligation to respond to its notification of individual foreclosures within 90 days. The state "had an obligation to get back to Fremont and let Fremont know" whether it could proceed with foreclosures, Carroll said.

In the past three months, he said, Fremont has been able to proceed with only three foreclosures. For now, Carroll said, Fremont would continue to hold off on foreclosures but would like the judge to allow the lender to proceed in the future.

The court is expected to rule on the state's request this month.
More than 6,600 borrowers in Massachusetts lost their homes to foreclosure through November 2007, according to the Warren Group, a real estate research firm. u_can_save_yo.shtml

Maybe you can save your piece of the dream

Published January 13, 2008

The white brick and concrete block house has been empty for six months, but its front lawn looked as tidy as the neighboring homes off Beacon Square Drive in Holiday. The 81-year-old who lives next door mowed the grass to keep the snakes at bay.

This used to be home for a single dad and his son who grabbed their piece of the American dream with the help of a $70,000 bank loan and a $40,000 second mortgage from Pasco County.

But on Wednesday morning, Pasco Community Development manager George Romagnoli drove up to the courthouse in New Port Richey to bid on the foreclosed Holiday property. During the boom years, Romagnoli found himself competing with investors. But this week, no one else wanted the two-bedroom, two-bath ranch.
"Thing are bad out there," Romagnoli said.

How bad?

During the first 11 months of last year, Pasco recorded 7,809 property foreclosures, a 133 percent jump over the previous year, reported RealtyTrac, Inc.

In Hernando, 3,011 families fell behind on their mortgages and lost their homes last year, a 300 percent increase over 2006, according to RealtyTrac.

Folks are understandably desperate for government to do something.

So Wednesday afternoon, hours after he had bought the foreclosed house, Romagnoli walked over to the Richey Suncoast Theatre to meet with representatives from U.S. Rep. Gus Bilirakis' office, Consumer Credit Counseling Services and other nonprofit agencies to discuss how to respond to the rising tide of foreclosures.

They plan to return to the Richey Suncoast Theatre on Feb. 16 for what is being dubbed as a mortgage prevention summit to educate the scores of working families who risk losing their homes. Pasco, Pinellas, Hernando and Hillsborough residents are invited to attend.

"We want to show folks how to avoid mistakes and get ahead in terms of homeownership," said Bilirakis spokesman John Tomaszewski.

During the last real estate boom, too many people bought homes they couldn't afford. Banks lent mortgages they had no reason to write. With the current subprime mortgage mess,
unfortunately, some folks will lose their homes. But anyone who has an adjustable rate mortgage that's about to increase, those who've had late mortgage payments or have missed payments, and folks who want to learn about credit issues and refinancing can benefit from the summit. U.S. Housing and Urban Development representatives, as well as state, county and nonprofit agencies will be on hand to help financially strapped homeowners.

"We want to point out these opportunities before it's too late," Tomaszewski said.

Unfortunately it's too late for the single dad in Holiday. But his empty house? Romagnoli said after it's renovated, it should make a nice starter home for a working family.
They just can't use an adjustable rate mortgage or a subprime loan. ness/epaper/2008/01/16/m1a_tcforeclosenw_0116.html

Treasure Coast foreclosures top 5,000 in 2007

Wednesday, January 16, 2008

Nearly 5,000 St. Lucie County households defaulted on their mortgages in 2007, as resetting mortgages crashed head-on into plunging home prices and tightened loan policies. Every single month of 2007 had more foreclosure filings than all 12 months of 2005, the figures for St. Lucie County show.

Martin County homeowners didn't fare much better. A total of 797 homeowners faced foreclosures last year, a 215 percent increase from 2006. Previously reported numbers for Palm Beach County pegged 2007 foreclosures at 13,962, a 189 percent hike from 2006's 4,831.

All foreclosure figures are from the county clerks' offices.
"We have a lot of investors and average homeowners who took out mortgages they really couldn't afford," said analyst Mike Larson of Weiss Research in Jupiter. "Now that home prices are falling and housing inventory has piled up, those who get into financial trouble have less incentive to tough it out and keep paying their mortgages."

To understand just how fast and how high foreclosures have shot up in Port St. Lucie - the fastest-growing city in America a few years ago, according to a front-page story in The New York Times - consider that there were only 203 foreclosures in all of 2005.

During the heady real estate boom that peaked late that year, home builders flocked to land-rich St. Lucie and new homes sprang up seemingly overnight. As home prices soared during the boom, the only way many people could afford them was to take out so-called "exotic mortgages." Subprime loans, no-doc or low-doc loans, teaser rates or adjustable-rate mortgages became available to nearly anyone who could fog a mirror, said some critics.

Treasure Coast homeowners with such loans got stuck between their unaffordable loan payment and a hard place. That hard place, of course, was foreclosure. A total of 4,840 St. Lucie homeowners walked away from mortgages they could no longer afford last year. That's up 265 percent from 2006, when 1,327 homeowners couldn't pay their loans.

At first blush, it would seem St. Lucie's lower home prices would generate fewer foreclosures.
Economists even joke that St. Lucie County is Palm Beach County's affordable housing program. That's because homes in the Treasure Coast can cost considerably less than in Palm Beach County.

The median price of an existing single-family home in the Treasure Coast in November was $206,300, compared with $345,700 in Palm Beach County.

However, according to federal guidelines, homeowners should pay no more than one-third of their incomes for housing and utilities.

Those who pay more are "cost-burdened," the government says, a label that affected an increasing number of St. Lucie County homeowners in 2007. The median mortgage for owner-occupied homes in St. Lucie County is $1,425, according to Census figures - almost $600 more than they could afford without being financially burdened.

Those trying to sell their homes, or who just walked away from their homes, swelled the already soaring inventory, and have further depressed prices. "In areas where the supply of homes far exceeds demand at current prices, home prices are falling and leading to more foreclosures," said Doug Duncan, chief economist for the Mortgage Bankers Association.

As the inventory of homes on the market has soared; values have declined from boom-time highs, causing some homeowners to owe more than their houses are worth; and prompting lenders to quit making loans - or else making it difficult to qualify for them.
"More stringent financing requirements and foreclosures will impact demand," predicts real estate analyst Lewis Goodkin of Miami. But the bust may have been unavoidable. "This (boom) was filled with speculators, weak borrowers and people stretching to buy more than they could afford," he said.
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Intermediate Member
Username: Welcometomendoza

Post Number: 103
Registered: 7-2007

Posted on Thursday, January 17, 2008 - 9:30 am:   Edit PostPrint Post

The cross roads that the main world markets have come to , alhough scary, are very interesting to see how 2008 plays out.

I also agree that here will be more foreclosures and other debt-related chaos and "cleansing" going on this year. It is nice to see the big players taking such hits but I'm sure the shareholders aren't pleased. Unless the regulators unhook Citibank from the main financial systems, it is a fair bet this a good mid and long term play, especially with prices here in the 20's..but it go to the teens before going backup. For mid and long term investors I think Citigroup is an excellent play to start acculumlating starting positions.

The Gold vs. US dollar is a fascinating show to watch.

I tend to be a contrarian and am convinced the markets are so rigged it's not even funny.

If I had to make a bet, I would say that the dollar will be up in 2008 and gold will be down. But I would not actually place money on this bet as in this case it is more fun to watch. I do agree that if I was holding gold, I would not bail until there are clear signs that there are significant price declines in the pipeline, and that's even if I was a short term or mid-term holder. Long term holders usually win in the end anyway - 10 years, 20 years, 30 years, generational land buyers, etc, etc.

Buy the way the SWF thing is also very interesting to follow - thanks for highlighting it here on this forum.
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Advanced Member
Username: Saint

Post Number: 320
Registered: 5-2005

Posted on Thursday, January 17, 2008 - 1:48 pm:   Edit PostPrint Post

Merrill took a really really big loss as well. It's amazing to see the losses just from one quarter. Think about it. This company lost more in one QUARTER of a year than they made in 4 YEARS!

I am glad to see new leadership in many of these companies as they will really have a big incentive to come in and clean the books and get a fresh start as they can blame the past management and CEO for the losses. Now is the time to come in, write off all the losses and start fresh.

I still see several short-term challenges to the financial industry.

I've been having a field day shorting the bond insurance companies. If you recall last month (read my post from December 21, 2007) I posted how all these bond insurance companies would have problems and some would go under. I'm up over 100% in the last month shorting some of these companies. Just like when I shorted the banking stocks which was an easy call for me. This was the easiest money I ever made. I posted before in December how these companies would fall like a rock and that's when I started shorting companies like MBIA which I posted before on.

I covered positions today as they are down 30% today alone. Sure there might be more money to be made on it but that is quite a fall from grace in only one month.

Like I said, in down markets there is a lot of money to be made as well but you have to look at everything going on around you. Just look at what I said about Citigroup on this forum. I told how in the mid 30's it was overvalued and it would fall further. Many thought it was a great value in the mid 30's (including some on this forum) yet today it hit $25.52 as I predicted it would. Never try to catch a falling knife.

This recession will make alot of people poor but it will help alot of people get wealthy as well.

Merrill Lynch Swings to Loss
Amid Deep Write-Downs

January 17, 2008 1:20 p.m.

NEW YORK -- Merrill Lynch & Co. matched Citigroup Inc.'s massive fourth-quarter net loss, booking a total of $16.7 billion in write-downs in an effort to clean up its books after a disastrous foray into markets that have been hammered by the credit crisis.

New Chief Executive John Thain, appointed to his post Nov. 14, has moved quickly to get beyond mistakes made during what many consider a period of excessive and poorly managed risk taking before he arrived. The new CEO prepared for the sizable losses announced Thursday by lining up as much as $12.8 billion in fresh capital from a range of foreign and U.S. investors over the past two months.

Yet the cleanup has come at a high price. Merrill's $25 billion in write-downs in the second half exceeded all of the bank's earnings from 2002 through 2006. And while analysts said Merrill probably has put the bulk of its subprime-related trouble behind it and credited the firm's strong performance in wealth and asset management, they cautioned that troubled capital markets will continue to hurt the bank and pointed to new areas of concern like commercial real estate. Merrill's shares were 7.4% lower at $51 in midday trading.

"As painful as it is, we are glad that Merrill acted as aggressively as it did on both the capital raising and the write-downs," Goldman Sachs analyst William Tanona wrote Thursday. "Nonetheless, it is disheartening to know that the firm wiped out about four years of book value growth in one quarter."

Merrill recorded a fourth quarter net loss of $9.83 billion, or $12.01 a share, compared with year-earlier net income of $2.3 billion, or $2.41 a share. Net revenue was negative $8.19 billion because of the write-downs.

Analysts polled by Thomson Financial expected a loss of $4.93 a share on revenue of $399 million. Write-down expectations were running as high as $15 billion.

The quarter's write-downs included $9.9 billion on complicated securities known as collateralized debt obligations, $1.6 billion in subprime-related exposure in the capital markets unit and $3.1 billion in exposure to shaky bond insurers. The company recorded $8.4 billion in write-downs in the third quarter.


• $9.9B on CDOs
• $1.6B on subprime (in the trading unit)
• $3.1B on exposure to bond insurer
• $0.4B on exposure to Alt-A (in trading unit)
• $0.5B on exposure to residential mortgages outside the U.S.
• $0.23B on exposure to commercial real estate
• $0.126B on exposure to leveraged loans
• $0.869B on exposure to subprime, Alt-A and other elements in the investment portfolios of Merrill's U.S. banks

"The whole goal here is to get 2007 behind us," Mr. Thain told reporters.
Much-larger Citigroup on Tuesday said it lost $9.83 billion in the fourth quarter.

Merrill, flying high at this time last year, had a tumultuous quarter. Chief Executive Stan O'Neal left the bank, after the massive losses in the third quarter forced Merrill to report its first quarterly loss in six years.

With Mr. Thain at the helm, Merrill has addressed its balance-sheet woes by selling a commercial-finance unit and raising capital from investors including the sovereign wealth funds of Singapore, Korea and Kuwait. On Thursday, the bank announced that a former colleague of Thain's from Goldman Sachs Group Inc., Noel B. Donohoe, will become co-head of risk management.

Merrill said the environment in which its fixed income, currencies and commodities trading business -- the source of the write-downs -- worsened in November and December, reducing client business and suppressing trading opportunities.
Merrill's investment-banking net revenue fell 11% from a strong year-earlier prior. Equity-trading net revenue jumped 23% amid "substantial" growth in client volume, but was overcome by losses in fixed income.

The company's global wealth management unit, which includes Merrill's market-leading retail brokerage and its nearly 50% stake in asset manager BlackRock Inc., saw pretax earnings climb 30% to $914 million as revenue grew 12%.

Merrill sliced exposure related to CDOs and subprime mortgages in its trading unit down to $7.5 billion at the end of the year from $21.5 billion at the end of the third quarter, prompting ratings company Standard & Poor's and Deutsche Bank analyst Mike Mayo to say the bank had put the worst behind it.
"We believe there is little risk of further large mortgage-related write-downs, given the relatively small size of remaining net exposures," S&P said, affirming Merrill's credit rating.

Moody's Investors Service, the other main credit rater, was less sanguine and warned of the exposure of Merrill to "deteriorating conditions in the commercial mortgage-backed market."

Merrill disclosed $18 billion in exposure to commercial real estate, a position Mr. Thain said he's comfortable with. That market hasn't suffered the collapse seen in residential housing, but has shown some early signs of weakening, with vacancy rates no longer falling and some investors stretched by loans taken out last year to fund aggressive purchases.

In another step to restrain risk and grow, Mr. Thain said he is taking immediate steps to move some trading assets into new funds that will be sold to outside investors. Merrill is currently raising money for a real-estate fund in the Pacific Rim and hopes to create some private equity, and possibly infrastructure, funds.

Some of Merrill's efforts to hedge its trading-book exposure haven't worked out. The bank said Thursday it had set aside $3.1 billion against the possibility hedges bought from beleaguered bond insurers like ACA Capital Holdings Inc. won't pay off. Merrill wrote down virtually all of its $1.9 billion in exposure to junk-rated ACA and about 16% of its exposure to AAA-rated insurers, leaving it with $3.5 billion in exposure to the AAA group.

Pressure built sharply on U.S. bond insurers Thursday, after Moody's Investors Service and Standard & Poor's signaled fresh consideration of companies' all-important AAA ratings and markets soured further on the sector amid deepening losses.

The negative tone from the ratings companies sent shares of the nation's two biggest bond insurers plunging for a second-straight day. Market leader MBIA Inc. was recently down 33% at $9.04, while Ambac Financial Group Inc. sank 53% to $6.16.
Bond insurers have been rocked by concerns they could be hurt by guarantees they have written on complex debt securities that have plunged in value. Banks that have used those guarantees to hedge exposures have taken charges of at least $6 billion to reflect concerns bond insurers -- particularly ACA -- won't make good on their commitments.

"We should all be helping and hoping that MBIA and the others get recapitalized," Thain told employees Thursday.
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Advanced Member
Username: Saint

Post Number: 321
Registered: 5-2005

Posted on Thursday, January 17, 2008 - 4:05 pm:   Edit PostPrint Post

Remember when all the banks and the US Government were trying to downplay the sub-prime mess last year? There were few of us that really knew just how bad and toxic of a situation it was. Now look at Bernanke's comments that the sub-prime mess will likely increase and might be up to $500 BILLION. Do you realize just how much $500 BILLION is and how much greater that is than what's already been lost???

Do the math. So it went before to "our losses our limited to the sub-prime mess" and "things are contained" to comments like "the losses shouldn't top $500 BILLION". Quite a difference a few months made huh?

"Bernanke noted that financial markets around the world have been under strain since late last summer, largely because of problems in the U.S. subprime mortgage market, where foreclosures have been rising sharply.

He said losses in the U.S. subprime mortgage market may have reached $100 billion so far and would likely climb, but would not top $500 billion."

Bernanke backs U.S. fiscal stimulus if quick

Thu Jan 17, 2008 3:21pm 22011420080117?rpc=44&pageNumber=3&virtualBrandCha nnel=0&sp=true

WASHINGTON (Reuters) - The chairman of the U.S. Federal Reserve on Thursday threw his weight behind proposals for near-term actions to stimulate economic growth to ward off an election-year recession, but warned such a plan could do more harm than good unless put together quickly.

Fed chief Ben Bernanke told the U.S. House of Representatives Budget Committee that the U.S. central bank was not forecasting recession, but he repeated it was ready to act aggressively to prop up growth. He said a fiscal package could be effective if used in concert with interest-rate cuts.

Bernanke's comments, which lent impetus to efforts on Capitol Hill to assemble a package of stimulus steps, also reinforced a view in financial markets that a half-percentage point rate reduction will come at the end of the month.

"Fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary actions alone," Bernanke said.

Other Fed officials, speaking at other locations, said they were worried enough about the economy to back further cuts in interest rates. The central bank has already lowered benchmark rates by 1 percentage point to 4.25 percent since mid-September.


A sense of urgency has set in at the White House and among lawmakers on Capitol Hill about how to prop up an economy that some analysts say may have already fallen into recession.
The White House confirmed it was working on a stimulus plan and President George W. Bush was set to consult congressional leaders later on Thursday about measures that might be in it.

House Republican leader John Boehner of Ohio said talks were focusing on a package in the $100 billion to $150 billion range.
Bernanke said $50 billion to $150 billion would be a reasonable size and provide "measurable" benefit to the economy. But he specified it was "critically important" that any fiscal measures be designed to spur spending quickly and deliver their maximum impact within the next 12 months.

A delayed stimulus that kicks in when it is no longer needed could cause the economy to overheat and generate inflation, Bernanke warned.

The idea of a quick fiscal stimulus package has taken flight in the past two weeks as rapid-fire reports showed U.S. unemployment hit a two-year high in December, while retail sales fell and manufacturing activity stalled.

Lawmakers are considering a package that could extend tax rebates of about $250 to $600 to individuals and give businesses a bigger tax break on new investments.


Bernanke repeated a bleak assessment of the economy's health that he delivered in a speech last week. "Recently, incoming information has suggested that the baseline outlook for real activity in 2008 has worsened and that the downside risks to growth have become more pronounced," Bernanke warned.

"We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.

Bernanke's somber take on the economy and a big drop in a gauge of factory activity in the Mid-Atlantic region drove down the value of the dollar and gave a lift to bond prices as traders increased bets on further interest-rate cuts.

Stock prices fell as the factory gauge and news of a big loss at brokerage Merrill Lynch deepened economic fears. In mid-afternoon, the Dow Jones industrial average was down about 200 points.

Dallas Federal Reserve Bank President Richard Fisher, a voting member of the Fed's policy-setting committee, echoed Bernanke's vow to act aggressively to help an economy hit hard by a housing market downturn and tighter credit.

Another voter, Cleveland Federal Reserve Bank President Sandra Pianalto, said residential housing markets remain "in freefall" and said policy-makers had to be "highly flexible."

A third regional Fed bank chief, Atlanta's Dennis Lockhart, said the Fed must be prepared to respond to a souring outlook. "In my view, pragmatism in the face of growing weakness in the general economy may very well require additional moves to lower the federal funds rate," he said.
Bernanke noted that financial markets around the world have been under strain since late last summer, largely because of problems in the U.S. subprime mortgage market, where foreclosures have been rising sharply.

He said losses in the U.S. subprime mortgage market may have reached $100 billion so far and would likely climb, but would not top $500 billion.

Argentine stocks slide as global markets roiled

Thu Jan 17, 2008 3:54pm

BUENOS AIRES, Jan 16 (Reuters) - Argentine stocks fell to a four-month low on Thursday, mirroring an overall market slump centered on U.S. economic concerns.

The MerVal index of 42 leading companies closed 2.64 percent lower at 2,011.21 points, accumulating losses of 5.7 percent in the last three sessions.

When Argentina's market closed, the Dow Jones industrial average .DJI was trading 1.74 percent lower, and Brazilian and Mexican stocks were also down more than 2 percent.
"The market is exclusively responding to what happens in the United States," said Augusto Farina, a trader at Amirante Galitis brokerage, who said the MerVal could rebound if it hits the 2,000 point mark.

Volume on the broad market was a moderate 117.5 million pesos ($37 million), and 26 active shares advanced, 72 declined and 15 were unchanged.

The session's losses were led by leisure group Comercial del Plata , which shed 8.8 percent to end at 0.57 pesos a share, and Brazil's energy company Petrobras ( ), which sank 5.7 percent to close at 148.5 pesos in Buenos Aires.

Sovereign bonds traded locally fell for a third straight day, ending 0.7 percent lower on average. The worst losses were seen in Par bonds denominated in pesos, which fell 1.3 percent in over-the-counter trade.

The peso ended weaker amid continued central bank intervention aimed at keeping the currency competitive for exports.
In informal trade between foreign exchange houses, as measured by Reuters, the peso slumped 0.24 percent to 3.1775/3.1800 per dollar

In formal interbank trade, the peso slipped 0.08 percent to end at 3.1475/3.1500
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Advanced Member
Username: Saint

Post Number: 323
Registered: 5-2005

Posted on Thursday, January 17, 2008 - 8:35 pm:   Edit PostPrint Post

Home sales, prices fall to lows across the region

January 17, 2008

One of the most turbulent years in a decade for Sacramento-area real estate ended in December with 2,440 homes changing hands in the eight-county region, the fewest sales since 1995 in some counties, according to property researcher DataQuick Information Systems.

DataQuick statistics showed that sales prices, too, continued to fall after a year this is easily expected to record up to 9,000 foreclosures in the region. That increases pressure on banks and loan servicers to offer steep discounts to move repossessed properties.

Sacramento County's median sales prices slipped to $280,000 during the month, down more than $100,000 and 27.6 percent off their August 2005 peaks. Those prices were the lowest since February 2004, DataQuick reported.

Placer County's $373,000 median sales price in December was 29 percent off an August 2005 high of $525,000. The county's median sales price was last at this level in January 2004. Median is that point where half the houses sold for more and half sold for less.

As the two largest sectors of the region's housing market, Sacramento County, with 1,372 closed escrows, and Placer County, with 525, showed their fewest sales for a December since 1995. The region then was in the grips of a housing downturn aggravated by recession, job losses and military base closings.

Altogether, the eight-county region of Amador, El Dorado, Nevada, Placer, Sacramento, Sutter, Yolo and Yuba counties tallied 33,627 closed escrows for new and existing homes during 2007. That was about 9,900 fewer sales than 2006 and the lowest since 1997, when 35,667 homes changed hands, according to DataQuick.

The continuing decline in home values prompted Sacramento-based researcher TrendGraphix to declare December the "resurrection of the $200,000 house." The firm reported that 12 percent of the 13,994 homes now for sale in El Dorado, Placer, Sacramento and Yolo counties are priced below $200,000, with the majority being homes repossessed by banks.

A year ago just 2 percent of homes for sale in the region were priced below $200,000.


And people wonder how price appraisals and home prices in the USA got so high to begin with?? awsuit.moneymag/?postversion=2008011712

WaMu accused of appraisal fraud
Lawsuit claims the lender told an appraiser to offer a rosier housing outlook so risky mortgages could get approved.
January 17, 2008

NEW YORK (Money) -- A former real estate appraiser for Washington Mutual is suing the bank, claiming she was blacklisted last year for providing a housing market forecast that was too gloomy.

Jeniffer Wertz, who is seeking unspecified damages, says WaMu stopped accepting her appraisals in mid-2007 a month after she reported that her local housing market in California was "declining."

A pessimistic outlook makes it harder to extend outsized, risky mortgages to borrowers whose homes can't support them. But Wertz's assessment shouldn't have been controversial at the time. According to the National Association of Realtors, home prices in her hometown of Sacramento fell $9,000, or 2.5 percent, to $356,500 in the second quarter of 2007. And most economists were already characterizing the housing market as a bubble that was ready to burst.

Home sales sink, outlook darkens

In the lawsuit, which was filed a week ago, Wertz says she completed appraisals on two houses in May and then quickly got a call from a WaMu (WM, Fortune 500) sales manager demanding she change her outlook to "stable" so a loan could be approved.
The WaMu sales manager also demanded Wertz change her appraisal process to produce higher prices for the properties she was evaluating, according to Wertz's lawyer Stephen Danz. The higher an appraisal comes out, the more likely it is a home loan will get approved.

When Wertz refused to comply, she claims the sales manager threatened to block her from doing future appraisal work for the bank. A month later, Wertz's suit says, a third-party appraisal request assigner told her WaMu would no longer accept her work.

Wertz has her own company. She says she appraised properties for WaMu for over six years, regularly getting three orders from the bank a day. In 2006, WaMu told her she held the status of "preferred real estate vendor," because the bank had used her in the past, and her work was "proven," according to the lawsuit.

Wertz declined to directly comment for this story, referring questions to her lawyer. A WaMu spokesperson says, "We have not had the opportunity to review firsthand the allegations in Ms. Wertz's lawsuit, and in any event, we do not comment on ongoing litigation."

Housing: no room for bulls

The suit is only the most recent claim that Washington Mutual used its status as one of the nation's largest mortgage lenders to pressure appraisers in an effort to boost its lending business.

In November, New York state Attorney General Andrew Cuomo filed a lawsuit against title company First American and its appraisal unit, eAppraiseIT. WaMu wasn't named as a defendant, but Cuomo alleged it had pressured eAppraiseIT to inflate property values.

That same month, government-sponsored mortgage companies Freddie Mac and Fannie Mae said they would name independent investigators to find out if borrowers were properly protected against the risks of inflated home appraisals, particularly on WaMu loans.

The Securities and Exchange Commission and the Office of Thrift Supervision, which is WaMu's federal regulator, also have open inquiries into whether the bank hid from investors that some of the loans it sold as mortgage-backed securities were based on inflated appraisals.

Asked about those investigations, a WaMu spokesperson says, "With regards to our appraisal practices, we have nothing new to add to our recent public statements." In the past, WaMu has said it is cooperating with the investigations and that there was no systematic effort by the bank to inflate home appraisals.

Other lenders have come under fire for the way they deal with appraisers. In 2006, Ameriquest agreed to pay $325 million to settle charges brought by several state attorneys general that it had among other things pressured appraisers into boosting home values. And last year, Ohio's attorney general sued 10 local mortgage and brokerage firms alleging they regularly asked appraisers to guarantee certain values before they would be hired.

Foreclosure fire sale: cashing in

The WaMu lawsuit and other inquiries are shedding light on how many big-bank loan officers during the housing boom got around a long-standing check on making ill-advised or fraudulent loans.

Mortgage investors generally require that banks get an appraisal before they make a loan. Appraisals are supposed to insure that banks don't lend more than a house is worth. A borrower who defaults because of inflated numbers could mean losses for the lender and mortgage investors who buy the loans in mortgage-backed securities.

But appraisers are often hired by mortgage-loan officers whose pay is based on the number and size of loans they get approved. When housing prices decline, lenders may resort to pressure in order to get the highest property appraisals possible.

"It's not just Washington Mutual. Appraisal pressure is an industry-wide epidemic," says John Taylor, president of the National Community Reinvestment Coalition, which has studied the problem. "And it is one of the major contributors to the current foreclosure crisis."

"This case is just another good example of one of the biggest dirty little secrets of the whole mortgage industry," says Pamela Crowley, who runs industry watchdog, "The housing market is falling apart, and foreclosures are soaring because the properties that these banks made mortgages on are not worth what they said they were worth," she says.

Crowley, an appraiser herself, says she is unable to get work from banks because she is unwilling to push values. "There is no doubt in my mind that the lenders knew exactly what there were doing."
In the past year, a number of states, including California, where Wertz is based, have passed laws to prevent appraisal pressure.


Homebuilding: Sharpest drop in 27 years
Steeper than expected plunge in December ends year that saw homebuilding, permits post declines not seen since past recessions.

January 17 2008: 6:46 PM EST

NEW YORK ( -- Housing starts and building permits plunged in December much more than expected, resulting in a full-year decline in new home construction that was the sharpest drop in 27 years.

And there is little sign things will get better soon. According to government data released Thursday, the full-year total for building permits posted the biggest drop in 33 years. The sharp dropoff in building is one of the reasons that many leading economists are growing increasingly fearful that an economic recession is near, if it hasn't already struck.

The pace of housing starts in December dropped 14 percent to a seasonally-adjusted annual rate of 1.01 million in December, according to the Census Bureau report.

That figure is down from the 1.17 million November reading, which was also revised lower. Economists surveyed by had forecast the annual pace of starts would fall to 1.15 million in the latest reading.

The level of starts in the month was the weakest since May 1991, when the country was just coming out of the 1990-91 recession.

"These figures confirm that the housing recession continues to deepen," said Mike Larson, a real estate analyst for Weiss Research. "Slumping consumer confidence and tighter lending standards have already taken their toll on demand, and the broader economic slowdown we're starting to see unfold now threatens to make a bad situation worse."

For the year, housing starts fell 25 percent to 1.35 million. That decline represents the biggest drop since the recession year of 1980 and the third largest drop since the Census Bureau started tracking this activity in 1959.

Building permits, which are often taken as a measure of builders' confidence in the market, fell 8 percent to an annual rate of 1.07 million from 1.16 million in November. Economists had forecast permits would fall to 1.14 million in the latest reading.

Permits were at the lowest level since March 1993 in the month. For the year permits plunged 25 percent, which was the biggest drop in that measure since the 1974 recession year. It was also the second largest decline on record.

Builders are slamming the brakes on production, because the glut of completed new homes on the market is eating into housing prices and company earnings. A separate Census Bureau reading reported a record 193,000 completed new homes on the market for sale at the end of November, and that builders were typically facing a 6.2 month wait to sell homes after they are completed.

"The only potentially good news [in the report] is the continued decline will help to alleviate bulging inventories," said Adam York, an economic analyst with Wachovia.
The report also comes the day after a survey by the National Association of Home Builders found that confidence in the sector only slightly above record lows, with three out of four builders saying the level of buyer traffic was either low or very low, more than two-thirds saying the current market conditions were poor, and just over half expecting the market to still be poor in six months.

That weakness has also hammered at the results of the nation's largest builders. A week ago KB Home (KBH, Fortune 500), the nation's No. 5 builder by revenue, reported a fiscal fourth quarter loss that was nearly 10 times worse than forecasts, as CEO Jeff Mezger told investors during a conference call that "As we enter 2008, we see no indication markets are stabilizing."

Lennar (LEN, Fortune 500), the nation's No. 1 home builder, is forecast to report a large increase in fiscal fourth quarter losses when it releases results Jan. 24. Those losses are forecast to continue throughout this fiscal year as well. Analysts are looking for No. 6 builder Hovnanian Enterprises (HOV, Fortune 500) to post losses in both fiscal 2008 and 2009.

Analysts are also forecasting that No. 2 Centex (CTX, Fortune 500), No. 3 D.R. Horton (DHI, Fortune 500) and No. 4 Pulte Homes (PHM, Fortune 500) are going to report continuing losses until at least their final quarters of this calendar year.
The builder with the forecast of the quickest return to profits is luxury home builder Toll Brothers (TOL, Fortune 500), seen as posting a narrow gain in the quarter ending in July. It posted its first loss as a public company in its most recent period, which ended in October.


Read what I posted on December 21, 2007 that bond insurers like ACH Capital would cause all these banks to take additional losses. All the signs are there for those that spend countless hours doing research. As I posted before, it's very clear (or at least it should be) if you have a good understanding of the markets, financials how it all works and how it all ties together to see what is going on. I know it can be complex but it's not an accident that those that can piece these kinds of things together will always come out ahead.

Read the article below and it confirms it. Also, notice that the banks still didn't get rid of all their CDO's. They still have these on their books and it's still unclear how much more exposure they have. The initial estimates were up to $400 BILLION so by those estimates there is still a LOT of toxic waste on the books by these banks and financial institutions. Look today even Bernanke is quoting numbers like "it shouldn't exceed $500 BILLION. That should scare you if what has gone on hasn't already.

Remember that I'm not writing the book on investments and finance. I'm not even claiming that I'm a great investor. The reason why I share so much information is to encourage people to empower themselves to take advantage of all the free information out there. It will help guide you and see the REAL picture around the world.

Remember that knowledge = Power & Power = Money

I'm not saying Money is the most important thing in this world but it sure doesn't hurt.


Merrill Posts Record Loss on $16.7 Billion Writedown

Jan. 17 (Bloomberg) -- Merrill Lynch & Co., the biggest U.S. brokerage, reported a record loss after $16.7 billion of writedowns on assets infected by subprime mortgages.

The fourth-quarter net loss of $9.83 billion, or $12.01 a share, compared with earnings of $2.35 billion, or $2.41, a year earlier, the New York-based firm said today in a statement. The loss was almost three times bigger than analysts estimated and resulted in the first full-year loss since 1989, sending Merrill down 10 percent in New York trading, the biggest decline since the 2001 terrorist attacks.

``We hope it's all written down and they've thrown in the kitchen sink,'' said Jeffrey Davis, chief investment officer at Boston-based Lee Munder Capital Group, which manages $4.8 billion and holds Merrill shares. ``Their core businesses have been impaired.''

Chief Executive Officer John Thain called the results ``unacceptable'' and said on a conference call that Merrill should stop taking risks that have the potential to wipe out profit. Thain joined Merrill last month, replacing Stan O'Neal, whose gamble on building the subprime mortgage business backfired as U.S. homeowner defaults surged to a 20-year high.

Morgan Stanley

Merrill follows Morgan Stanley and Bear Stearns Cos. in reporting a loss, capping Wall Street's worst quarter ever. The five biggest U.S. securities firms, which also include Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc., reported a net total of $10.2 billion in losses. Thain, Goldman's former president, has replaced senior executives and taken steps to replenish capital during the past month by raising $12 billion from outside investors.

Merrill fell $5.64 to $49.45 on the New York Stock Exchange. Investors are concerned Merrill may have further losses on its $67 billion of residential mortgages and asset-backed securities, said Benjamin Wallace, who manages about $800 million at Grimes & Co. in Westborough, Massachusetts.

``If you think the economy's going to deteriorate significantly, that would be a source of concern,'' said Wallace, whose firm owns Merrill shares.

The loss dropped Merrill's ``book value'' -- what's left after assets are subtracted from liabilities -- to $29.37 per share, down from $41.35 at the end of last year. Today's share price is about 1.7 times book value. Douglas Sipkin, an analyst at Wachovia Securities, wrote today in a note to clients that Merrill's shares may ``trade down'' to about 1.5 times book value, closer to where peers are priced.

ACA Capital

The fourth-quarter's writedowns included $11.5 billion to account for the plummeting value of subprime mortgages and related bonds called collateralized debt obligations. Merrill also reduced the value of bond insurance contracts by $3.1 billion, saying provider ACA Capital Holdings Inc.'s credit rating had been slashed below investment grade, making it a less- reliable counterparty.

Thain said on a conference call with reporters that its CDOs were now valued ``conservatively'' and ``don't have much more downside.'' The firm plans to liquidate its CDOs, possibly by selling them to hedge funds and other investors that are pooling money to buy securities at distressed prices.

He also hired a former Goldman Sachs risk manager, Noel Donohoe, to join the firm as co-chief risk officer alongside Edmond Moriarty. Keishi Hotsuki, who previously oversaw market risk, left the firm last year.

Leveraged Loans

The firm wrote down the value of other mortgages by $949 million, leveraged loans by $126 million and commercial real estate by $230 million. Its commercial bank units took an $869 million charge for their investments in mortgages and related securities.

``Thain is repositioning the firm to start fresh with a strong balance sheet, once these couple of bad quarters get out of the way,'' said Matthew Albrecht, an analyst at Standard & Poor's in New York who rates Merrill shares ``hold.''

The fourth-quarter loss was the same reported earlier this week by Citigroup Inc., which took an $18 billion writedown related to its subprime-mortgage holdings and slashed its dividend 41 percent.

Merrill's fourth-quarter revenue was negative $8.19 billion, as losses in the fixed-income division wiped out all revenue at the firm's investment bank and retail brokerage. At the brokerage, the world's biggest with a network of more than 16,000 financial advisers, revenue climbed 10 percent to $3.31 billion.

Trading, Underwriting

Fixed-income trading revenue was negative $15.2 billion and equity trading revenue was $2.17 billion, up from $1.76 billion a year earlier. Debt underwriting generated $217 million in revenue, down 59 percent, while stock underwriting revenue dropped 21 percent to $375 million.

The company's full-year loss was $7.78 billion compared with record net income of $11.6 billion at Goldman, the biggest U.S. securities firm by market value, and earnings of $3.2 billion posted by Morgan Stanley, the industry's No. 2 firm. Morgan Stanley and Bear Stearns, like Merrill, reported their biggest losses in the fourth quarter. Goldman and Lehman had profits. All the firms are based in New York.

Merrill said compensation costs fell 6 percent to $15.9 billion for the year compared with 2006. Thain has reduced 2007 bonuses in some divisions and cut jobs in the fixed-income unit, where the writedowns originated.

Several executives tied to O'Neal have departed, including former U.S. brokerage chief McIntyre ``Mac'' Gardner. Thain also has recruited executives from his most-recent employer, NYSE Euronext, hiring Nelson Chai to replace Jeff Edwards as chief financial officer.

Share Comparison

Merrill, the third-biggest U.S. securities firm, fell 42 percent last year in NYSE trading, the third-worst performance among the 12 stocks tracked by the Amex Securities Broker/Dealer Index. Goldman, which profited by betting on a decline in prices for mortgage securities, gained 7.9 percent in the same period.

Merrill, whose market value was greater than Goldman as recently as 2006, is now worth half as much. Thain, 52, worked at Goldman from 1979 to 2004, when he left to become CEO of NYSE Euronext.

The writedowns by Merrill add to more than $100 billion of subprime-related losses reported since May by the world's largest banks and securities firms.

With its capital depleted, Merrill said Jan. 15 that it sold $6.6 billion of preferred stock to a group of investors including the Korean Investment Corp., Kuwait Investment Authority and Mizuho Corporate Bank. The transaction followed the sale in December of as much as $6.2 billion in stock. Thain has freed up at least $2.1 billion in additional capital by selling assets, including Merrill Lynch Life Insurance Co. and Merrill Lynch Capital, a financer of medium-size companies.

Bloomberg Stake

Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News. Thain said on the conference call that its 20 percent stake isn't for sale, as analysts including Michael Hecht at Bank of America Corp. had speculated. Thain also called the firm's investment in BlackRock Inc., the biggest publicly traded asset manager in the U.S., a ``core strategic asset.''

Before his ouster in October, O'Neal acknowledged that Merrill held onto many of the mortgage securities it created rather than selling them to customers, as it had before the housing market started to slow. O'Neal also bought subprime lender First Franklin Financial Corp. for $1.3 billion at the end of 2006 just as the market for housing-linked securities was beginning to wither.

Job Cuts

Thain said today on a conference call with reporters that Merrill eliminated about 1,000 jobs in the fourth quarter, most of them at San Jose, California-based First Franklin.

Merrill held $8.8 billion of subprime mortgages by June and $32.1 billion of collateralized debt obligations, or CDOs, securities packaged from mortgage bonds, loans and other debt.

Many CDOs were downgraded by Standard & Poor's and Moody's Investors Service as an increasing number of borrowers fell behind on home-loan payments, sending prices on some of the securities plunging to as little as 30 cents on the dollar.
Merrill's 1989 net loss of $213 million, under then-CEO William Schreyer, was the first since the firm went public in 1971. That loss works out to about $350 million in 2007 dollars.

Founder Charles Merrill, who burnished his reputation by telling customers to sell stocks just before the 1929 stock- market crash, would be appalled at the firm's ``bubble mentality'' of recent years, said Edwin Perkins, author of the 1999 biography of Merrill, ``Wall Street to Main Street.''

``Things just get out of control, and once you're involved in it, there's no way to get out of it gracefully,'' said Perkins, now a professor emeritus of business history at the University of Southern California in Los Angeles.

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Advanced Member
Username: Saint

Post Number: 324
Registered: 5-2005

Posted on Friday, January 18, 2008 - 4:10 pm:   Edit PostPrint Post my_poll/index.htm?postversion=2008011811

Americans: Recession near - or already here

More than three out of four Americans believe that a recession has already started or will hit in '08.

Half have cut their spending, which could make a slowdown worse.

January 18 2008: 11:22 AM EST

NEW YORK ( -- More than three in four Americans believe the U.S. economy is already in a recession, or will be sometime in 2008. That's according to a comprehensive poll commissioned this week by Fortune Magazine.

Only 19 percent of 1,000 Americans surveyed believe the nation will avoid a recession, while 57 percent believe that there will be a downturn this year. Another 19 percent believe the nation is already in a recession.

What's worse for the economic outlook, just about half of those surveyed say that they've cut back their spending compared to last year.

These results indicate a far gloomier outlook than economists anticipated.

"Those are pretty striking results, a pretty stark assessment," said Dean Baker, who is the co-director of the Center for Economic and Policy Research, and one of the economists who believes that the nation may have slipped into a recession in December. He said that if Americans are this worried about the economy, it could cause an even sharper downturn than many economists expect.

"[Consumer] consumption has been what's holding up the economy," Baker said. "I've been surprised by how well it has held up as the housing market plummeted. But it looks like we're coming to the end of that."

Even some economists who don't think economic fundamentals justify the current talk of a recession worry that a change in consumer sentiment by itself could increase the risk of recession.

"If consumers who were only worried [about a recession] actually pull back on their spending reigns, then it becomes a self-fulfilling prophesy," said Rich Yamarone, director of economic research at Argus Research.

Lynn Franco, the director of the research center at the Conference Board, an organization that conducts closely watched surveys of both consumer and CEO confidence, agreed that fear on the part of both of those groups could put the brakes on the economy.

"We're seeing from our CEO and consumer surveys that confidence levels are low and there is rising concern," she said. "We're seeing the same thing here (in the Fortune survey). That in and of itself can cause people to postpone - either hiring or business spending if you're a CEO or personal purchases if you're a consumer."

Indeed, the Fortune poll found that about two out of three people believe that economic conditions in the U.S. are getting worse.

And when asked about their personal economic condition in the last 12 months, nearly four out of ten people said they were worse off than they were a year ago. The poll found 15 percent saying they were falling behind on paying their credit cards, while 9 percent said they were having trouble making mortgage and rent payments.

Additionally, just more than one in four of those surveyed said they are somewhat worried or very worried about losing their job in the next 12 months.

As the presidential election kicks into high gear, the outlook on the economy is somewhat split along party lines, and it appears that the Democrats have the most to gain from the stumbling economy.

Democrats are more than twice as likely as Republicans to believe the nation is already in a recession - 26 percent compared to 12 percent. Republicans are four times more likely to believe the nation will avoid a recession altogether - 32 percent to 8 percent.

But even two of out three Republicans say the nation is either in a recession or heading into one in the next 12 months.

Asked which party is better at keeping the economy healthy, more than half of those who believe the nation is in a recession or heading that way picked the Democrats, while less than a third picked Republicans.

Only those who believe the country will avoid a recession gave Republicans high marks for their handling of the economy, by a three-to-one margin over the Democrats.

The economy was the issue most important to those surveyed, with 87 percent terming it extremely or very important. That edged out the 83 percent who gave the war in Iraq their top priority, or the 81 percent classifying health care that way.

Many economists have focused on problems in the housing and credit markets as the factor most responsible for putting the nation at risk of a recession.

But those polled said that the top culprit was the high price of gasoline, which was cited as the most important or second most important reason for the nation's economic woes by 56 percent of those surveyed. Fifty percent said that companies sending work overseas is the driving force behind the current economic situation.

The poll found 47 percent believe that the housing slump, as well people who are having trouble paying their mortgages, is the most important or second most important reason for a recession.

Fears of a recession have been growing in recent weeks, with more leading economists arguing that either the nation has already fallen into a recession or that one is likely in 2008.

Members of Congress and the Bush administration have begun to discuss what economic stimulus package could be enacted quickly in response to the slowdown in the nation's economy.

Those questioned in the Fortune survey are overwhelmingly in favor of Congress taking a wide range of actions to spur the economy.

The most popular proposal was tax cuts for low and middle income taxpayers, which was favored by just over three of four surveyed. That was closely followed by support for limiting rate increases on adjustable rate mortgages to keep them affordable. About two in three supported increasing government spending on things like public-works projects to help create jobs, while just over half also supported extending unemployment benefits, suspending home foreclosures, tax cuts for businesses and extending the tax cuts passed by the Bush administration in 2001 and 2003 that are due to expire by 2010.

The poll was conducted by telephone from Monday to Wednesday of this week. The margin of error for the entire sample is approximately plus or minus 3 percentage points. It was conducted for the magazine by survey firm Abt SRBI Inc. Public Affairs Center.

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Intermediate Member
Username: Welcometomendoza

Post Number: 104
Registered: 7-2007

Posted on Saturday, January 19, 2008 - 7:03 am:   Edit PostPrint Post

Huge new problems in the capital markets?

All fall down?
Jan 18th 2008 | NEW YORK

AMERICA’S big bond insurers, which have underwritten some $2.4 trillion of private and public-sector bonds, usually go about their business largely unnoticed. But now they are looking distinctly wobbly they have started to attract attention. If one or more of them were to topple over, there will be a huge knock-on effect on banks and other financial institutions that rely on their guarantees. This in turn will further worsen the credit crunch and cause an even bigger headache for policymakers already grappling with a sharp slowdown in the American economy.

The threat of such a financial domino effect looms large. Moody’s, a credit-rating agency, has signalled that it might downgrade the AAA-ratings of two of the biggest bond insurers, MBIA and Ambac, in the near future. On Friday January 18th, Ambac said that it had dropped a plan to raise $1 billion of new equity capital to preserve its rating—making futher downgrades even likelier. In response, Fitch, another rating firm, cut Ambac's rating.

MBIA, which recently managed to raise $1 billion of new capital on top of another billion that it received from Warburg Pincus, a private-equity firm, will almost certainly need even more money if it is to preserve its AAA-rating. ACA Financial Guaranty Corporation, another insurer, is in even direr straits. In December its single-A credit rating was cut to junk status. The firm begged its trading partners to give it more time to sort out its problems. But by Friday it had still not come up with a rescue plan. The state insurance regulator of Maryland, where ACA is incorporated, has already assumed responsibility for some of its operations.

Bond insurers in effect “lend” their top-notch ratings to lower-quality debt, raising its value in the eyes of investors. Any cut in those ratings may make it impossible for the bond insurers to take on new business and would reduce the value of the securities they have already underwritten. Such cuts are now a distinct possibility because the insurers have underwritten billions of dollars of mortgage-backed securities, including those notorious collateralised-debt obligations (CDOs) that have now gone sour.

On Wednesday Ambac announced a $3.5 billion writedown—as well as the ousting of its chief executive—$1.1 billion of which was related to CDOs. The insurers’ exposure to these and other exotic products is a huge multiple of their flimsy capital bases—and the chances of them having to cover claims has soared as the economy has slowed. Small wonder, then, that their share prices plummeted this week—proving that the market has already decided they no longer deserve such lofty ratings and creating a vicious downwards spiral. Ambac’s falling share price has severely dented it chances of raising fresh capital.

There are already signs that the insurers’ woes are contagious. On Thursday Merrill Lynch wrote down $3.1 billion on debt securities that it had hedged with ACA and other bond insurers. Other banks have also made writedowns to reflect their lack of confidence in ACA’s ability to meet its commitments. The full extent of the “counterparty risk” banks face in dealing with bond insurers is only now becoming apparent Jamie Dimon, the boss of JP Morgan Chase, has said that the fallout from the bond-insurer crisis could be “pretty terrible” for the debt markets. If a big insurer such as Ambac or MBIA were to take a tumble, that could look like an understatement.
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Advanced Member
Username: Saint

Post Number: 325
Registered: 5-2005

Posted on Saturday, January 19, 2008 - 10:35 am:   Edit PostPrint Post

Most people probably didn't have a clue about bond insurers. They probably didn't know they existed, they didn't know how they work or how it can affect other companies. This is why public message boards are good. This is what I'm talking about when I always say "harness the power of knowledge". All these things in the financial world fit together like a jigsaw puzzle and those that can "piece" the pieces together can do extremely well.

When investing you have to take in ALL of these kinds of things and you can have the ability to take action when you see it. Many investors were in denial when they thought the banking shares and financial companies couldn't go any lower. Many prominent magazines even in early December were saying to invest in banks and these financial companies. I disagreed with them for all the reasons I have cited over the past few months and now you can see why I kept harping the banks would go down further. I kept saying the banks did NOT know their true exposure and liability and only NOW are banking CEO's admitting this. I knew this back in the summer of 2007 that the liabilities were not being priced right. Go back and do the research on this site. I kept saying they were valuing their toxic portfolios in the "best case scenario" instead of a worst case scenario. This proved to be true. I do think they are getting more realistic but I still way there are more losses that will get declared in 2008. They need to get everything cleaned up, find out ALL their liability (including with all these bond insurers going under) and all the other potential liabilities.

When you read things like, "``We are shocked management withheld this information for as long as it did,'' Ken Zerbe, an analyst with Morgan Stanley in New York, wrote in a report yesterday. ``MBIA simply did not disclose arguably the riskiest parts of its CDO portfolio to investors.'' " It's a clear signal that problems are going to occur.

Take MBIA for example. Look at their historical price chart below:


Date Open High Low Close Volume Adj Close*
18-Jan-08 8.91 9.00 6.75 8.55 30,993,000 8.55
17-Jan-08 10.52 11.00 7.63 9.22 33,354,200 9.22
16-Jan-08 14.20 15.39 13.06 13.40 17,358,300 13.40
15-Jan-08 16.50 16.64 15.55 16.05 7,512,000 16.05
14-Jan-08 16.19 17.47 16.02 17.05 10,853,700 17.05
11-Jan-08 14.52 17.50 13.65 16.59 20,721,000 16.59
10-Jan-08 12.99 15.20 12.55 14.11 18,831,300 14.11
9-Jan-08 15.00 15.00 11.11 13.40 32,641,800 13.40
8-Jan-08 18.07 18.07 13.02 13.98 18,859,800 13.98
7-Jan-08 17.47 18.15 17.25 17.62 7,541,600 17.62
4-Jan-08 17.89 18.20 17.33 17.56 6,219,400 17.56
3-Jan-08 19.11 19.16 18.03 18.55 5,032,800 18.55
2-Jan-08 19.00 19.75 18.65 18.98 7,602,000 18.98
31-Dec-07 18.74 19.48 17.79 18.63 10,123,800 18.63
28-Dec-07 20.95 21.00 18.43 18.74 18,898,900 18.74
27-Dec-07 22.24 23.19 21.83 22.27 7,288,100 22.27
26-Dec-07 20.28 22.67 20.01 22.33 9,466,300 22.33
24-Dec-07 20.07 20.54 19.79 20.12 3,143,000 20.12
21-Dec-07 21.35 21.60 19.33 20.03 18,285,000 20.03
20-Dec-07 23.63 23.63 18.84 19.95 52,324,300 19.95
19-Dec-07 28.21 28.88 24.62 27.02 14,766,000 27.02

Look at banks like Citigroup. Many considered it a great deal in December and the stock price a bargain. Why? Only because their stock price got killed but they didn't look at all the liability. I'm not saying long-term (many years) it will turn around but my argument was why buy it in the 40's or 30's when you could have bought it in the 20's or possibly lower. It hit the $23's yesterday. You can't try to catch a falling knife.

Date Open High Low Close Volume Adj Close*
18-Jan-08 24.53 25.15 23.92 24.45 197,173,000 24.45
17-Jan-08 26.52 27.57 24.60 24.96 232,194,300 24.96
16-Jan-08 27.00 27.23 25.90 26.24 198,214,500 26.24
15-Jan-08 28.26 28.36 26.71 26.94 220,782,000 26.94
14-Jan-08 28.95 29.18 28.38 29.06 94,259,000 29.06
11-Jan-08 27.89 29.27 27.60 28.56 88,856,600 28.56
10-Jan-08 26.98 28.57 26.92 28.11 105,563,500 28.11
9-Jan-08 27.15 27.60 26.50 27.49 107,810,200 27.49
8-Jan-08 28.46 28.70 27.01 27.14 99,937,400 27.14
7-Jan-08 28.34 28.76 27.93 28.26 68,918,800 28.26
4-Jan-08 28.61 29.03 28.04 28.24 75,436,200 28.24
3-Jan-08 29.22 29.39 28.89 28.93 59,640,400 28.93
2-Jan-08 29.73 29.89 28.85 28.92 62,121,900 28.92
31-Dec-07 29.14 29.69 28.80 29.44 65,420,200 29.44
28-Dec-07 29.78 29.84 29.03 29.29 57,436,900 29.29
27-Dec-07 29.72 30.06 29.48 29.56 61,508,000 29.56
26-Dec-07 30.80 30.95 30.26 30.45 38,832,000 30.45
24-Dec-07 30.31 31.14 30.30 30.98 31,724,700 30.98
21-Dec-07 30.31 30.52 29.99 30.24 85,591,100 30.24
20-Dec-07 30.45 30.45 29.34 29.89 92,499,200 29.89
19-Dec-07 30.52 31.11 30.06 30.21 75,282,900 30.21
18-Dec-07 31.22 31.38 29.92 30.38 81,565,500 30.38
17-Dec-07 30.18 31.32 30.11 30.77 86,807,100 30.77
14-Dec-07 30.64 32.05 30.27 30.70 105,415,700 30.70
13-Dec-07 31.10 31.32 30.27 31.01 95,432,200 31.01
12-Dec-07 33.93 34.10 30.60 31.47 177,868,800 31.47
11-Dec-07 34.89 35.29 33.13 33.23 85,651,400 33.23
10-Dec-07 34.44 35.23 34.35 34.77 57,298,100 34.77
19-Jul-07 51.60 52.13 50.83 51.13 28,985,000 49.89
18-Jul-07 51.93 52.40 50.69 51.60 36,453,000 50.35
17-Jul-07 52.30 52.93 52.13 52.46 23,321,800 51.19
16-Jul-07 52.67 52.97 52.08 52.19 19,092,300 50.92
13-Jul-07 52.55 52.88 52.28 52.52 20,353,100 51.25

Pretty much all the banks follow that same pattern. Look at another example - Washington Mutual.


Date Open High Low Close Volume Adj Close*
18-Jan-08 12.75 13.83 12.32 13.55 67,582,800 13.55
17-Jan-08 13.42 13.72 12.34 12.46 47,194,100 12.46
16-Jan-08 13.38 13.90 13.11 13.39 30,187,100 13.39
15-Jan-08 13.54 14.13 13.01 13.59 35,374,700 13.59
14-Jan-08 14.91 14.91 13.82 14.32 26,423,600 14.32
11-Jan-08 15.06 15.27 14.15 14.69 87,059,400 14.69
10-Jan-08 11.75 14.92 11.37 14.16 84,837,500 14.16
9-Jan-08 12.55 12.69 10.73 12.34 76,170,600 12.34
8-Jan-08 13.53 13.80 12.69 12.74 37,087,400 12.74
7-Jan-08 13.26 13.74 12.82 13.44 29,154,400 13.44
4-Jan-08 13.49 13.50 12.81 13.07 31,069,900 13.07
3-Jan-08 13.99 14.00 13.41 13.73 24,111,400 13.73
2-Jan-08 13.79 14.37 13.61 13.72 32,416,800 13.72
31-Dec-07 13.03 14.00 12.81 13.61 29,474,400 13.61
28-Dec-07 13.58 13.69 13.05 13.07 22,243,400 13.07
27-Dec-07 13.77 14.00 13.50 13.54 28,567,900 13.54
26-Dec-07 13.93 14.00 13.67 13.98 15,665,500 13.98
24-Dec-07 14.16 14.40 13.91 14.00 11,272,700 14.00
21-Dec-07 14.87 14.90 13.76 14.10 39,535,300 14.10
20-Dec-07 14.64 14.78 13.99 14.67 35,214,100 14.67
19-Dec-07 14.68 15.00 14.28 14.42 33,569,200 14.42
18-Dec-07 15.25 15.27 14.05 14.67 35,346,400 14.67
17-Dec-07 15.11 15.76 14.86 14.92 35,279,500 14.92
14-Dec-07 15.41 16.20 15.08 15.15 50,123,000 15.15
13-Dec-07 15.23 15.73 14.80 15.59 88,261,500 15.59
12-Dec-07 18.01 18.16 15.73 16.06 113,276,800 16.06
11-Dec-07 18.25 19.00 17.10 17.42 152,776,900 17.42
10-Dec-07 19.12 20.47 19.00 19.88 28,672,500 19.88
7-Dec-07 19.45 19.99 18.87 19.03 21,779,800 19.03
6-Dec-07 18.82 19.28 18.25 19.13 27,737,100 19.13
5-Dec-07 18.79 19.39 18.06 18.59 22,159,600 18.59
4-Dec-07 19.45 19.45 18.29 18.47 20,465,300 18.47
3-Dec-07 19.90 20.00 19.05 19.62 25,389,900 19.62
30-Nov-07 20.00 21.03 18.91 19.50 37,426,900 19.50
29-Nov-07 18.10 18.12 17.39 18.01 22,438,100 18.01
28-Nov-07 17.42 18.47 17.41 18.31 25,007,100 18.31
27-Nov-07 17.20 17.65 16.90 17.20 43,718,600 17.20
26-Nov-07 18.22 18.40 16.75 16.81 21,404,800 16.81
23-Nov-07 17.79 18.54 17.50 18.21 11,200,000 18.21
21-Nov-07 17.50 17.92 17.04 17.34 23,448,200 17.34
20-Nov-07 18.00 18.92 17.30 17.99 34,631,400 17.99
19-Nov-07 19.85 19.88 18.25 18.49 29,404,500 18.49
16-Nov-07 20.61 20.61 19.56 19.94 18,434,700 19.94
15-Nov-07 20.98 21.22 20.15 20.43 23,154,400 20.43
14-Nov-07 22.59 23.24 21.20 21.37 23,565,700 21.37
13-Nov-07 21.22 22.09 20.73 21.95 20,952,000 21.95
12-Nov-07 20.50 21.46 20.46 20.77 18,232,700 20.77
9-Nov-07 18.67 21.42 18.48 20.51 40,982,200 20.51
8-Nov-07 20.14 20.41 18.38 19.39 55,594,600 19.39
7-Nov-07 23.46 23.46 19.72 20.04 68,601,700 20.04
6-Nov-07 23.13 24.57 23.13 24.23 27,442,100 24.23
5-Nov-07 23.56 24.54 22.76 23.18 27,959,000 23.18
2-Nov-07 25.48 25.70 23.59 23.81 31,041,900 23.81
1-Nov-07 27.24 27.36 25.44 25.75 33,177,700 25.75
31-Oct-07 28.39 28.67 27.75 27.88 20,345,300 27.88
30-Oct-07 27.85 28.20 27.70 28.11 11,373,500 28.11
29-Oct-07 28.40 28.47 27.71 28.02 12,342,400 28.02
29-Oct-07 $ 0.56 Dividend
26-Oct-07 29.56 29.69 27.74 28.58 24,770,600 28.02
25-Oct-07 29.39 29.39 27.00 27.30 23,366,700 26.77
24-Oct-07 28.75 29.48 27.99 29.02 20,373,400 28.45
23-Oct-07 29.60 29.68 28.48 28.97 16,639,400 28.40
22-Oct-07 28.53 29.70 28.53 29.25 17,320,600 28.68
19-Oct-07 30.45 30.50 28.42 29.09 31,543,300 28.52
18-Oct-07 30.75 31.40 30.00 30.52 36,473,000 29.92
17-Oct-07 33.52 33.75 32.36 33.07 16,412,300 32.42
16-Oct-07 34.00 34.07 33.05 33.20 12,686,900 32.55

Good luck all.
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Advanced Member
Username: Saint

Post Number: 326
Registered: 5-2005

Posted on Monday, January 21, 2008 - 12:23 pm:   Edit PostPrint Post

World stocks routed on economy fears

World stocks routed on economic fears

January 21, 2008

World stocks nosedived and demand for safe-haven bonds and currencies soared on Monday as fears gripped investors that a deteriorating U.S. economy would drag others down with it.
MSCI's main world stock index (.MIWD00000PUS), a benchmark gauge of stock markets globally, sank 2.6 percent, falling below its 2007 bottom to lows last seen in December 2006.

Its emerging market equities counterpart (.MSICEF) lost more than 5 percent. Meanwhile, the spread between emerging market bond yields and U.S. Treasury yields, a key gauge of risk appetite, was just off its widest in two years.

"A mixture of weak global economic data, poor corporate data, increasing fears about the possibility of a recession ... have left investors drowning in a sea of red," said Henk Potts, equity strategist at Barclays Stockbrokers.

The pan-European FTSEurofirst 300 (.FTEU3) was down 4.2 percent, taking its 2008 year-to-date losses to more than 13 percent.

Japan's benchmark Nikkei average (.N225) earlier lost 3.86 percent to close at a two-year low and MSCI's main emerging market stocks benchmark (.MSCIEF) was down 3.9 percent.
"Risk aversion is widespread as the market thinks (the economic downturn) is not just a U.S. centric story," said Paul Robson, currency strategist at RBS Global Banking.

U.S. stock markets were closed on Monday for a holiday, but U.S. stock index futures were down sharply suggesting investors were not putting much hope on Wall Street leading a rebound when it returns to business.

Investors in Asia and Europe were carrying through from last week's concern on Wall Street that a fiscal stimulus proposed by President George W. Bush would not be enough to stop the U.S. economy from falling into recession.
Bush called for a package worth up to $150 billion in tax cuts and other measures.

Stock markets have been in full retreat this year over the economic fears. The broad U.S. S&P index (.SPX) had its biggest weekly fall since July 2002 last week.
Many indexes are now more than 20 percent below their recent cycle peaks, a traditional sign that what is going on is not just a correction but the start of a bear market.
"It's becoming more and more difficult as the market is now in panic," said Hugues Rialan of fund manager Robeco.


Such falls on equity markets sometimes signal to large investors that it is time to buy. But leading investment bank Morgan Stanley said on Monday that was not the case now, at least as far as Europe was concerned.

"We are not compelled to buy yet despite bearish sentiment," its European equity strategy team said in a note. "We continue to prefer cash over equities."

Recent polls show institutional investors with large cash holdings, a sign of deep concern about the future direction of assets.

The global equity market rout, meanwhile, promoted currency investors to liquidate risky positions, lifting the low-yielding Japanese yen while the dollar gained on the view no country will escape the economic downturn.
The yen rose to a 2-1/2 year high against the dollar before coming back a bit and high-yielding currencies in general sold off.

The dollar was around 0.6 percent weaker against the yen at 106.08 yen. The euro was around 1.5 percent weaker against the yen, below 154 yen for the first time since late August.
The euro was also 0.9 percent down on the day against the dollar at $1.4483, slipping below $1.45 for the first time in a month.

Demand rose for safe-haven government bonds.

The interest rate-sensitive two-year Schatz yield was at 3.355 percent, sinking 10.5 basis points. It is down around 65 basis points so far in January, well on track for its biggest monthly decline in over 10 years, according to Reuters charts.
The 10-year Bund yielded 3.916 percent, down 6.2 basis points.

(Message edited by admin on January 21, 2008)
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Advanced Member
Username: Saint

Post Number: 327
Registered: 5-2005

Posted on Monday, January 21, 2008 - 4:41 pm:   Edit PostPrint Post

It will be interesting to see how the markets do tomorrow (Tuesday, January 22, 2008).

For those watching the Dow Jones industrial average Futures today it was down about 546 points or 4.5%. If it closes tomorrow by the same margin it will be the 4th worst drop in the history of the exchange.

This is why back in September 20, 2007 I recommended to reduce exposure to the Dow. (Read the Preparing for the Next Crises section on this website). I said the Dow was over valued and going to fall.

It should be an ugly day tomorrow. It's clear the markets around the world are very nervous by everything going on. This was the type of thing I imagined would happen. Like I said before in the past. "Unprecedented" things will happen with the markets that no one ever imagined would happen.

This is already the case with the USA real estate market. I think some surprising things will happen with the banking system in the future as well. Read this message board pretty carefully and you will see a few of us have predicted all these events that are unfolding now.

Good luck to all.
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 30
Registered: 12-2007
Posted on Monday, January 21, 2008 - 7:26 pm:   Edit PostPrint Post

I must say, watching today's Asian and European markets slide as much as they did was truly scary. I think tomorrow will be another tense day. I think that through this board and another board I frequent, I have learned quiet a lot. My first awareness of SIV came from reading here and later researching it. Also, from ApartmentsBA I recently learned about bond insuranrers (MBIA, Ambac)....I'm you can say in my infancy in learning about the markets. My husband has 401K and we both have also seperate IRA. But I'm not one to invest big in something that I have little knowledge about. But watching this unfold is such a lesson worthy of watching and learning from. My biggest interest is getting into another larger home to raise my kids(when the price is right), and keeping my starter home as an investment property since I am so happy to say that it is almost payed for. My biggest concern beyond this is that my mother holds alot of assets that she has entrusted to me(Revocable living trust) should the time come that she is incapacitated or dies. I want to learn as much as possible to make sure to preserve what took her and my father a lifetime to make.
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Advanced Member
Username: Saint

Post Number: 328
Registered: 5-2005

Posted on Monday, January 21, 2008 - 7:39 pm:   Edit PostPrint Post


Yes, these VERY big downward swings should be a wake up call for investors around the world. Like I have always said for YEARS, always read the "writing on the wall" as it can help you make a fortune or in some people's cases PRESERVE your fortunes.

In the past people have said things like, "you were lucky" or you had "good luck with the timing". And I always dismiss it. Luck had NOTHING to do with it. It's all about reading the writing on the wall AHEAD of time and taking action. Nothing less and nothing more.

The best thing about investments and the financial world is it's never too late to learn and the other thing is you NEVER stop learning. You have to start somewhere. I get many emails from investors saying they never really thought about some of the things that I've posted about. That makes me feel good as I truly believe you control your own destiny financially. You can NOT blame someone else. You only have yourself at the end of the day to blame or credit.

Remember in investing it's VERY rare to make your fortune "overnight" but it's not so rare to hear of people losing their fortunes "overnight". Those that live in Argentina or originally from Argentina know how volatile it is in this country and many fortunes were lost. There was a time when many people never thought anything like that could happen in their "backyard" of the USA but you will see in the future fortunes WILL be lost "overnight" and IMHO, the process has already started. The "house of cards" has finally folded. Banks that were giving out money to people that shouldn't have been given loans are paying for it. You should continue to see this house of cards continue to topple over 2008.


Here are some more interesting articles. You can see if the bond insurance companies start going under there will be more massive write downs.

Read the article VERY carefully. Like I said before. All of these things in the financial world fit together like a jigsaw puzzle. One affects the other. Now, you can see why the really intelligent smart money warned and advised before-- the final tab on all these write downs is probably around u$s 400 BILLION. Even our own USA government now is using terms like "it shouldn't exceed u$s 500 BILLION".

Remember the municipal bond market is a u$s 2.5 TRILLION market. These bond insurers have an agreement to pay the principal balance and interest payments when they are due and they are supposed to pay them on-time. This essentially gives municipalities and other entities that don't have AAA ratings an "artificial" boost to their credit rating. Without these better ratings their businesses would be much more difficult to control. Some business models wouldn't even function without these boosts to their ratings.

So, when these bond insurers are downgraded, ALL the securities it's guaranteed are basically "downgraded" as well.

Here is a good article that gives you the implications and exact numbers:

Some interesting parts of it are below:

"If Ambac and MBIA lose their top ratings, billions of dollars of muni bonds will be downgraded, and the guarantees that have been sold on mortgage-related securities such as collateralized debt obligations, or CDOs, will lose value.

Bond insurers guarantee roughly $1.4 trillion worth of muni bonds and more than $600 billion of structured finance securities, such as mortgage-backed securities and CDOs, according to Standard & Poor's. Ambac alone has guaranteed about $67 billion of CDOs. "

"The destruction of the bond insurers would likely bring write-downs at major banks and financial institutions that would put current write-downs to shame," Tamara Kravec, an analyst at Banc of America Securities, wrote in a note Friday. "


And Remember it's not just the USA banks and financial institutions. Banks all over the world are taking massive BILLION or multi-BILLION dollar write downs/losses.


From MarketWatch, online at: ankers-comments-helped/story.aspx?guid=%7BD39EF3A7 %2D0DEB%2D489A%2DA56F%2D3676BCF20B1C%7D


Jan 21, 2008

LONDON (MarketWatch) -- A story with a headline "French regulator sees 'partial decoupling' of U.S. and E.U. economies" doesn't sound like the kind to derail stocks from Mumbai to Paris.

Particularly when the losses came Monday, for an article published Friday in the International Herald Tribune, a paper best known for re-printing articles from its parent, The New York Times, in newsstands around Europe.

Understandably, the story was slow to get around. But sitting in paragraph nine, there were comments that amount to a profit warning for banks in France as well as those around the world.

"I'm reasonably confident that French banks will weather this turmoil without major trouble even though they are clearly, like all banks, in the world still in the process of marking down assets," said Christian Noyer, governor of the Bank of France and a member of the European Central Bank's governing council,

Noyer's comments about "marking down assets" were enough to hit banks like Societe Generale , which saw drops of around 8% on Friday and lost another 7% on Monday.

The comments from Noyer had a particular impact because the first version of the story - which no longer appear in the online edition -- said he was assessing balance sheets of SocGen and BNP Paribas .

The current story on the IHT's Web site doesn't mention any bank in particular.

No matter.

Societe Generale has lost about 6 billion euros ($8.8 billion) in market value since Thursday, with BNP Paribas and Credit Agricole also nursing heavy drops.

Stocks in Europe sold off heavily on Monday, with the CAC-40 index dropping around 5% in Paris. See Europe markets.

Asian stocks were battered even more, as the BSE-30 lost over 7% in Mumbai, and the Hang Seng dropped over 5% in Hong Kong. See Asia markets.

Investors flocked to the Japanese yen, which surged over 2% against the euro and was up about 1% against the dollar.

For sure, the Noyer comments weren't made in isolation.

Concerns mounted about the credit ratings of bond insurers, which may trigger turmoil in the $2.5 trillion municipal bond market. Read related story.

The Bank of China may write down about $8 billion, according to a report in the South China Morning Post.

And WestLB, the German bank, said it would lose about $1.5 billion this year and may make a write-down for another $1.5 billion.

____________________ s-pointing-sharp-losses/story.aspx?guid=%7B9A89479 0-5D69-48C6-8303-18EE41CA5D1C%7D


Jan 21, 2008

LONDON (MarketWatch) -- If futures contracts traded on a day when U.S. stocks weren't even due to open are anything near accurate, then markets will be in for a major decline on Tuesday, with concerns about bond insurers and the health of financial institutions dragging markets lower.

The Dow Jones Industrial Average futures contract was recently off 520 points at 11,586, the Nasdaq futures were at 1773.25, down 76.25, and the Standard &amp; Poor's 500 futures recently were at 1265, down 60.3.

Futures contract don't move in complete lockstep to the underlying indexes, but by comparison, the Dow industrials fell 382 points on Sept. 20, 2001, just days after the terrorist attack on the Twin Towers, and by 387 points on Aug. 9, 2007, shortly after the recent credit crunch first emerged.

U.S. markets were closed Monday for the Martin Luther King holiday. Trading resumes Tuesday.

The futures declines come on the back of big drops in European and Asian stock markets.

>From developing markets like Shanghai -- down over 5% -- to established
>ones in
Paris -- down nearly 7% -- financial institutions around the world sold off. See Europe markets. Canada and Latin America also took hits in trading on Monday.

Karen Olney, a strategist at Merrill Lynch in London, said investors simply don't trust earnings forecasts any longer.

Monday's decline means that European stocks are trading at price-to-earnings levels about 27% below their long-run average, she said, having dropped to 11.4 times trailing earnings.

"That means the markets are pricing in 80% of the fall to recession-like earnings,"
she said, using 1990s as a comparison.

Stocks in Europe are trading over 20% below 2007 highs, which meets technical definitions of a move into a bear market.

Stay in cash, Morgan Stanley says

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

Strategists at Morgan Stanley told clients on Monday to stay in cash.

"Our themes continue to be: patience, earnings recession, U.S. recession spreading global, bear market regime, don't be lured into value stocks as most are likely to be value traps, much more monetary easing. We expect flat but volatile markets just as in the 1989-92 period -- a real whipsaw environment for the market," they said.

Much of the fear stems from worries about potential ratings cuts for bond insurers, such as Ambac Financial and MBIA , AAA ratings are on thin ice.

Fitch Ratings on Friday downgraded Ambac to AA from AAA after the bond insurer abandoned its plan to sell $1 billion in equity.

When a bond insurer is downgraded, all the securities it has guaranteed are, in theory, downgraded as well -- putting some $1.4 trillion of municipal bond securities at risk and more than $600 billion of structured finance securities at risk.

"These are things we have never dealt with before. We have never had the volume in credit-default swaps

The fears were lent some support when the head of France's central bank, Christian Noyer, said that French banks "clearly, like all banks, in the world still (are) in the process of marking down assets." See related story.

In Asia, markets feared an $8 billion write off from the Bank of China , one of China's big four financial institutions. See Asia markets.

The rescue plan presented by President Bush last week in a bid to help the U.S.
avoid recession also wasn't well-received by markets.

"Ambivalence over Bush's rescue plan for the U.S. economy was the trigger of this rout," said Martin Slaney, head of derivatives at GFT Global Markets.

The Japanese yen surged against rivals -- up about 2% against the euro and 1% against the U.S. dollar -- with investors trimming risk by buying back the low-yielding currency. See currencies.

WestLB of Germany added to concerns by saying it would lose about $1.5 billion this year and take a write-off of similar size.

"Market sentiment is really sour," said Gerhard Schwarz, a strategist at UniCredit Markets. "There's been more bad news from the financial sector on top of continued recession fears," he said, speaking of Monday's equity market action.
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Advanced Member
Username: Saint

Post Number: 329
Registered: 5-2005

Posted on Tuesday, January 22, 2008 - 7:08 am:   Edit PostPrint Post

Remember what I posted about the SWF's (Sovereign Wealth Funds) buying up all our banks and politicians initially welcoming the investment. Remember how I wrote that soon you would have a backlash and people "ordering investigations". Read below. These SAME politicians that before were saying it was great now that they realize Americans are against the idea they are backing off their initial stances. This is why I don't trust politicians from ANY country.

Throughout a crises they say something one month then a few months later they completely back track. In all reality, inside they are probably dying to say how bad the situation really is and say things like, "Look don't you people get it??! Don't you realize what a terrible situation we are in?! Our largest banks and financial institutions are in trouble. They lost more in 4 months than they have made in 4 years. Their cash pile is low, things are in turmoil and really these foreigners are the only ones that will help us out. We should be thankful to these countries that they are "bailing" us out. This is an embarrasing enough situation. Yes, they might have a long-term agenda that might not be in the USA's best interest but there is nothing we can do now. Please understand the position we are in!"

Of course we all know we will never hear those kinds of things as politicians don't want to cause bank runs. Remember what I posted before. Do NOT keep ANY of your savings in a bank that is not FDIC insured and do NOT keep more than $100,000 in more than one bank.

Americans lose faith in Citi and Merrill

The Financial Times o012220080034541390&page=1

Tuesday Jan 22 2008

Citigroup (NYSE:C) and Merrill Lynch's standing among US citizens has plummeted as a result of multi-billion dollar capital injections by sovereign wealth funds, according to new research that highlights simmering public opposition to investments by foreign governments.

Over half of the 1,000 people polled by the market research group Strategy One said they "trusted Citigroup less" after its recent decision to tap Middle Eastern sovereign funds to ease its financial constraints.

In Merrill's case, 45 per cent of the respondents said their trust in the bank had fallen since hearing of investments from foreign state funds, according to the research to be published on Tuesday.

The negative public response to cash injections that helped Citigroup, Merrill Lynch and other Wall Street banks to cushion the blow of the credit squeeze underlines growing fears over the role of sovereign wealth funds.

After initially welcoming the capital infusions, politicians such as Senator Hillary Clinton and Chuck Schumer, the influential New York senator, have begun voicing concerns over the role and transparency of foreign state-controlled entities.
Mrs Clinton, a Democratic presidential frontrunner, told a debate in Nevada last week: "I am very concerned about this.
"We've got to know more about them, they've got to be more transparent.''

The new research - carried out early this month between the two waves of foreign investments in Citigroup and Merrill - also points to an underlying current of protectionism within the US public, which could be exacerbated by the rising threat of a recession.

"The Citigroup figure is staggering," said Laurence Evans, president of Strategy One, which is owned by the public relations group Edelman.

"There is a xenophobic element to it. The biggest concern is uncertainty: people don't know how much influence sovereign wealth funds will have."

Citigroup raised more than $20bn from investors including the Abu Dhabi Investment Authority and the Government of Singapore Investment Corporation.
Merrill Lynch received more than $12bn from investors such as Singapore's Temasek and the Kuwait Investment Authority. Both banks declined to comment.

However, they have both stressed that the new investors have bought minority stakes and will not get any board seats or management role.

Nevertheless, only 4 per cent of Americans polled by Strategy One said they trusted Citigroup or Merrill more after the investments, with about one in four saying the sovereign funds' presence had not changed their perception of the two companies.

Mr Evans said Citigroup appeared to be more closely associated with the troubles stemming from the liquidity crunch than Merrill, probably because of its large retail banking presence.
When asked whether they had heard of Citigroup in relation to subprime or mortgage lending difficulties, 41 per cent of respondent said yes, compared with 37 per cent for Merrill.
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Advanced Member
Username: Saint

Post Number: 330
Registered: 5-2005

Posted on Tuesday, January 22, 2008 - 7:37 am:   Edit PostPrint Post

Look at the types of things that are going around the world now. Look this morning in India. The stock market went down 10% in the first few minutes! They had to halt trading. They also halted the stock exchange in Korea.

-Indian stocks fall 11.5 pct, trading halted for 1 hr

Tue Jan 22 04:59:40

MUMBAI, Jan 22 (Reuters) - Indian shares <.bsesn> fell more than 11 percent in the first few minutes of trade on Tuesday as panic-stricken investors dumped stocks, setting off circuit breakers that automatically halted trade for an hour.

The Bombay Stock Exchange said trading would resume at 10:57 (0527 GMT). Trading was also briefly halted on Monday afternoon when the market had fallen almost 11 percent.

"This is forced selling and it will have a cascading effect," said Ambareesh Baliga, vice-president at Karvy Stock Broking Ltd.

"We are in a good correction mode right now, but still this should be turned into an opportunity to buy stocks by those who are still sitting on cash," he said.

At the halt, BSE 30-share index <.bsesn> was down 11.53 percent down at 15,576.30 points, its lowest since Sept. 18.
Shares in largest listed firm Reliance Industries Ltd <> and top infrastructure play Larsen & Toubro <> led the fall.

The index, which had fallen for the past six sessions before Tuesday, is now 26.6 percent below a record high of 21,206.77 hit on Jan 10.

The 50-share NSE index <.nsei> plunged 12.10 percent to 4,578.35, also triggering a trading halt.
Local brokerage India Infoline advised clients to "stay away from the market for some time".

Stocks tumbled across Asia as panic gripped markets that a U.S recession could derail global growth, sending investors fleeing to safe-haven government bonds.
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Board Administrator
Username: Admin

Post Number: 1459
Registered: 12-2004
Posted on Tuesday, January 22, 2008 - 8:06 am:   Edit PostPrint Post

I think there could be a hidden ace in all this: repatriation of capital by americans. As for Argentina, there could be both a negative impact to exports (and other industries) as well as a taming of inflation. Difficult to assess...
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Advanced Member
Username: Saint

Post Number: 331
Registered: 5-2005

Posted on Tuesday, January 22, 2008 - 8:16 am:   Edit PostPrint Post

Hi Roberto,

Not sure how it will all play out. I did know the Dow was overvalued back in September 2007. Then I watched the perfect storm brew in the financial markets with the toxic waste in the CDO and SIV (which is still playing out today).

As this article below points out. Fear is rational in today's environment when you consider everything going on. I always knew more banks around the world were going to start posting BILLION dollar losses. Many said they had no exposure to sub-prime or CDO/SIV. The problem is that it's so complex that many banks didn't even know the losses (or potential losses) on their books.

Someone on your board once posted never to bet against the professional bankers and compared it to fighting a professional boxer. I don't look at it that way at all. I always knew these so called "professional boxers" didn't really know what they were doing. I look at it more like a professional boxer that might be strong, smart and has skills but then he gets lazy and starts to eat junk food, gain weight, slow down. He starts doing drugs and drinking everyday and just not using common sense. Then one day he has to fight and he is in no condition to "fight". That is what our professional bankers could be compared to. I'd "step into the ring" with any of them and go head to head.

The fact is most bankers and banks in general were too greedy, they went along with the crowd, they didn't really keep the future in mind, blindly giving money away, buying horrible companies or other banks that were bleeding money or had the potential to bleed money.

Now, we will see banks around the world admit their liability and losses to the CDO/SIV's. Let's see what happens if some of these bond insurers go under. rational-markets/story.aspx?guid=%7B062105C0%2D2E1 E%2D4234%2D9160%2D3D74E77A078C%7D&siteid=yhoof


7:28 AM ET Jan 22, 2008

LONDON (MarketWatch) -- Exuberance may be irrational, but fear is a perfectly sane response to the current state of global markets.

American investors found themselves trapped on the sidelines by a three-day holiday weekday Monday as the rest of the world decided it's finally time to throw in the towel and "Sell!"

So Tuesday's delayed U.S. response to the global stock slides promises to be dramatic as futures pointed to a 500 point drop in the Dow industrials . See related story.

Global investors have apparently reached a consensus that they can't count on:

The U.S. consumer to keep buying

The U.S. government to come up with a "stimulus" program that will do anything

The U.S. bond insurance industry

In addition, at least part of Monday's problems stemmed from investors' belated realization that financial institutions outside the U.S. haven't completely disclosed their exposure to the credit crisis, or taken steps to contain it.

In Europe the slow drip of bad news included revelations over the weekend of problems among French banks, the disclosure that Germany's troubled WestLB bank may have to write down another 1 billion euros ($1.45 billion), and the continuing faltering efforts of the UK government to find someone to salvage Northern Rock bank so it doesn't wind up being nationalized.

In effect, financial problems that were once supposedly confined to the sub-prime mortgage market in the U.S., have relentlessly metastasized throughout the global financial system.

The horrendous write-downs taken by U.S. financial firms in the fourth quarter might actually help, but curing the disease is now beyond the control of the U.S. alone, especially with the world's largest economy teetering on the edge of a recession.

Still, as U.S. banks and financial institutions have found in recent week, there's plenty of capital available in the a price.

So however bad Tuesday turns out to be, there will come a time when bargain seekers can't resist. When and where is, of course, the $64 billion question of the moment.
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 32
Registered: 12-2007
Posted on Tuesday, January 22, 2008 - 8:57 am:   Edit PostPrint Post

Hi everyone...just woke up to see the Fed slashing the rate three quarter of a percentage point, and do recall that they were set to meet for a rate cut on Jan. 29. I don't want to seem like a doomdayer, but things look very dire out there. I sat here on my computer till 2 in the morning and watching the stock market channel(channel 357 for those with directtv) was surreal to see this. As for how this can affect ARgentina, I don't know..but this I do know, if it does, it won't affect the Argentine psyche so much as we have been through hyperinflation and know how "to make do"....but here in the states where people are accustom to "smooth sailing" and having what they want when they want it, it could be nasty to see them lose life as "it was".
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Advanced Member
Username: Saint

Post Number: 332
Registered: 5-2005

Posted on Tuesday, January 22, 2008 - 9:08 am:   Edit PostPrint Post


Yes. This is the biggest rate cut since the 1980's! This tells you how desperate the situation is. Yes, it's an "emergency". There are 43 international stock exchange benchmarks around the world that are in "bear territory" now.

The scarey thing is that the emergency 75 basis point cut didn't really affect the futures at all. They are still down bigtime. Really, there is no reason to buy now. It's better to let things unwind and see how things go.

Obviously the world over will feel the pain of the USA market but the situation in the USA is worst than most countries.

You are absolutely right Gloria. Here in Argentina it's not really affecting the psyche of the locals. In fact, many can't believe that Americans could dig themselves in such a hole. To many it's just unbelievable but Argentines have been through far worse. I have a feeling that here in the future you will see people all over the world shaking their heads in disbelief how the most powerful country in the world could get themselves in such a bad situation. The scarey thing is it can get much much much worse. The USA debt levels are unsustainable and countries like China if they wanted could cause misery for the USA.
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 33
Registered: 12-2007
Posted on Tuesday, January 22, 2008 - 9:44 am:   Edit PostPrint Post

Apartmentsba, I want with every fiber of my being to say that this could never befall "the greatest country in the world". I mean, as a simple person that I am, common sense said to me for years now, "how will people pay for inflated mortgages, maxed out credit card debts, second homes bought with equity from first home, car loans, etc?"...the world is expecting us to somehow keep spending, but the reality is there is no magic money coming out of any magicians hat anymore.
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Board Administrator
Username: Admin

Post Number: 1460
Registered: 12-2004
Posted on Tuesday, January 22, 2008 - 11:47 am:   Edit PostPrint Post

Thank you, Mike.

Somewhere -I've heard- there is a magician called Bernanke that can instantly materialize money out of thin air. I think the problem will be that we will need lots and lots more to buy the same goods.
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 34
Registered: 12-2007
Posted on Tuesday, January 22, 2008 - 1:40 pm:   Edit PostPrint Post

Roberto...there was another magician by the name of Greenspan that tried this magic trick already....remember?...he cut and cut and cut until we had ourselves a rediculously overpriced housing market. In between all this cutting, he would come out and state..."there is froth in the real estate market"....yet he didn't use his magic wand to end this "bubble". Now he comes out and states..."I didn't see it getting this out of hand". Sure Bernanke can cut, but will it help now?...and if it does, are we not just postponing the inevitable? I don't know enough about economic trends, all I can say is that common sense dictates that you should not spend more then what you bring in.
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Advanced Member
Username: Saint

Post Number: 334
Registered: 5-2005

Posted on Tuesday, January 22, 2008 - 1:55 pm:   Edit PostPrint Post

You both are ABOLUTELY correct. These so called "magicians" can only do so much. People called Greenspan a "genius" back in the day but he wasn't one. He was a fool. If he couldn't see that his actions of pushing those cheap loans and ARM's wouldn't have consequences and people don't realize it than they are bigger fools than I thought.

He and the other so called "experts" can share blame for what happened in the real estate market. They also could have given more oversight with those risky loans. I saw this coming and so did others.

These types of "emergency actions" are temporary fixes that prevent natural corrections. You sometimes need disasters to "cleanse" the system. Just like in the real estate fiasco....the government needs to simply let things work out on their own. In many, many cases this interference won't matter. I've said it many times. A family that bought a $300,000 house that can only really afford a $150,000 house at the end of the day can't afford it no matter what the interest rate is.

Gloria is absolutely right. Just like an individual, a country can't consistently keep spending money they don't have. Those types of actions have consequences. All those examples you listed Gloria is what I've been saying for years. You can't just keep spending and spending unless you are making money.

I'm looking forward to seeing the "magicians" pull "rabbits out of their hats".
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Advanced Member
Username: Saint

Post Number: 335
Registered: 5-2005

Posted on Tuesday, January 22, 2008 - 3:30 pm:   Edit PostPrint Post

Ambac Reports Loss, Talks With `Potential Parties' d=aUGdAZG.H3mQ&refer=home

Jan. 22 (Bloomberg) -- Ambac Financial Group Inc., the first bond insurer to lose its AAA credit rating because of subprime mortgages, is considering ``strategic alternatives'' after posting its biggest-ever loss. The shares jumped as much as 52 percent on optimism the company may be sold.

The second-largest bond insurer posted a fourth-quarter net loss of $3.26 billion, or $31.85 a share, after writing down the value of credit-derivatives tied to loans made to homeowners with poor credit by $5.21 billion, according to a statement by the company today.

New York-based Ambac, which replaced its chief executive officer and scrapped a $1 billion equity sale last week after the shares dropped 71 percent, said stockholders and ratings companies are ``underestimating'' its ability to weather a decline in the value of mortgage securities. Fitch Ratings cut Ambac to AA from AAA, casting doubt on the company's guarantees on $556 billion of municipal and structured finance debt.

``They can't issue equity and they can't issue debt,'' said Robert Haines, an analyst at bond research firm CreditSights Inc. in New York. ``The new CEO might be prepping the company for a potential sale.''

Michael Callen, who became interim CEO after Robert Genader left last week, said in a statement today that Ambac is ``exploring the attractiveness'' of various alternatives. He wasn't more specific.

Hobbled by Expansion

Ambac shares rose $2.02 to $8.22 at 11:56 a.m. in New York Stock Exchange composite trading after earlier reaching $9.41. The stock has tumbled 93 percent in the past year, shaving $8.8 billion from the company's market capitalization. MBIA Inc., the largest bond guarantor, rose $2.82, or 33 percent, to $11.37.

The AAA rated bond insurers place their stamp on $2.4 trillion of debt. Losing those rankings may cost borrowers and investors as much as $200 billion, according to data compiled by Bloomberg. The industry guaranteed $127 billion of collateralized debt obligations linked to subprime mortgages that have plunged in value as defaults by borrowers with poor credit soar to records.

Ambac, which pioneered municipal bond insurance in 1971, has been hobbled by its expansion into CDOs, which package pools of debt and slice them into pieces with varying ratings. The CDO declines forced Ambac and others to reduce the value of contracts designed to protect CDO holders from default. Ambac said most of the writedowns aren't necessarily permanent losses and it hasn't paid any claims on its CDO portfolio.

Dividend Cut

Ambac on Jan. 16 slashed its dividend 67 percent and said it would sell stock or equity-linked notes to bolster its capital, in part to meet Fitch's demand to raise $1 billion by the end of January. Two days later it scrapped the share sale.

The plan provoked a boardroom dispute that led to the departure of Genader, who disagreed with the capital raising, according to the company's regulatory filings.

The fourth-quarter loss took the 2007 deficit to $3.23 billion, the company's first ever annual loss. Ambac on Jan. 16 forecast a fourth-quarter net loss of about $32.83 a share. The company reported an operating loss, excluding writedowns on contracts to guarantee subprime securities, of $6.21 per share.

Before 2007, Ambac had reported profit increases every year for the past decade.

``In retrospect, insurers wish they'd never heard the term structured finance, much less written the business,'' said Donald Light, an insurance analyst at Celent, a consulting firm in Boston.

Credit-Default Swaps

Prices for credit-default swaps that pay investors if Ambac can't meet its debt obligations imply a 72 percent chance it will default in the next five years, according to a JPMorgan Chase & Co.

Contracts on Ambac climbed 2.5 percentage points to 30.5 percent upfront and 5 percent a year today, prices from CMA Datavision in London show.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.


The market slump and scrutiny by credit-rating companies are ``underestimating Ambac's strengths and future potential,'' Callen said in the statement. ``At the same time, we would expect that over the longer-term, as the market normalizes and perceptions correspond more closely to reality, the market will more accurately assess our assets and strengths.''

Moody's Investors Service and Standard & Poor's, the two largest ratings companies, are reviewing Ambac's ratings for a possible reduction.

ACA Capital Holdings Inc. was cut 12 levels to CCC by S&P last month, forcing the company to seek waivers to avoid posting collateral on $60 billion of credit-default swap contracts it wrote to insure CDOs. The New York-based company received a second waiver on Jan. 20.

Moody's said last week it may also cut the insurance ratings of Armonk, New York-based MBIA.

MBIA and Ambac both said they were surprised by Moody's decision to start a new review, less than a month after affirming their ratings. The flip-flop by the ratings companies is making investors wary of the insurers' shares and bonds, Giordano said.

``You have a market that has zero confidence in anything financial right now,'' Giordano said. ``You have the agencies who, in my opinion, have continued to make a comedy of errors. And you have very complex companies that are very hard to understand. It's easy for investors to just sit on the sidelines.''


Inflated values fueled crisis

Real estate appraisers say lenders, brokers applied pressure to raise mortgage levels /20080120/BUSINESS/801200343/-1/LOCAL17

Property appraisers helped exaggerate U.S. home values by as much as 10 percent in 2006, contributing to a record number of foreclosures because borrowers ended up owing more than their homes were worth.

The dollar equivalent of that 10 percent? $135 billion. Those figures come from Susan Wachter, a real estate professor at the University of Pennsylvania's Wharton School.
Lenders and mortgage brokers routinely pressured appraisers to boost values, said Jonathan Miller, a New York property appraiser for two decades.

And appraisers accepted those pressures, said Brett Martin, who owns Indianapolis Appraisal Associates. "There's a saying that a good appraiser can make $50,000 a year, and a bad one can make $200,000,'' he said.

Protections established by the Appraisal Foundation, a nonprofit that sets industry standards, came under attack in the 1990s as banks cut their appraisal departments to save money, Miller said.

The system was further corrupted when lenders began moving mortgage applications to third-party brokers who were paid only if a loan closed, he said.

"There just became less and less emphasis on quality," Miller said. "You started to see more and more loan products that would keep payments low, and I see that as correlating with appraisal pressure because those products only work in a rising market."

Ninety percent of appraisers surveyed for a 2007 study by October Research Corp. said they felt pressure to make bogus valuations. Five years ago, that figure was 55 percent.
Almost three-quarters of the appraisers said mortgage brokers asked them to bend the rules. Those who resist may be blacklisted, they said.

Debbie Huber of Las Vegas says a third of the lenders who want to hire her are looking for a guaranteed value before she appraises the property.

"We get calls like that every hour of every day," said Huber, past president of the Nevada Appraisal Commission, the state agency that oversees appraisers.

Appraisers also are being pressured to overlook imperfections in homes or ignore housing trends that might reduce a property's value, said John Oakvik of Tozzer, Oakvik & Associates in Fort Lauderdale, Fla.

In October, he said, a mortgage broker called to ask if Oakvik had made a mistake when he checked a box on an appraisal report that said home prices were falling in the area.
"She asked me to change the box from 'declining market' to 'stable market,' " Oakvik said. "Mortgage brokers just want a generic report, no red flags."

At least seven states have opened investigations into the mortgage industry, including ties between appraisers, lenders and brokers.

In New York, Attorney General Andrew Cuomo subpoenaed Fannie Mae and Freddie Mac, the two biggest buyers of U.S. mortgages. He also sued eAppraiseIT for allegedly caving to pressure from Washington Mutual, its biggest customer, to inflate values.
Cuomo said in November he uncovered a "pattern of collusion" between lenders and appraisers to bolster home values.

Lenders -- including Lehman Brothers, the biggest underwriter of mortgage-backed bonds in 2007 -- say they, too, have been victimized by fraudulent appraisals. The valuation crisis in the credit markets may cost banks and investors $400 billion, according to November estimates by Deutsche Bank.

Lenders made about $2.7 trillion in new mortgages and home refinancing deals in 2006, according to the Mortgage Bankers Association.

Martin, of Indianapolis, said that once an appraiser submits a report, by Fannie Mae guidelines the lender's underwriter must "warrant" the appraisal to the investor.
"If an appraiser 'pushed' a value to the degree of some of the fraudulent claims arising,'' Martin said, "theoretically it should never have happened more than once, if the lender was actually acting in the investor's best interest."


This is pretty funny. This couple is suing their realtor because they paid too much for their house. Like i said before, people have to take responsibility for their bad decisions.

Feeling Misled on Home Price, Buyers Sue Agent .html?_r=2&pagewanted=all&oref=slogin&oref=slogin

The New York Times

January 22, 2008

CARLSBAD, Calif. — Marty Ummel feels she paid too much for her house. So do millions of other people who bought at the peak of the housing boom.

Ms. Ummel claims that the agent hid the information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.

Real estate lawyers and brokers say the case, which goes to trial in North County Superior Court on Monday, is likely to be the first of many in which regretful or resentful buyers seek redress from the agents who found them a home and arranged its purchase.

“When your house appreciates $100,000 in the first six months, you’re not quite as concerned that maybe the valuation was $25,000 or $50,000 off,” said Clifford Horner of the law firm Horner & Singer. “But when your house goes down, you ask: ‘Who might have led me astray here?’ ”

Agents representing buyers rarely had the opportunity to make mistakes during the last real estate boom, in the late 1980s, because the job hardly existed then. For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller.

The long boom that began in the late 1990s was an end to that one-sided world. As prices spiked, buyer’s agents and brokers became popular as sounding boards, advisers and negotiators. The National Association of Realtors estimates they are now involved in two-thirds of all residential purchases.

That makes this the first housing collapse in which large numbers of buyers had a real estate professional explicitly looking after their interests. The Ummel case poses the question: In a relationship built on trust, where promises are rarely written down and where — as in this case — there is no signed contract, what are the exact obligations of these representatives in guiding their clients through a sizzling market?

“Agents have a lot of fiduciary duties, but they don’t make money unless they close the sale,” said Joel Ruben, a real estate lawyer in Manhattan Beach, Calif. “In an inflated market, there are built-in temptations to cut corners.”

The defendant in the Ummel case is Mike Little, a veteran agent with ReMax Associates. He will argue that Marty Ummel, who brought the case with her husband, Vernon, is trying to shift the blame for the couple’s own failures of research and due diligence.

“They simply didn’t do what is expected of a knowledgeable, sophisticated buyer, and are now looking for someone other than themselves to take responsibility,” Roger Holtsclaw, an agent who was hired by Mr. Little as an expert witness, said in a court deposition.

Ms. Ummel is 60; Mr. Ummel, 71. With retirement on the horizon, they decided in late 2004 to move from the San Francisco Bay area to San Diego, where they would be near their grown children.

Since they were not making the move for job reasons, they decided to take their time and focus on finding a house that was a good value. In a boom, that is no simple task for buyer or agent.

It is clear the Ummels did not rush into a decision: They dismissed one agent and canceled deals on two houses before Mr. Little found them a prospect on a cul-de-sac in a five-year-old luxury development. A deal was struck with the owner, herself a real estate agent, for $1.2 million.

Mr. Little also worked as a mortgage broker. The Ummels say he encouraged them to get their loan through him. Mr. Little ordered an appraisal of the house but did not respond to the couple’s requests to see it, the suit charges.

A few days after the couple moved in, in August 2005, they got a flier on their door from another realty agent. It showed a house up the street had just sold for $105,000 less than theirs, even though it was the same size.

Then they finally got their appraisal, which told them the house up the street was not only cheaper but had a pool. Another flier in early October mentioned a house down the street that was the same size and closed the same day as the Ummels’ but went for $175,000 less.

The Ummels accuse Mr. Little not only of withholding information but of exaggerating the virtues of their house to push them into a deal.

Ms. Ummel said in her deposition that Mr. Little had told them “many times that it was a very good buy.”

“And you believed that?” asked David Bright, the lawyer who represents both Mr. Little and ReMax Associates, which was also named in the suit.

“Yes, we trusted Mike Little,” Ms. Ummel replied.

Mr. Horner, the lawyer, said valuation is a tricky area for brokers.

“Brokers aren’t appraisers,” said Mr. Horner, one of the writers of a guide to suing brokers. “They have no obligation to opine about value. But once they do, it becomes a gray area whether it’s puffery or a misstatement of a known fact.”

Most people who made a bad real estate deal might wince and move on, but people who know Ms. Ummel describe her as unusually determined. She spent a year picketing ReMax offices on weekends.

Mr. Ummel, an administrator at Dominican University, gave her his permission to pursue the case, on one condition: “Don’t tell me how much the legal fees are.” So far, the bills come to $75,000, more than Ms. Ummel’s annual salary as a fund-raiser at California State University in San Marcos.

“I do not think I’m obsessive-compulsive, but I am 114 pounds of absolute perseverance,” Ms. Ummel said.

That persistence has put the Ummels at the forefront of a developing legal question. When buyers have sued their agents in the past, the cases focused on problems with the property itself, often alleging failure by the broker to disclose a known hazard or maintenance issue. After reviewing litigation records for the last five years, the National Association of Realtors could find no cases that revolved solely around the question of valuation.

Ms. Ummel’s original suit included the appraiser, who was accused of skewing his report to make the Ummel’s house seem worth the purchase price, and the mortgage broker. Modest settlements have been reached with both.

In a brief phone interview, Mr. Little called the case “ridiculous,” adding: “The lady’s a nut job. I didn’t do anything wrong.”

Mr. Little said that contrary to Ms. Ummel’s claims, the suit was motivated mainly by the declining market. “When people see their home values and assets declining, they always feel there’s someone to blame,” he said. “This is a dangerous time for all of us in the industry.”

The agent declined several requests to expand on his remarks. His lawyer declined to be interviewed. So did Geoff Mountain, a co-owner of ReMax Associates, which owns the office that the Ummels were dealing with.

Both sides have hired appraisers who have combed the surrounding development. Mr. Little’s appraiser concluded the four-bedroom, 3.5-bath house was worth $1,150,000 to $1.2 million in the summer of 2005. The Ummels’ appraiser said it was worth $1,050,000.

The outlines of Mr. Little’s defense can be seen in his lawyer’s lengthy deposition of the Ummels. Even in a relatively new development, Mr. Bright said, no two houses and no two deals can be seen as identical. For instance, a pool does not necessarily add value because “some buyers like it, some don’t.”

Mr. Little never showed the Ummels the house down the street because the backyard could be viewed from other houses, the lawyer said, and the couple had said they valued their privacy. Ms. Ummel disputes saying this.

The agent who left the flier that led to the case, Margaret Hokkanen, is sympathetic to Mr. Little.

“People are responsible for their own decisions,” said Ms. Hokkanen, who has been subpoenaed as a defense witness.

Her husband and partner, John Hokkanen, is more ambivalent.

“We have seen so much misrepresentation over the last five years,” he said. “So I appreciate where these buyers might be coming from: ‘I’m a lowly consumer, you’re certified by the state of California, you didn’t do X, you didn’t do Y, and I got hurt.’ ”

The Ummels may be on the leading edge of the law, but they are unlikely to be alone for long. With the market falling, many homeowners owe more on their mortgages than their houses are worth. And many of those deals involved brokers who are required to carry professional liability insurance, presenting a tempting target for angry buyers.

“If you put someone into a property at the top of the market, you look really bad if it goes down,” said K. P. Dean Harper, a real estate lawyer in Walnut Creek, Calif. “There are a lot of letters going out from lawyers to real estate agents saying, ‘My client would never have purchased if you had properly evaluated the market conditions and the value of the property.’ ”


Too bad you can't buy an index futures stock for the overall legal profession because they are going to make a fortune with all the lawsuits coming on the horizon.


If Everyone’s Finger-Pointing, Who’s to Blame? .html?_r=1&ref=business&pagewanted=all&oref=slogin

The New York Times

January 22, 2008

Everyone wants to know who is to blame for the losses paining Wall Street and homeowners.

The answer, it seems, is someone else.

A wave of lawsuits is beginning to wash over the troubled mortgage market and the rest of the financial world. Homeowners are suing mortgage lenders. Mortgage lenders are suing Wall Street banks. Wall Street banks are suing loan specialists. And investors are suing everyone.

The legal and regulatory wrangles could dwarf the ones that followed the technology stock bust and the Enron and WorldCom debacles. But the size and complexity of the modern mortgage market will make untangling the latest mess even trickier. Some cases stretch across continents. Others are likely to involve state and federal regulators.

“It will be a multiring circus,” said Joseph A. Grundfest, a professor of law and business and co-director of the Rock Center for Corporate Governance at Stanford. “This particular species of litigation will be manifest in many different types of lawsuits in many different jurisdictions.”

The legal battles stretch from Main Street to Wall Street and beyond. Homeowners and subprime mortgage lenders are squaring off in scores of cases that claim some lenders engaged in predatory lending practices and other wrongdoing. Cleveland and Baltimore are pursuing cases against Wall Street banks, saying local residents are suffering because the banks fostered the proliferation of high-risk home loans.

Two questions lie at the heart of many of the cases. The first is whether lenders and investment banks alerted borrowers and investors to the risks posed by subprime loans or securities backed by them. The second is how much they were legally obliged to disclose. “Those are the two issues that are frequently raised,” said Jayant W. Tambe, a partner at the law firm Jones Day.

As defaults and foreclosures rise, the various players in the housing market are all pointing fingers at each other. State prosecutors like Andrew M. Cuomo, the attorney general of New York, are investigating whether investment banks that packaged mortgages into securities disclosed the risks to investors and credit ratings agencies. Investment banks, in turn, are accusing lenders and mortgage brokers of shoddy business practices.

“What strikes me here is that this a tainted system from A to Z,” said Tamar Frankel, a law professor at Boston University. “Everybody blames everybody else. If you look at what is being said, there isn’t one who doesn’t blame another and there is half-truth in everything.”

Wall Street banks that sold mortgage investments around the world face legal complaints from as far away as Australia and Norway. Lehman Brothers, the Wall Street bank with the biggest mortgage business, is being sued by towns in Australia that say a division of the firm improperly sold them risky mortgage-linked investments. Lehman has denied the charges and has said the unit, formerly known as Grange Securities, acted properly.

Closer to home, members of a New Jersey family have sued Lehman for $4.14 billion, saying the firm steered them into complex securities that have become difficult to sell, Bloomberg News reported Friday. Lehman denied the accusations.

In the United States, Lehman is suing at least six mortgage lenders and brokers like Fremont Investment and Loan and the Fieldstone Investment Corporation, claiming they sold Lehman dubious loans. Lehman claims that borrowers’ incomes were overstated, appraisals were inflated and the homes were in poor condition. In most cases, the lenders are fighting the allegations and Lehman’s demand that they buy back defaulted or otherwise problematic loans.

In another case, the PMI Group, a mortgage insurer, sued WMC Mortgage, a subprime lender that has stopped making loans, and its corporate parent, General Electric, in California Superior Court. PMI is trying to force the companies to buy back or replace loans that the firm was hired to insure and that it says were made fraudulently or in violation of the standards that the lender said it was using.

According to the lawsuit, a review of loans found “a systemic failure by WMC to apply sound underwriting standards and practices.” Reviewing a sample of the nearly 5,000 loans in the pool, Clayton, a consultant that reviews mortgage loans, identified 120 “defective” loans for which borrowers’ incomes and employment were incorrect or where the borrower’s intention to live in the home was incorrect. WMC offered to buy back 14 loans, according to the lawsuit.

Some of the loans have defaulted, and a trustee’s report on the pool of loans packaged and underwritten by UBS, the Swiss investment bank, shows that losses on some defaulted mortgages are as high as 100 percent. As of November, about 27 percent of the loans in the pool were either delinquent 60 days or more, in foreclosure or had resulted in a repossessed home.

PMI is on the hook for losses on defaulted loans, lost interest and principal payments to investors who own a $29.6 million slice of bonds backed by the mortgages. A senior vice president at PMI, Glenn Corso, said he was unsure how much the company had paid out so far.

A spokesman for G.E., Robert Rendine, declined to comment, citing the pending litigation.

Securities lawyers say cases involving mortgage-backed securities, which were generally sold privately to sophisticated institutional investors, are far more complicated than those involving stocks, which were sold publicly to everyday investors. Class-action lawsuits, a favorite tool of plaintiffs’ attorneys, will be employed less than they were after the plunge in technology stocks a few years ago because mortgage securities tend to vary in composition and disclosure.

“This is going to be much more complicated to prove, and it’s going to be case by case as opposed to class-actions,” said David J. Grais, who is a partner at the Grais & Ellsworth law firm in New York and an author of a recent paper on the legal liabilities of credit ratings firms. “This resembles the S&L crisis in the ’80s much more than it does the tech bubble in the ’90s.”

Class-action filings spiked earlier this decade, jumping to 497 in 2001, from 215 the year before, according to Cornerstone Research, which compiles the figures in cooperation with the Stanford Law School. As those suits were resolved, new filings fell to a low of 118 in 2006. But as of mid-December, filings had jumped to 169, with about 32 of the cases related to the mortgage crisis.

Through the end of 2006, settlements in technology- and telecommunications-related class-action suits brought by shareholders totaled $15.4 billion, with more than a third of that coming from one company, WorldCom, according to Cornerstone. Settlements in Enron-related cases have totaled about $7.2 billion so far; the figure does not include Securities and Exchange Commission fines and settlements.

Bringing securities fraud cases has been made harder by recent Supreme Court decisions that favored Wall Street, companies and professionals like accountants. The court ruled earlier this month that two technology vendors could not be held liable for taking part in a scheme designed by a cable company to inflate its revenue. Last summer, in a ruling favoring the company, Tellabs, the court said that securities cases could be dismissed if investors did not show “cogent and compelling” evidence of intent to defraud.

Some plaintiffs are using other legal avenues like the pension law, the Employment Retirement Income Security Act. Under that law, managers who handle pension funds must act in the fiduciary interest of their clients. State Street Global Advisors, which manages pension money, has set aside $618 million to settle claims that the firm invested in risky mortgage-related securities.

Some legal experts say that the recent Supreme Court decisions, which are largely based on cases bought by shareholders, may not have much bearing on the more complex cases that stem from securitization of mortgages.

“There will be a whole new set of claims that deal with the unique nature of the securitization market,” Mr. Tambe of Jones Day said. “There will have to be new decisions that deal with those claims and a learning process for the bar and judiciary in those cases.”


Ohio's foreclosure mess: Is the government to blame?

Tuesday, January 22,

For almost a century, politicians from the White House to City Hall have pushed and prodded us to own a home.

The result: Nearly seven in 10 families own rather than rent.

But now, as foreclosures throw tens of thousands of people in Greater Cleveland out of their homes, the question arises: Did government go too far?

Yes, says Chris Edwards, an economist with the Cato Institute, a libertarian Washington, D.C., think tank that frowns on interference with the free market. He says public officials ought to remain neutral in the question of whether to rent or own.

"The stock market is risky," Edwards says. "There has to be an understanding that houses are risky investments, too. You never hear that from the politicians. Homeownership is like apple pie."

Others say homeownership is a worthy goal, but government leaders need to provide more financial counseling for unsophisticated borrowers and encourage people to save more money.

"I still believe, in this country, homeownership is the best way to build wealth," says George Barany of Cleveland Heights, director of financial education for the Consumer Federation of America. "The problem is, if you can't afford it, if you're not prepared for it, it will sink you."

Here are some of the ways government has promoted homeownership:

The Federal Reserve Bank, which influences credit by setting the interest rate that banks charge each other, let mortgage rates remain at historic lows this decade, even as analysts warned that housing prices would flatten. When the prices did flatten, many borrowers were left unable to sell because their houses were worth less than what they owed.

"It was a bubble that had to burst," says Stuart Feldstein, head of SMR Research, a Hackettstown, N.J., company that studies mortgages and other lending. "Nobody was paying attention."

The federal government gives homeowners $150 billion a year in income-tax deductions and other tax breaks, says George McCarthy, who analyzes homeownership campaigns for the Ford Foundation. That's 4½ times the annual budget of the Department of Housing and Urban Development, the main government sponsor of low-income rental housing.

The income-tax deduction for mortgage interest gained luster in 1986, when Congress scrapped deductions for credit card and other consumer debt. Homeowners also were allowed to continue claiming credit for property taxes.

Mortgage guarantees, through the Federal Housing Administration and the Department of Veterans Affairs, let borrowers get by with little or no down payment. The VA's guarantee of zero-down loans for World War II veterans began the mortgage industry's long slide into looser standards, says Tom Bier, a housing researcher at Cleveland State University.

The most recent quarterly survey by the Mortgage Bankers Association found that nearly 5 percent of FHA loans in Ohio were in foreclosure, and payments on another 15 percent were past due. More than 3 percent of VA loans were in foreclosure, and nearly 10 percent were past due.

Fannie Mae and Freddie Mac, federally chartered corporations, buy mortgages. That gives lenders cash to make more home loans.

Researchers say the pair served as models for the Wall Street-led secondary market that emerged in the 1990s and crashed a decade later under the weight of high-interest loans made to people with bad credit. Fannie and Freddie are typically pickier about which mortgages they buy, but the corporations collectively lost more than $3 billion on bad loans in the third quarter of last year.

The federal Community Reinvestment Act requires banks to lend money in neighborhoods where they have branches.

Under pressure from regulators, banks grudgingly lent money in low-income and minority neighborhoods in the 1990s, and discovered an untapped market. In Cleveland, unregulated mortgage companies joined in and became dominant in neighborhoods where foreclosures now rage.

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Advanced Member
Username: Saint

Post Number: 336
Registered: 5-2005

Posted on Tuesday, January 22, 2008 - 4:02 pm:   Edit PostPrint Post

There are LOTS of big developments that are also going into foreclosures. It's not just the small houses. A lot of very big projects are going belly up. Stories like these below are a dime a dozen these days.....

Also, notice in the story to notice factors of what I have always mentioned over and over when buying real estate. Look at all the expenses but also the potential for cash flow renting it out. I've mentioned before around college campuses are very good. Why? They are almost recession proof as kids will always be going to college and there will always be upper middle class to upper class parents that will pay premiums for their kids to stay in nice housing. It doesn't matter if there is a recession, or a depression. At nice Universities there will ALWAYS have students and the difference to rent a VERY nice place vs a mediocre place isn't that much more when you factor in ALL the expenses of University including tuition, books, room and board, supplies, medical, etc.

Real estate around nice Universities typically will do well and have good cash flow if you set it up right and know how to market. ESTATE/801210358

Bank seizes Turnbury Park complex
Condo converters fought through lawsuits to avoid foreclosure, but finally reached a deal with the bank

January 22, 2008

SOUTH MANATEE COUNTY -- Another bank seized another apartment complex through foreclosure last week, driving home the fact that Southwest Florida's condo conversion market is as dead as dead can get.

The bank was Fremont Investment & Loan, a California-based lender, which loaned $46.6 million to Turnbury Park Acquisitions LLC for the purchase and conversion of a 286-unit apartment complex off University Parkway in southern Manatee County.

Turnbury Park Acquisitions, owned and operated by seasoned Coconut Grove-based condo converters Peter Wenzel and Gary Burman, did not go down quietly.

After Fremont filed a foreclosure suit in February, Wenzel and Burman countersued, saying that Fremont acted in bad faith by forcing the project into default.

The bank did that because it wanted to own the apartment complex, wipe out the $12 million in equity Wenzel and Burman had pumped into the project, and force the developers to fork over another $3.4 million in personal guarantees, Wenzel and Burman said in their lawsuit.

Wenzel now acknowledges there was a good deal of bluster on both sides during the legal battle.

"The litigation entailed a lot of puffing," Wenzel said. "We came to a friendly agreement."

Fremont got the apartment complex, while Wenzel and Burman were spared from having to contribute more capital.

"I would have loved to have worked out a different agreement," Wenzel said. "We made the best deal we could."

Numerous casualties

The Turnbury Park at Palm-Aire apartment complex is just the latest casualty of a once overheated market, which saw investors paying multimillion-dollar premiums for apartment complexes around the state in the belief that the units would be worth far more for sale as condos than for rent as apartments.

But when buyers failed to materialize and condo converters were unable to pay their debts, it became clear that apartment complexes would have to revert to their original purposes and that premiums paid would have to be written off as losses.

There is no better example of this phenomenon locally than Tarragon Corp., which bought the 210 Watermark apartment complex in Bradenton for $38 million in 2005 and resold the 216-unit complex in September for $24 million.

"Tarragon bought a ton of apartment complexes at the height of the boom and recently resold five of them for what amounted to a 40 percent haircut," said Jack McCabe, a Deerfield Beach-based real estate consultant.

McCabe added that other condo converters are defaulting on projects all around the state. He said seven went down in South Florida in the past 90 days, and many more will follow.

"If they don't have successful sales during snowbird season, foreclosure will be imminent," he said.

For Wenzel, who has completed a dozen condo conversion projects in Florida over the past 25 years, the collapse of his Southern Manatee conversion came as a complete surprise.

His 354-unit Courtney Palms condo conversion project in Tampa sold out in nine months during the height of the boom, and his 168-unit condo conversion project in Gainesville is still plodding along.

But the Turnbury Park conversion project went bad almost as soon as the partners closed on the complex in November 2005.

"No one understands why we hit the wall so fast," Wenzel said. "We thought the Sarasota market would be the last to be affected by a downturn. It really took us by surprise."

A lot of smart people were taken by surprise, agreed Stan Rutstein, a Re/Max commercial agent who invested in a Bradenton conversion project during the boom.

"The problem is that our market attracted a tremendous amount of weekly workers oriented toward construction. The minute these apartment complexes started to convert, these people got up and left. They didn't want to go through the hassle, and there was no one to replace them."

Southwest Florida is not economically diversified enough to sustain employment during a housing downturn, Rutstein said.

"There is a high vacancy in conversions and in apartments because we are not attracting out-of-town people to come and work," he said.

Different story

Gainesville, where Wenzel is converting The Gables apartments, is a different story.

Alachua County court records show Wenzel and Burman have sold 33 units in The Gables since July, raising a total of $5.6 million, or about 27 percent of the $21 million they borrowed from Fremont to finance the project.

Rutstein attributed Wenzel's relative success in Gainesville to the University of Florida.

"They're called 'students,'" Rutstein said. "They come every year whether you like it or not. That's why markets like Gainesville and Boston are so solid."

Wenzel and Burman originally bought the Turnbury Park apartments for $53.8 million, and planned to sink $1.2 million more into sprucing them up. Another $3.6 million was set aside to make sure taxes were paid and interest payments were current.

In their lawsuit, Wenzel and Burman said they were proceeding on schedule until May 2006, when Fremont suddenly froze their construction and marketing accounts in the belief that the conversion should be abandoned and the project returned to rental apartments.

In August 2006, Wenzel and Burman asked the bank to renegotiate their debt on the joint understanding that apartment rentals would not generate enough income to cover interest payments. The partners also offered to put up another $2.6 million in equity to cover any shortfall.

Wenzel and Burman say in their lawsuit that Fremont delayed its decision for four months, then produced an appraisal showing that the value of the complex had fallen well below the value of Fremont's $46.6 million loan.

Wenzel and Burman contested the appraisal, but Fremont ended up foreclosing in February 2006, touching off a 10-month legal battle.

Despite the bitterness of the fight, Wenzel said it ended amicably. But he is still smarting from the loss of a project that could have worked given more time.

"Our price point of $210,000 for units and our arrangement with the golf course community made this a very attractive proposition," Wenzel said. "It would have provided a very nice second home for people up north, easily acquired and easily maintained.

"What happened to the market has left us all shaking our heads."
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 35
Registered: 12-2007
Posted on Tuesday, January 22, 2008 - 5:47 pm:   Edit PostPrint Post

ApartmentsBA ...I totally agree with being careful where you buy if you will be renting out. I don't know if you are familiar with South Florida, but my mother owns two properties in the city of Aventura ...very close to FIU(Florida International University)...and it so happens that she rents out to college students...currently she has a foreign student and the payments come in like clockwork from her parents overseas. The other property(a small house) is currently being rent out to a couple. This second property is three blocks away from Aventura door is a dentist who has been forever wanting my mother to sell to him. Across the street, we now have a small building with offices for cosmetic surgery....across the way is the Waterways...anyways, my mother has had letter after letter of people wanting to buy this property from her. Three homes on this block were bought out and demolished....I'm guessing the same person may have bought these homes and demolish them. My mother has never wanted to sell, but now she is getting up in age and wondering if she should sell. I'm not too keen on her selling because she will have to put the money in the bank...and I can't say money in the bank is so safe(maybe I'm getting very paranoid). An $800,000 was offered in the past few weeks. So, my question to all of you, particualarly to ApartmentsBA is what would you do....sit, or sell?
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Advanced Member
Username: Saint

Post Number: 337
Registered: 5-2005

Posted on Tuesday, January 22, 2008 - 6:14 pm:   Edit PostPrint Post


Yes, that is essential. You'd think it's common sense but many people that buy real estate don't practice common sense. Your mother's position is a good position to be in. I've been in a similar position with unsolicited offers to purchase properties that I own. On a few occassions the offers were too good to pass up so I sold.

I can't speak to your exact situation but since you asked what I would do I'll answer you. The fact that she has "several offers" means that it's desirable for whatever reasons. Obviously either someone else can do well with it or they see potential to possibly make even more money on it.

You have to be careful not to sell too cheap if there is demand for it. In the past I've made offers on land and the owner thought it was a great price. Then I turned around and sold it to a developer and the profit was many times the cost of the entire piece of land. Or I negotiated an ownership stake in the project that was worth many times more than the cost of the initial land. I'm not sure your mother's situation and how big the lot is but look at those potential and also what the zoning is like. If there is a potential to have retail/commerical space there really have her get several estimates on the potential value of it. Also, see how many floors they could possibly build up.

The biggest mistake (from a seller/owners point) I've seen here in Buenos Aires is many owners think of the actual value of their house INSTEAD of the LAND. In many areas of Palermo Viejo/Soho there are crummy beaten down houses on an entire plot of land. The owners think of only the house on it. They don't even stop to think what can be built on it and how many floors up. If they did, some of them wouldn't have sold their properties for a really cheap price. Don't make the same mistake in real estate no matter where you own. Keep this in mind.

If she isn't in any hurry, all those offers she has received, go back to the people making the offers and drastically increase the price and see if they bite or are interested. Since it sounds like they are unsolicited it would be great because she can avoid a realtor's fee (which should be hefty) but make sure if you get serious in the negotiations you get your lawyer involved. Just pay him by the hour. Later you can get a qualified realtor in and pay him/her by the hour or by the job as well do deal with the paperwork instead of a %.

It sounds like she purchased it a long time ago and has a huge capital appreciation on it. The things to look at are the tax liability (capital gains taxes) when she goes to sell it and what you can do to shield/limit your liability. You can talk to your accountant about the best way to structure the sale/purchase of a new property to limit taxes.

I'm not sure what her rentals are that she is getting on it but if it's a good chunck of money relative to what she could get selling the house and taking the NET proceeds and investing it somewhere safe and making a better return you need to factor in all of these things.

I would look at all of these types of things. Also, on what I call the "hassle factor" of real estate. Unless you have a good property manager in real estate it can be really time consuming and frustrating. I've sold properties in foreign countries even though the capital appreciation was great but it was a hassle since I didn't live there. I'd take all of these things into consideration. If you have a strong property manager then that makes a big difference. I started franchising my company and I'm starting to enter different countries now and I plan to start purchasing up real estate in areas that have a strong management team.

I wouldn't be paranoid about putting it into the bank but I would simply break up the funds so there is NOT more than $100,000 in each account. There are also other investment vehicles that she can invest in to limit her liability and taxes. If she does sell it you can find a good financial planner that can help. That is a good amount of money and you can surely find the best ways of keeping that money working for you while avoiding risk.

There are tons of factors to think about but it sounds like if the price is right she will sell. Just make sure you are getting the maximum price for the property. If there are multiple unsolicited offers that typically signals the property is desirable and these people making the offer want it for some reason.

Definitely though if she is getting older and doesn't want to deal with the "hassle factor" and you can limit your tax burden then I'd think about selling. My motto in real estate is buy low and sell high. That is what it's all about. Still, look at how much % you are making with rentals. In more cases than not, I've NOT sold even though I've had great offers. Why? I simply can't find something else that I can make a greater return on that is relatively safe.

The great thing with real estate if you have a good property that is relatively maintenance free is it's very predictable. The set expenses are typically set and stable and the rents are as well so it's predictable and steady with no real risk (if you have it all insured). That is a recipe that is pretty tough to beat in many areas.

Here in Buenos Aires I own a large portfolio of properties and I only have sold when I can take the income, buy something else with the money and charge more per night.

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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 36
Registered: 12-2007
Posted on Tuesday, January 22, 2008 - 6:40 pm:   Edit PostPrint Post

Well here is the low down on the property. She bought it in the late 1970...I believe she told me for $35, yes, we are talking about a huge capital gains tax. My brother was in real estate some time ago so he could stand in for the real estate part. But my mother trusts me with the "last desision". Like I said, across the way,there ist a three story building that is used by cosmetic suregery went up two years ago...three stories plus garage. Also, the hospital is in close proximity(which was recently completely renovated) and there is also a cancer specialist building some four blocks away. The zoning if sold, can no longer be used to live in as it is now zoned for businesses...while the current owner holds the property it can continue to be residential and rented out. A neighbor told me that a group of doctors came to visit her asking to buy her home...on the same block. I'm guessing that what is going on is that another medical building is wanting to be built there. And yes, the offers are unsolicited. I guess another option is to sell and buy other properties to rent out, but like I said, should that happen I will have to be the one to do the renting and deal with everything because my mother is up in age and well even though her spirit tells her to keep on trucking on, her body is starting to say NO. Another bit of info. I recently obtained from a neighbor...don't know if it is accurate, but that the houses that use to be across the street(where now we have a cosmetic surgical building)was bought by an investor and later sold for 15 million. If I recall, this was about seven years ago and there were 8 homes on this lot. Anyways, you can see my predicament....anyways, If we sell, I will investigate every inch of the deal and with an attorney and accountant to guide me. Thanks for your advice and if you have more to add, do so.
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Advanced Member
Username: Saint

Post Number: 338
Registered: 5-2005

Posted on Wednesday, January 23, 2008 - 7:09 am:   Edit PostPrint Post

:-) That is a good position to be in. When I originally read your post I already suspected that they want it for the land to build an office building. That's why she is getting unsolicited offers in a time when the real estate market is crap in the USA. That piece of property should be extremely valuable. If you are serious in selling, you should talk to an ethical realtor that specializes with commercial real estate and has a good reputation for getting owners lots of money. Although you can get around a realtor's fee in a situation like this you probably wouldn't want to if a good realtor can get you much more than the $800,000. It makes sense to pay a % if the offer is in the millions. Please keep that in mind. Don't try to do this all alone as it's clear you don't have any expertise in this field.

The other option I think you should consider if you do decide to sell is structure a deal with your lawyer and the buyer. Maybe you take half the money in cash and then the other half give them the option to give you part ownership in the new building or at least part of the rental income for X years. Talk to an accountant and a lawyer as there are good ways that will increase your income yet lower your immediate tax liabilities. The big benefit for the buyer is they don't have to put up all the cash up front as they can pay you some of it with future rentals and cash flow so really push that point to them. I think you could easily structure a deal that will give you more than the money they have already offered you AND equity in the new building that will give you cash flow.

Think outside of the box. Think like the buyer. Add up the total sq. feet that can be built in that lot. Then calculate the cost to build then calculate the average rental per sq. foot and see what their potential profits are like. ALWAYS put yourself in the buyer's "shoes" even though you are the seller.

Then something else you can do (which I do) is look at the profile of the buyers or the people making the unsolicited offers. Are they in any particular medical specialty? Maybe. Odds are if they are looking at the space to build, other doctors in the same specialty are as well. And if you decide to go ahead and sell the property, you can market it to all the doctors in that specialty in that area. You can easily get the names, address from the phone book or you can even buy medical lists of all the American born American trained physicians in your state or the USA for that matter. You can do a mass mailing and market that space. A little more unconventional work like that might make you millions instead of u$s 800,000.

This would also solve your problem of not wanting to worry about all that cash up front. The big positive in a deal structured like this is you will continue to get good cash flow from the new office building for the foreseeable future yet have no burden to maintain the building.

There are lots of ways to structure it. These are some random ideas. Good luck and congratulations. This is a good situation to be in.
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 37
Registered: 12-2007
Posted on Wednesday, January 23, 2008 - 9:03 am:   Edit PostPrint Post

Mike, thanks so much for all your valuable advise. As you said, I have no expertise at these things. I did realize that these solicitions were not for the home but for the lot. The $800,000.offer came from New York. I will investigate and see who this is as the person behind my mother sold to someone from "New York"...this home was fact so far three homes have been demolished. So, you can see that this is bigger then me so I am going to hunker down and get myself a good realtor/lawyer/accountant. I must say, that idea of making the deal so as to make my mother part ownership of any building is very appealing. Anyways, again thanks!!
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Intermediate Member
Username: Welcometomendoza

Post Number: 108
Registered: 7-2007

Posted on Wednesday, January 23, 2008 - 10:08 am:   Edit PostPrint Post

Wow driving across the beautiful Pampas from BA back to Mendoza yesterday, it sure was peaceful compared to the world markets.

These kind of market gyrations over the last several days are not for novices. They are driven largely by the professional traders and the swarms of daytraders out there. For example, anybody who stayed short on the Hang Seng 2 sessions ago got a heck of a surpise when they woke up the next day. Not to say that the Hang Seng couldn't fall further.

One thing I am convinced of, all this market chaos is actually HEALTHY in the end for the world economy. Call it a cleansing or a punishment for all the mis-deeds out there, and hopefully some of the big boys that were behind the bubbles, are getting ther due.

On the housing maarket, when we moved to San Diego in 2000, and saw all these "high home prices", we decided to rent for a while and wait for some better prices. A classic wrong move. But little we did know that we were only 30% into the bubble. When prices soared over the years I just shook my head in dis-beleif. Especially since so many "experts" were saying this bubble had to pop , as early as 2001! On the other hand these experts got routed trying to short the homebuilders, Fannie May, etc..back then. I also remember a receptionist where I worked in San Diego, told me about a condo she bought for $300k in 2002, and in 2004 it was "valued" at $500k, and there "was no way she was going to sell becuase she wanted yet another $200k if she waits a little longer". I just found out the other day she still has it here in 2008, can't sell it, and it is "probably worth $400k". This is a great example of where I hold a steadfast rule of "take your profits" after such a rise (she could have easily sold it for $500k in 2004) , especially if you are in for the game of flipping. I know another guy in San Diego who managed to buy two more houses in 2004 and 2005, based on loans from his first home, and now he can't sell either of them. He is in for a painfest now. Ouch.

Roberto I agree fully with you that more dollars needed, will be the outcome of all this. It's a massive mid term adjustment happening.
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Intermediate Member
Username: Welcometomendoza

Post Number: 109
Registered: 7-2007

Posted on Wednesday, January 23, 2008 - 10:48 am:   Edit PostPrint Post

How fitting that the World Economic Forum just got underway in Swizterland.
The official web site is

Here are two related stories today, sometimes you have to consider the source of the story, wit their different opinions:-)

The myth about world economy's independence from US economy
Wednesday, 23 January , 2008, 10:41

New York: The steep Asian and European stock market fall seriously challenges the recent wisdom that the global markets have finally become independent of and immune to any slide in the US economy. If anything, the panic on the Asian and European stock markets only underscores how seriously misplaced this assertion was.

The subprime loan crisis, which is devouring America's real estate industry, was considered a local problem by many outside the US until they discovered how many major global players in fact stood quite close to the fire - thanks to complex deal making that goes on behind such mortgages.

As late as Monday, many in the US believed that the Federal Reserve, which sets the country's monetary policy, would prefer to let the subprime market crisis sort itself out. However, the scale and spread of the market panic in Asia and Europe reversed that view practically overnight with the Fed, as the Federal Reserve is known, intervened on Tuesday with the biggest interest rate cut of 0.75 per cent since October, 1984.

• Quarterly results of corporates: Check out

It is true that the dramatic market fall was caused as much by the perception of a weakening and perhaps even recessive US economy as the early reality of it. What is surprising is that the global markets remained unaffected by the problems in the US for so long. What is even more intriguing is that after surging ahead for months the global markets took an about-turn as if they had just chanced upon the challenges in the US.

The red hot economies of India and China, one growing at nearly nine per cent and the other between 11 and 12 per cent, and overall strengthening of other Asian economies such as Japan, created the impression among many observers that finally the world economy was significantly reducing its dependence on the US.

On the contrary, as it turned out in the last couple of days, the world still remains inextricably attached to the fortunes of the US economy.

That is where the uncertain politics in the US come into play in so much as they impact the rest of the global community. With less than a year left for the Bush administration and it having lost most of its initiative on any substantive issues, especially the economy, it is seriously doubtful whether there would be a turnaround any time soon.

In a sense the US economic management is caught in the vicissitudes of electoral politics. The Bush administration is practically into its lame duck period where the president no longer sets or controls the agenda. On the other hand there is no one other than George Bush who at least theoretically has the power and the platform to intervene by the sheer virtue of still being president. The dichotomy is that the platform has lost its effectiveness.

The global fall put the US Federal Reserve in a peculiar spot. If it was contemplating a hands-off approach, as many had speculated, it had to change gears suddenly in the aftermath. A hands-off approach may have been a strategy to send a signal to the rest of the world that the problem is not as serious as the markets had concluded. However, on Tuesday the Fed reversed that strategy and delivered a dramatic three-quarters of a per centage point cut. Obviously, the hope was that such a big cut would calm frayed nerves on the Wall Street. But it had the opposite effect as the Dow Jones fell irrespective of the announcement.

The Federal Open Market Committee seemed to foreshadow recession that in so many words. It said, "Appreciable downside risks to growth remain" without really succeeding to hide that it was concerned about recession.

"The committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets," it said.

The announcement of a $150 billion stimulus package by the Bush administration coupled with the interest rate cut to bolster the US economy are measures that could well ease some of the pressures but at this stage it is anybody's guess when and if the global markets will be able to internalize the problems in the US without any significant loss.

Source: -WgEOFV7CiMZwD8UBJD9O0
World Economic Forum Opens in Davos
By MATT MOORE and BRADLEY S. KLAPPER – 2 hours ago

DAVOS, Switzerland (AP) — The outlook for the global economy this year is decidedly dour, but leading economists at the World Economic Forum in Switzerland had mixed views Wednesday about the possibility of a global recession.

"If there is a tremendous slowdown in the U.S. economy, then we must be worried about it," said Yu Yongding, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences, as concern grew over market turmoil and a possible U.S. recession.

He said China's growth could help it weather any slowdown as the nation expands trade with countries outside the United States.

The potential for a global slowdown triggered by a U.S. recession was top issue among economists from Asia, the United States and government ministers from India and China.

Stephen Roach, chairman of investment bank Morgan Stanley in Asia, said there would be global ramifications should the world's largest economy falter.

Asked by a Mexican businessman if his country could sidestep a U.S. recession, Roach was blunt.

"My good friend from Mexico, you're in trouble," Roach said. "Mexican exports to the U.S. account for 25 percent of your GDP. Same number for Canada. How can the U.S. go into recession and Mexico be fine?"

Nouriel Roubini, chairman of New York-based Roubini Global Economics, cited the maxim that if the U.S. economy sneezes, the rest of the world catches a cold, but said this time the diagnosis in the U.S. was worse.

"In this case the U.S. is going to have a protracted case of pneumonia," he said.

The impact of the sluggish U.S. economy, and what it may portend for other nations, hung over the event, even after the U.S. Federal Reserve Bank cut its benchmark refinancing rate to 3.5 percent from 4.25 percent in response to the latest worldwide market downturn.

"The United States economy will correct itself," said David O'Reilly, chairman and CEO of Chevron Corp. "I'm an optimist when it comes to the length of what may be a slowdown or a mild recession. ... the outlook is still pretty good."

Economists also split over the role of central banks and whether institutions like the Fed were equipped to steer the global economy out of danger.

John Snow, the former U.S. Treasury secretary, said central banks have performed remarkably over the last two decades — better than any time in history, perhaps — and continue to make the necessary adjustments.

"The issue of whether central banks are capable of vigorous action, bold action, was answered yesterday," Snow said, referring to the Fed's interest rate cuts. "They can't see the world ahead perfectly, but who can?"

But Joseph Stiglitz, the 2001 Nobel Prize winner for economics and a critic of free market champions, and billionaire philanthropist George Soros, disagreed.

"What we have now are the foreseeable consequences of bad economic management," Stiglitz said.

Lawrence Summers, former Harvard University president and Treasury secretary under U.S. President Bill Clinton, said central banks have lost their way.

"I think it's hard to give central banks a very high grade over the last couple of years on recognition of ... bubbles and the ability to address them," he said. "I think it's hard to give a high grade over the last 6 months when the bubbles have been bursting and (the banks) have been behind the grade."

The Forum, now in its 38th year, will also touch on the effects of terrorism, a workable peace process in the Middle East and how technology is ushering in a new age of social networking without borders.

U.S. Secretary of State Condoleezza Rice and Afghan President Hamid Karzai were scheduled to address the opening reception later Wednesday.

Rice is also expected to meet with Pakistan President Pervez Musharraf and Karzai in closed-door sessions.

Her meeting with Musharraf will be the first since the assassination in December of opposition leader Benazir Bhutto, which pushed the nuclear-armed Pakistan into near chaos.

In a nod to concern about climate change, Rajendra K. Pachauri, chairman of the U.N.'s Intergovernmental Panel on Climate Change is to speak. Al Gore, who shared the 2007 Nobel Peace Prize with the panel, is also participating in the five-day meeting.

A year ago, Davos attendees foresaw a strong economy. The credit crisis brought on by massive exposure to subprime mortgage securities has changed that.

"It's not about a soft landing or a hard landing," Roubini said, but "rather how hard a landing it will be."

"We're seeing a financial system that is under severe stress," Roubini said. "The Fed cannot prevent this recession from occurring."

Klaus Schwab, founder and executive chairman of the Geneva-based forum, said the meeting's "unique combination of the world's top business and political leaders, together with the heads of the world's most important NGOs, and religious, cultural and media leaders allows us to approach the problems that face the world in a systematic way and with an eye to tackling the major issues that face us all."

The meeting itself will feature participants from 88 countries, including British Prime Minister Gordon Brown and Microsoft Corp. co-founder and chairman Bill Gates.
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Advanced Member
Username: Saint

Post Number: 340
Registered: 5-2005

Posted on Wednesday, January 23, 2008 - 10:57 am:   Edit PostPrint Post

Perhaps the saddest thing throughout this financial crises going on is many, many, many people that planned on retiring in the near future or now can't. You will see many more people with their savings wiped out or people that thought they had tons of equity in their homes have it vanish or not be able to sell their properties.

Many people also that had their nest eggs in various stocks also have seen their net worth wiped out.

Here is a good article below that gives a glimpse of what is going on. jan23,0,3796648.story?coll=bal-mynews-utility

Retirement concerns

Downturn dims hopes for golden years

Volatile conditions mean nest egg may not be as big

January 23, 2008

Richard Lunsford feels as if he's watching the economy fall apart, and along with it, his plans for retirement.

The stock market is volatile. Inflation is rising. Health care is expensive. And housing sales are weak - a pointedly painful fact for Lunsford, 55, who runs a construction business from his Pasadena home.

"Right now, there's hardly any work at all. No one's buying houses, no one's repairing houses, no one's building," he said. "I probably won't get to retire. I'm living on my savings right now."

Though the downturn in the country's economy is hitting many hard, through higher prices and lesser portfolios, it's taking a particular toll on those who have retired - or soon hope to. They don't have years of work ahead to help wait out the market.

"It doesn't matter what investment they're in; they're bound to be nervous," said Peg Downey, a certified financial planner, who works in Silver Spring.

Those who planned to make money trading in their big homes for smaller ones can no longer count on quick sales or top dollar pricing. People with most of their money in stocks have to contend with financial markets more likely to swoon than swell - major indexes declined for the fifth straight day yesterday, and foreign exchanges were rattled this week as well.

And even those who want to invest conservatively by relying on interest income are watching their returns diminish, as the Federal Reserve continues to cut interest rates. The Fed cut its benchmark rate yesterday by three-quarters of a percentage point to 3.5 percent.
Keep working
"It's not a time when people really want to give up their jobs," said Downey, who recently has been fielding calls from anxious retirees-to-be. Many people are worried that the economic outlook means they will have to work longer than expected.

Two weeks ago, Wendy Sigler rearranged her 401k to help mitigate potential losses, spurred by the increasingly frequent use of the "recession word" by economists. In her early 50s now, she had hoped to retire from her job as a sales manager at an advertising company within a decade, but she's no longer sure that will be possible.

The equity that she and her husband have in their Ellicott City home has steadily declined, while expenses have risen - energy bills in particular. With the increased costs of electricity, heating oil and gas for driving, Sigler's monthly payout has gone up by $600.

"The tentative [retirement] plans that I had put in place change with the fluidity of the market on a month-to-month basis," she said. "A lot is going to depend on what happens over the next few years in the economy. I have to have enough money before I can even think about retiring."

Economists are pleased that people such as Sigler are taking action for their financial futures. Too many are not, said Joseph DeMattos Jr., the Maryland AARP director.

In contrast with a generation ago, when most American workers had traditional pension plans, few employees have them today - just one in five. That means the responsibility for retirement planning has shifted to the individual, a job many appear to have abdicated.

Half of working families do not save anything away for retirement, and those who do have average savings of just $35,000.

"We have a lifelong financial savings plan crisis in this country today," said DeMattos, adding that there needs to be some sort of bipartisan political intervention to stimulate a savings spree.
Seek advice
But until that happens, he suggests that retirees use their concerns as an opportunity to reflect on their financial futures and seek professional advice. Above all, he said, stay calm.

"That's incredibly, incredibly important at times such as these," DeMattos said.

Clayton Railey doesn't need the reminder. Twenty years into his retirement from IBM, he has seen the market go up, down and all around. And Railey says he doesn't really think times are as bad as some say.

"It's as though we're about ready to fall off the economic cliff, and I don't believe that," said Railey, who is 76 and lives in Easton.

The nation's unemployment rate rose to 5 percent last month from 4.7 percent in November, but it's still low in Railey's opinion, as is inflation, which rose 4.1 percent in 2007 - the largest increase since 1990.

"This is kind of a rehash of the 2000 [] cycle, it's just a different cause this time," Railey said. "Instead of high tech, it's housing. ... Even with the housing problem, I don't get the feeling that we're in bad shape."
Pessimistic public
Kevin McIntyre, an associate professor of economics at McDaniel College in Westminster, agrees.

"Things appear worse than they are right now," McIntyre said. "There's a very good chance, probably a better than average chance, that the economy will experience a slowdown in growth, and that'll be it. ... The general public is more pessimistic than perhaps is warranted."

It's a hard proposition for someone such as Lunsford to accept. His retirement fund consists of whatever he has in the bank - and the interest it earns - along with Social Security.

He needs the housing market to rebound before he can even think about retiring, and he has all but given up on doing it early.

"My father is in the same business, and he's having the same problems," Lunsford said.


Read this good article below. I agree with Mr. Levy below that you will see a nationwide decline in home prices in the USA in the next year. Look at his projections. If the price declines 15% that results in a $3.5 TRILLION loss of homes values nationwide. Keep in mind that all this also will cause less tax intake as property taxes will be much less once properties go down. Many cities will have budget short-falls due to this.

Also, I share his prediction that some banks will go under.


Overvalued homes discourage buyers SS/675906847/1006

January 21, 2008

By Patrice Hill - Home prices are falling at a record pace and are down by 6 percent or more from their peaks, but economists say that may be just the beginning.

Computer models show that home prices remain as much as 50 percent too high in major cities, where even households with twice the U.S. median income of $47,845 often are unable to afford median home prices ranging from $400,000 to more than $600,000.

The overvaluation of homes has created a buyers strike as potential buyers sit on the sidelines waiting for prices to fall. How much prices have to drop to bring buyers back into the market has become a critical question for the housing market and the economy.

Hanging in the balance is not only the health of the housing and finance industries but also the accumulated wealth and chief asset of the nearly 70 percent of Americans who own their homes.

James Haffly, an Alexandria defense worker, would like to buy a house in the Washington area but thinks that prices are way too high and must come down substantially.

"Housing is out of reach for many folks here unless they have a rich relative," he said, noting that having a high-income, dual-earner family doesn't suffice anymore to buy a typical "starter" home for about $400,000.

He's hoping that the 1 million to 2 million foreclosures predicted nationwide this year will help to drive down prices to affordable levels.

"I mean, here we are at $125,000 a year, and to buy a home on the low end means spending 40 percent of our take-home pay. Something ain't right. I wouldn't buy in this market, not with rent amounts at half or less of what a house payment would be."

Mr. Haffly said he is willing to wait a year or more until prices fall to a level he can comfortably afford. Meanwhile, he can take advantage of the many good deals available on rental housing — sometimes offered by desperate real estate investors who are renting out properties to avoid foreclosure.

The eagerness of buyers to see prices drop puts them at odds with millions of homeowners and banks who financed home purchases and refinancings during the housing boom. These homeowners and lenders face big losses and even foreclosure if prices fall too far. The 5 percent to 25 percent drop in prices in some D.C. suburbs already has spawned record foreclosures and losses.

Ultimately, economists say, how far prices fall could be a critical factor determining whether the U.S. economy experiences only a mild downturn this year or a full-blown recession with wrenching dislocations for homeowners and bank failures that the nation hasn't experienced in nearly two decades.

"The underlying cause of the problems in the financial sector is a persistent fall in house prices," said John Makin, economist with the American Enterprise Institute for Public Policy Research. He expects prices to keep declining until next year for a cumulative reduction of 15 percent nationwide. Such a decline could involve much bigger drops in high-priced cities such as Washington.

Like many economists, Mr. Makin is concerned about the consequences of such big price drops. While it might make houses more affordable for first-time home-buyers, it is hurting homeowners who made a habit of tapping into their housing gains during the housing boom to finance an array of purchases from second homes to college educations. The home-fueled spending was an important impetus to economic growth in recent years.

"The drop in house prices has removed a large part of the elastic credit and wealth appreciation that helped to support consumption during the period of zero savings since the last recession in 2001," Mr. Makin said.

The tense standoff between buyers and homeowners is slowly playing out in the home sales market, where sales have fallen by half since 2006 as buyers wait for bigger price drops and better deals. Many homeowners are pulling their homes off the market rather than sell at steep discounts that buyers are demanding.

"Sellers continue to adjust their price expectations downward but not quickly enough to keep pace with declining demand," said Stephen Bedikian, research director at Real IQ, which tracks home prices in the top 20 U.S. markets.

The group found that price drops accelerated in high-priced cities such as San Francisco, San Diego and Washington at the end of last year after a credit crunch sharply restricted mortgage lending.

Three types of loans were particularly affected: jumbo mortgages of more than $417,000 needed to buy high-priced homes, loans for people attempting to buy homes with no down payment, and "subprime" borrowing by those with shaky credit.

Mr. Haffly puts himself in the latter two categories. He and his wife are attempting to repair their credit after problem credit-card debt put them into a troubled category. On top of that, they would need to finance 100 percent of their home purchase because they have not saved enough for a down payment.

The difficulty buyers are having getting loans is making it harder and even impossible for some to buy high-priced homes, putting further pressure on sellers to lower prices, analysts say.

David A. Levy, head of the Jerome Levy Forecasting Center in Mount Kisco, N.Y., estimates that house prices have to fall from 30 percent to 50 percent from their peaks now that many of the loan products that made homes affordable to first-time buyers have disappeared.

Estimates of how far prices must fall often are based on the historic relationship between home prices and rents. A model comparing the monthly cost of renting versus homeownership in major U.S. cities developed by RBS Greenwich Capital finds home prices overvalued by 24 percent in the D.C. area and 16 percent nationwide at the end of last year.

Among the biggest losers as prices continue to drop are banks and brokerages, which have provided mortgage financing for much of the nation's $23 trillion housing stock. Mr. Makin estimates a 15 percent drop in home prices would cause a $3.5 trillion loss of home values nationwide.

Such a gigantic loss eclipses the $1 trillion of capital banks and brokerages have on hand to offset their share of the losses, he said. Because of that, he predicts banks will be scrambling to shore up their finances — and as a result restricting lending to consumers and businesses — for some time to come.

Their troubles will weigh on the economy, which Mr. Makin expects to fall into recession. He also thinks that bank losses will lead to failures of some financial institutions and an eventual federal bailout of bank depositors that will eclipse the 1980s savings and loan bailout in size.

"This time, the cost — even excluding shareholders — could run to $500 billion," he said.
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Username: Admin

Post Number: 1463
Registered: 12-2004
Posted on Wednesday, January 23, 2008 - 12:00 pm:   Edit PostPrint Post

Gloria, I am familiar with that area. I literally go there for one reason or another every week. There is not much space left, it has been built up quite a lot and there are some really large office developments going on on land that used to be vacant for decades. With the expansion of Aventura mall and the entertainment complex less than half a mile towards Hallandale this area will see yet an increase in traffic. I also visit my doctor right there and aside from the Hospital you mentioned there are many physicians who have their offices too. Her spot seems desirable in terms of business. If you could find the right partner/investor you could have your own cash cow for years to come. Even more so if we are faced with higher and higher inflation down the road (very likely). Better than money in the bank if you lease anything to the medical community. Just an opinion...
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Advanced Member
Username: Saint

Post Number: 341
Registered: 5-2005

Posted on Wednesday, January 23, 2008 - 12:59 pm:   Edit PostPrint Post

Yes, Roberto. You are exactly right. You must look at those types of things. That's why I mentioned to Gloria looking to retain an active ownership position as it should be a "cash cow" for years to come.

Also, Gloria - your lawyer/realtor should market and talk to the other medical groups in the area. I was formally in health care so I know a good bit about this type of thing. Many medical groups need more space or looking to expand so see if they are interested as well. Also, find the owners that developed the other land around you in a 5 block radius and ask them if they are interested as well.

I think you may find that $800,000 might be really a low number compared to the final amount you can get. I'd really try to structure a deal where she either retains a small ownership position, equity or at least a deal for $X a year from future rentals for X years.

That's what I'd do anyway. Best.
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Username: Saint

Post Number: 342
Registered: 5-2005

Posted on Wednesday, January 23, 2008 - 2:45 pm:   Edit PostPrint Post

Some more pretty good articles:

Investors advised to streamline to survive

January 22, 2008 s/news/7_01_061_22_08.txt

Speakers at real estate gathering offer ways to weather recession

SAN DIEGO -- Real estate executives said during a Tuesday conference that investors need to position themselves to survive a tumultuous economy -- which they said already has entered a recession -- in part by calling on politicians to rethink their responses to the housing crisis.

The conference's keynote speaker, John Robbins of Wachovia Securities, said proposed legislation that allows bankruptcy judges to alter mortgage terms would add $3,000 to $4,000 in costs to the borrower for every mortgage.
"It says when the United States feels like it, it can negate any contract," said Robbins, managing director for Wachovia. "You'll kill the U.S. mortgage-backed securities market if you do that."

Mortgage-backed securities shift the loan's risk to investors. Without that, the risk of home loans would be added into the cost of borrowing, Robbins said.

Robbins, the immediate past president of the Mortgage Bankers Association, spoke to a group of about 540 businessmen and women involved in commercial real estate at the downtown Marriott Hotel and Marina in a conference hosted by the University of San Diego.

Other speakers at the conference offered advice under the assumption that the economy has already entered a recession, telling the audience that investors needed to get back to the fundamentals of financing and avoid the creative restructuring that has caused billions of dollars in write-downs by many major banks.

One example of bubble-era creative restructuring that speakers blamed a credit meltdown on was collateralized debt obligations -- securities that are sometimes backed by subprime loans with the highest credit ratings because of a complicated mathematical model, which was used, turned out to be inaccurate.

"Some guy put some numbers into a computer model and reverse-engineered it so it fit what the boss wanted to hear," said Burland East, managing principal for Silver Portal Capital. "It was a collaboration of stupidity."

East said the fallout from the subprime mortgages gone bad and the housing crisis will take a stark toll on real estate; he expects 75 percent of homebuilders to enter Chapter 11 bankruptcy and land will sell for 10 to 20 cents on the dollar.

Speakers at the conference said mortgages currently are more difficult to get, take longer to process and the collateralized debt obligation market has evaporated.

"One anecdote I've heard is, 'We're doing the deals that are low-hanging fruit and anything that's not, is placed at the back of the line. And if we don't get to them, we don't care,'" said Janice Sears, managing director for Bank of America.

East said he thinks the housing market will hit its lowest point in the third quarter of this year and then start to recover. As a cause for the housing depression, East pointed to younger financial workers who failed to identify and avoid the bubble.

"Every single cycle is the same. It's like a dog that gets into the trash can. You scold it and it doesn't go into the trash can for 15 minutes," East said. "But then it forgets and goes right back into the trash can. That's the market."

Fannie Faces Trouble From Mortgage Insurers om-mortgage-insurers/newsanalysis/serious-tools-se rious-investors/10399882.html?puc=_googlen?cm_ven= GOOGLEN&cm_cat=FREE&cm_ite=NA

The private mortgage insurance industry is under severe pressure from rising delinquencies and mounting losses. Now questions are swirling about how a potential blow-up in that sector will affect Fannie Mae .

As the largest purchaser of U.S. mortgages, Fannie Mae provides an essential backstop to the housing market. The government-sponsored entity, like its brother Freddie, purchases mostly standard 80% loan-to-value mortgages -- those for which the homebuyer puts down 20% equity.

Due to a quirk in its charter, Fannie Mae is allowed to purchase mortgages with loan-to-value, or LTV, ratios greater than 80% -- and as high as 100%. Generally, these are allowed only if the homeowner purchases mortgage insurance to cover the amount of the loan above 80%.
This business model works fine as long as Fannie Mae believes it can be reimbursed from the private mortgage insurers.

But as housing prices fall, borrowers are defaulting at a faster pace on high-LTV mortgages. In turn, private mortgage insurers -- who cover these risky loans -- have had their stocks crushed.
Shares of the three leading private mortgage insurers -- PMI Group ,MGIC and Radian Group -- have tumbled 30% to 70% over the past three months as investors worry about whether the companies can fund their payments to lenders as mortgage defaults rise.

There are a few looming questions regarding Fannie Mae exposure to the private mortgage insurers. One is whether Fannie Mae has adequately reserved for possible losses, because the company operates with the understanding that the insurers will pay it back.

The other issue is that if one of these insurers takes a massive hit, then Fannie Mae's underwriting standards may come under scrutiny, and the firm may be forced into buying fewer high-LTV mortgages in the future.

A Fannie Mae representative declined to comment on the issues.

Rival to Subprime Crisis

In November, defaults on privately insured mortgages rose 35%, to a record high of 61,000 nationwide, according to the Mortgage Insurance Companies of America, an industry trade group.

Worries about high-LTV mortgages are now replacing the worries about loans written to borrowers with low FICO scores -- so-called subprime borrowers. That's because falling housing prices across the country are creating situations in which homeowners are facing negative equity in their homes.

For instance, imagine taking out a 95% LTV loan and seeing you're home price fall 20%. You now have a 119% LTV loan.

In a recent research note, CIBC analysts said the "highest losses will be driven by LTVs, not FICO scores."

"Today, as a higher percentage of people own homes and many of them have taken on 'too much house' or high LTV loans, things are different," CIBC analyst Meredith Whitney wrote. "Many previously considered 'prime' customers who took on 80+% LTVs are performing closer to sub-prime loans."

Fannie Mae has $227 billion of exposure to mortgage loans in which the LTV ratios are greater than 90%. Overall, about 19% of the company's $2.4 trillion single-family mortgage book of business has private mortgage insurance or some other form of credit enhancement.
Troubles among bond insurers may provide a clue about how Fannie Mae would be forced to act if mortgage insurers' troubles grow.

Last week, Merrill Lynch decided to err on the side of caution by fully writing off $2.6 billion of default protection from bond insurers such as ACA Capital Holdings, because Merrill felt it was worthless. Specifically, $1.9 billion of the insurance came from ACA Capital, a financially distressed firm that is currently controlled by the Maryland Insurance Administration.

In its most recent quarterly filing, Fannie Mae said it had $130.3 billion of recoveries from private mortgage insurance policies and other credit enhancements. However, if the firm decides that portions of its mortgage insurance are useless, then increased default reserves -- and thus larger writedowns -- may be looming.

Fannie Mae has just $39.9 billion of shareholder equity to absorb these losses.

The mortgage insurers, meanwhile, are warning of big hits. Late Tuesday, MGIC said it expects losses of $1.3 billion in the fourth quarter.

The insurer also raised its paid loss forecast for 2008 to a range of $1.8 billion to $2 billion, worse than its previous estimate of $1.2 billion to $1.5 billion. The company warned that cure rates have continued to deteriorate, resulting in a higher percentage of delinquent loans that become paid claims.
Shares of MGIC were plunging 28% to $11.60 Wednesday.

Voices of Alarm

So far, Wall Street sell-side analysts have not expressed much concern about the issue for Fannie.

In a November 2007 research note, Lehman Brothers analyst Bruce Harting said Fannie Mae and Freddie Mac were "reasonably well insulated vis-à-vis the mortgage insurance industry in total."
However, some hedge fund managers have been taking a much more bearish stance on Fannie Mae.

One of the biggest public voices of concern has been Nandu Narayanan, chief investment officer of Trident Investment Management, a hedge fund that has been outspoken about shorting housing and credit-related plays. Narayanan previously worked as chief equity strategist with Caxton Associates, one of the world's largest hedge funds.

"It looks to us like a lot of the mortgage issuers will not survive if any kind of really bleak outcome comes to pass," Narayanan told Fannie officials on the firm's last earnings call in November.

"To the extent that some of their risks may not be insurable by them if they're not in existence, it comes back on your books," he said. "So there's clearly a much more complicated interlinked relationship you have with a number of other providers, which are all possibly at risk in this situation."
In response, Fannie Mae's chief risk officer Enrico Dallavecchia said the company believes that the mortgage insurance industry "will manage its capital position to meet the claims obligations that they have."

"I feel comfortable with the exposure that we have to the MI (mortgage insurance industry) at this stage," Dallavecchia said.

While the write-offs of existing mortgage insurance could be looming for Fannie Mae, another worry is that these increased losses will cause Fannie to curtail use of the insurance product in the future.

Fannie Mae continues to use mortgage insurance to buy loans at a maximum LTV of 95% these days, mortgage brokers say.
"What happens if Fannie realizes that mortgage insurance guarantees are worthless and decided not to take mortgage insurance-wrapped mortgages anymore?" says an analyst at a hedge fund that is shorting Fannie Mae and several mortgage insurance firms.

"The whole mortgage world will be turned upside down," the analyst says. "This is the real problem."

The New York Times

January 23, 2008

Worries That the Good Times Were Mostly a Mirage

So, how bad could this get?

Until a few months ago, it was accepted wisdom that the American economy functioned far more smoothly than in the past. Economic expansions lasted longer, and recessions were both shorter and milder. Inflation had been tamed. The spreading of financial risk, across institutions and around the world, had reduced the odds of a crisis.

Back in 2004, Ben Bernanke, then a Federal Reserve governor, borrowed a phrase from an academic research paper to give these happy developments a name: “the great moderation.”
These days, though, the great moderation isn’t looking quite so great — or so moderate.

The recent financial turmoil has many causes, but they are tied to a basic fear that some of the economic successes of the last generation may yet turn out to be a mirage. That helps explain why problems in the American subprime mortgage market could have spread so quickly through the world’s financial system. On Tuesday, Mr. Bernanke, who is now the Fed chairman, presided over the steepest one-day interest rate cut in the central bank’s history.

The great moderation now seems to have depended — in part — on a huge speculative bubble, first in stocks and then real estate, that hid the economy’s rough edges. Everyone from first-time home buyers to Wall Street chief executives made bets they did not fully understand, and then spent money as if those bets couldn’t go bad. For the past 16 years, American consumers have increased their overall spending every single quarter, which is almost twice as long as any previous streak.

Now, some worry, comes the payback. Martin Feldstein, the éminence grise of Republican economists, says he is concerned that the economy “could slip into a recession and that the recession could be a long, deep, severe one.” In Monday’s Democratic presidential debate, Barack Obama made the same argument: “We could be sliding into an extraordinary recession,” he said.

In the next breath, of course, Mr. Obama suggested that the right policies might still help, while Mr. Feldstein has said that a recession isn’t yet a sure thing. And much of the great moderation is real. Computers allow managers to run their businesses more efficiently and avoid some of the wild swings. The Fed and central banks in other countries have learned from their past mistakes.

But a recession is now more likely than not. It may well have started already. The Philadelphia Fed reported Tuesday that the economy shrank in 23 states last month, including Ohio, Missouri and Arizona, and was stagnant in seven others. California and Florida, with their plunging home values, may soon join the recession list.

The bigger question is how severe the recession will be if it does come to pass. The last two, in 1990-1 and 2001, have been rather mild, which is a crucial part of the great moderation mystique. There are three reasons, though, to think the next recession may not be.

First, Wall Street hasn’t yet come clean. Even after last week, when JPMorgan Chase and Wells Fargo announced big losses in their consumer credit businesses, financial service firms have still probably gone public with less than half of their mortgage-related losses, according to Moody’s They’re not being dishonest; they just haven’t untangled all of their complex investments.

“Part of the big uncertainty,” Raghuram G. Rajan, former chief economist at the International Monetary Fund, said, “is where the bodies are buried.”

As Mr. Rajan pointed out, this situation is more severe than the crisis involving Long Term Capital Management in the late 1990s. That was a case in which a limited set of bad investments, largely at one firm, had the potential to drive down the value of other firms’ holdings in the short term. Those firms then might have stopped lending money because they no longer had the capital to do so. But their own balance sheets were largely healthy.

This time, the firms are facing real losses, which will almost certainly curtail lending, and economic growth, this year.
The second problem is that real estate and stocks remain fairly expensive. This shows just how big the bubbles were: despite the recent declines, stock prices and home values have still not returned to historical norms.

David Rosenberg, a Merrill Lynch economist, says that the stock market is overvalued by 10 percent relative to corporate earnings and interest rates. And remember that stocks usually fall more than they should during a bear market, much as they rise more than they should during a bull market.

The situation with house prices looks worse. Until 2000, the relationship between house prices and rents remained fairly steady. The same could be said about house prices relative to household incomes and mortgage rates. But the boom of the last decade changed this entirely.

For prices to return to the old norm, they would still need to fall 30 percent across much of Florida, California and the Southwest and about 20 percent in the Northeast. This could happen quickly, or prices could remain stagnant for years while incomes and rents caught up.

Cheaper stocks and houses will benefit many people — namely those who don’t yet own a home and still have most of their 401(k) investing in front of them. But the price declines will also lead directly to the third big economic problem.
Consumer spending kept on rising for the last 16 years largely because families tapped into their newfound wealth, often taking out loans to supplement their income. This increase in debt — as a recent study co-written by the vice chairman of the Fed dryly put it — “is not likely to be repeated.” So just as rising asset values cushioned the last two downturns, falling values could aggravate the next one.

“What people have done is make an assumption that these prices could continue rising at the rate they had been,” said Ed McKelvey, an economist at Goldman Sachs. “And that does seem to have been an unreasonable assumption.”

Certainly, there are some forces to push in the other direction. Outside of Wall Street, corporate balance sheets remain remarkably strong, while the recent fall in the dollar will help American companies to sell more goods overseas.

But it’s hard not to believe that the economy will pay a price for the speculative binge of the last two decades, either by going through a tough recession or an extended period of disappointing growth. As is already happening, banks will become less willing to lend money, households will become less willing to spend money they don’t have and investors will become more alert to risk.

Welcome to the new moderation.
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 38
Registered: 12-2007
Posted on Wednesday, January 23, 2008 - 6:31 pm:   Edit PostPrint Post

Roberto thanks so much for your input! Yes, this area has become very desirable and as you state there is very little space left to build. I do like the idea suggested by Mike and now corroborated by you. Thanks again.
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Intermediate Member
Username: Welcometomendoza

Post Number: 113
Registered: 7-2007

Posted on Thursday, January 24, 2008 - 5:26 am:   Edit PostPrint Post

Of the 2 million American's facing adjustable rate mortgage resets this year, it appears that a percentage of them should want to refinance now due to the recent rate cut, to give them less sticker shock for a higher rate. I wonder what the percentage will be and how many are in trouble no matter what happens. Anybody know what the number of ARM's set to reset is in 2009?
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Advanced Member
Username: Saint

Post Number: 343
Registered: 5-2005

Posted on Thursday, January 24, 2008 - 6:22 am:   Edit PostPrint Post

The true number of ARM's I've seen different on many different websites and government sources. Even the FDIC has revised their numbers several times so really who really knows the true number. I don't really trust government sources when they are throwing out these kinds of facts and figures.

Here is an article below that talks about it. According to the FDIC only about 422,000 ARM's reset in 2009. They say 1.3 million ARM's will reset in 2008. But again, many different sources and governmental agencies are using different figures. My theory is that they are probably being "light" on their figures. Who knows what the real number is. To be conservative, I'd take whatever they are estimating and add on to that.

You can read the entire article here: ortgagemess.pdf+how+many+ARMs+will+reset+in+2009&h l=en&ct=clnk&cd=2


This article back in March 2007 was one of the ones that got my attention. I'm not sure if the figures are all accurate but look at what they say about the # and amount that reset in 2010. This subprime mess and ARM's look like there is still more pain to go. 2010 and beyond have double the amount that reset in 2007 according to this article. et-tsunami-could-end/story.aspx?guid=%7BECEE333A-2 2A2-4ECD-8C69-5ED431190A9E%7D

'Tsunami' of adjustable-rate mortgage resets coming

But higher monthly payments won't dent U.S. economy much, study says

March 23, 2007

SAN FRANCISCO (MarketWatch) -- Trillions of dollars worth of adjustable-rate mortgages will reset in the next few years. That could dent consumer spending, but the wave of resets may end up being a ripple for the U.S. economy.

More than $2.28 trillion worth of ARMs were originated in 2004, 2005 and 2006, at the peak of the recent housing boom, according to a study released this week by a unit of real estate data company First American.

Some of these loans have already reset at higher interest rates, but a lot more have yet to reset.
This year, almost $370 billion worth of first ARMs are resetting. More than $250 billion worth will reset in 2008 and 2009 and another $700 billion will do so in 2010 and beyond, the First American study estimates.

Rick Chance, head of the special situations advisory group at investment bank KPMG Corporate Finance LLC, reckons recent developments are only the beginning of what he calls a "tsunami" of mortgage resets and defaults that will wash over the economy during the next few years.

"That's got to have an impact on the economy and the consumers who have these mortgages," Chance said.
Still, Christopher Cagan, the author of the First American study, isn't so alarmed.

The ARM resets will cost an extra $42 billion a year, roughly 0.4% of the nation's gross domestic product he estimates. (Adding some context, he notes that Americans spend much more than $100 billion a year on booze.)

ARM "reset is best understood as a part of the overall business cycle rather than as a single dominant factor that will control the business cycle or break the economy," Cagan wrote.
Still, there will be pain, which will be most felt in the subprime corner of the mortgage market, which caters to the poorest borrowers with the most blemished credit records. he said.

The pain will also be felt in parts of the country that saw the most prevalent use of subprime mortgages and ARMs with affordability features such as teaser rates, Chance said.
He works in Orange County, Calif., a previously hot housing market where several subprime mortgage lenders were based.

"A few years ago, when we were in the parking lot, we'd see 20 year-olds driving Ferraris. What did they do? They all worked on the top floor in the subprime industry," Chance said.
"I don't see the Ferraris anymore," he added. "This boom created a lot of wealth for a lot of people quickly. But now there's a day of reckoning and it will affect lots of households."

Here it also says that in 2010 the number resetting will be DOUBLE the amount of 2008 and 2009 combined.

by Stephen Tetreault
March 26, 2007

In my humble opinion the contraction in the subprime mortgage market is just starting and it will no doubt lead to a significant retraction in and impede any near-term housing recovery despite what we have been hearing from the parade of so called experts being pranced about on the various bubblevision media channels. I have read recent reports (which I believe underestimate the contagion) that have forecasted that we will see a 20% - 30% reduction in available buyers (these are huge numbers folks) as these subprime borrowers will not now be able to get funding/loans over the ensuing months and years due to tighter restriction in credit. And I believe that this is only the tip of the proverbial iceberg as we are only seeing the beginning of the perfect-storm [a force 5-huricane] that will result from the impact of the subprime mortgage mess, and that this cancer will feed into the Alt-A borrower class of loans as well as it is just beginning to show up in the delinquency and foreclosure data that I have been reviewing these past weeks as such, it is way to fricking early for the fed-heads or the so-called self-professed housing guru’s to be proclaiming that the worst is over in the housing sector.

For the first time in our nation's history, a large number of Americans are going to be adversely impacted and many will most likely lose their homes even though they still may have a steady job or two in most cases. And unfortunately it's not just an issue for low-income people with those with poor credit and those with subprime loans. It will also affect people with good credit who qualified for a prime loans known as Alt-A mortgages (the proverbial middle-calls in America), these loans were written for 3 out of every in 10+/- mortgages and this could have a big impact on the overall economy and on credit markets and I believe it is significantly bigger, perhaps, than the effects of the recent subprime contagions.

Who are the main contributors to the housing-market implosion?

Bubble creator Greenspam and Helicopter Bernanke will be the main-players along with the other fed-heads and to some extent the brokerage-dealers and banks… they are responsible for the mega-bubble-implosion of the housing markets. I believe that the housing-market is on the threshold of suffering a serious collapse in many of the once hot-real estate markets. Jim Rogers, a true and seasoned market guru has warned that real estate in expensive bubble areas will drop 40 to 50%. Mainstream bubble-vision talking-butt-heads are stating just the opposite as they are basically reporting that the possibility of widespread defaults on subprime mortgages seeping over into prime mortgages is highly unlikely. I get sick to my stomach ever-time I hear this crap, as none of them even warned about the sun-prime cancer, not they want us to believe their unfounded hype. When this bubble finally starts to burst millions of Americans will be looking for someone to blame (and the fingers will be pointing everywhere). The democratically controlled Congress will certainly be holding hearings into subprime lending practices and “predatory” mortgages; and the next phase will be the role of brokerage and banks. We will no doubt hear a lot of grandstanding about how unscrupulous lenders took advantage of poor people, and how rampant speculation caused real estate markets around the country to overheat; and the hearings will take on an Enron type of cancerous contagion to those affected and the message will be the same: free-market capitalism “greed” when left unchecked, leads to irrational- market moves, fraud, and unethical if not illegal business practices (like the ones I have repeated-reported on….making FDIC issued loans to known illegal aliens). But unfortunately excessive-greed is not solely o blame for the housing mega-bubble, the FOMC and their hyper-inflating money supply is the real-culprit in my opinion. Their direct and indirect) in my opinion illegal” intervention in the economy through the manipulation of interest rates and the creation of “cyber-mystical” money has caused the huge bubble (debt-bubble) in the mortgage arena.

The FOMC has roughly increased by 440-500% the amount of dollars and credit in circulation just since 1990. Housing prices have risen dramatically not because of simple supply and demand, but because the Fed-heads have literally created demand by making the cost of borrowing money artificially low; as historically every-time when credit is very cheap, individuals (and corporations) tend to borrow much more than needed and they in turn spend recklessly without abandon believing that more easy money is just around the corner. It’s the age old premise of finding the next-bag-holder to pass off the hot-potato to….everything is fine as long as there is a greater fool to be found….Congress needs to get their proverbial head out of their ass…and stop kissing the ass of the fed-chairman and respective large brokerage firms like GS as the Federal Reserve provides the basic mother’s milk for all the booms and busts wrongly associated with a mythical “business cycle.” Imagine a Brinks truck driving down a busy street with the doors wide open, and money flying out everywhere, and you’ll have a pretty good analogy for Fed policies over the past 8-10 years. And until we get the FOMC out of the business of creating money out of thin air and setting interest rates, we will remain vulnerable to market bubbles and painful corrections. If housing prices plummet and millions of Americans find themselves owing more than their homes are worth, the blame lies squarely with Greenspam and FOMC in my opinion.

In the months and years ahead this cancerous credit-crunch will not only adversely effect those in the low-to-moderate income brackets but the 3cancer will most likely in my opinion hit millions of middle-class homeowners who took out riskier loans during the great housing boom earlier in the decade thinking that they could not lose. I have read reports that are forecasting that 1-2 million families will/could lose their homes in the next 1-4 years, while one study predicts the number of foreclosures could reach 2.4-3.00 million over the next 2-4 years….these are staggering numbers folks.

This threat to our economy and upon the highly sought after American Dream could have serious and powerful negative implications. This time is very different folks as in the past homeowners have generally lost their precious homes due to foreclosure when they suffered a major life-changing event such as (loss of their job, a major illness or death of a family member). Historically a big jump in the foreclosure-rates was unheard of outside of a deep a recession that brought about as through a significant higher unemployment rate.

We have also seen a compounding negative contagion that will only grow in my opinion over the next 1-4 years in the form of loans such as ( 0% down, no interest for 3-5 years, home equity loans for 100-125% of the current value of the home etc.) that were geared primarily utilized to allow people who could not…in reality in any other manner…afford to buy such an expensive home (or extrapolate more equity then by standard historically norms) ; which was unfortunately much more than they could truly afford in the first place, all it will take is just one blip in their incomes to trigger a default; and worse yet at some point, most of all of these risky-hybrid loans are going to soon adjust from these abnormally low monthly payments to significantly higher rates….and in the not-too-distant future, millions of or brothers and sisters Americans will be receiving letters if they have not already advising them that their mortgages are resetting/recasting with a dismal affect. Most so called economists that have been given air time on the various financial bubblevision media channels have stated that the problems won't spread beyond the poor, and that the extent of the losses to families, mortgage underwriters and investors will be small in the context of our $12-14 trillion dollar economy. And you all know that I have a significantly differing opinion as I believe that the risks are much more wide widespread and that the economy will be hit hard by these failures that will take on a cascading affect in the US credit market; and in my humble opinion, it will take years for our economy to recover from this cancerous affect. Its basic economic 101 as tighter lending standards, increased foreclosures, more homes being brought on the market, resulting in lower prices, and thereafter we will see less construction of new homes which will result in unemployed construction worker etc. will led to adverse implications of all parts of our economy and markets.

The data is proving my underlying premises to be right, as last year, 55% of Alt-A loans came with simultaneous second mortgages; while the average loan-to-value ratio was 89%; and more than 80% of all Alt-A borrowers chose to provide no documentation of their income, and 62% took an interest-only or option ARM that reduced their payments at the inception that would lead toward higher payments later. More than 28% of the Alt-A loans were one-year adjustable loans, not the five-year adjustable that has been the standard for prime borrowers in the past. So as you can infer this situation/contagion could get very ugly very fast!! Trillions of dollars worth of adjustable-rate mortgages will reset in the next few years. That could dent consumer spending, but the wave of resets may end up being a ripple for the U.S. economy. More than $3.29 trillion worth of ARMs were originated in 2004, 2005 and 2006, at the peak of the recent housing boom, according to a study released this week by a unit of real estate data company First American. This year, it is estimated that almost $470 billion worth of first ARMs will be resetting, and more than $420 billion worth will reset in 2008 and 2009 and another $975 billion will do so in 2010; as a result you can see how this wave can have on the economy.

A mortgage meltdown tsunami which in my opinion will rattle the economy; the first stage will come as a result of falling home prices; as with new supple coming onto the markets supply will increase and demand will continue to fall. And with the nearing increase of tougher mortgage underwriting standards we will see the elimination of 25-35 additional buyers from the pool of potential buyers, including 50% of the subprime buyers and 25% of the Alt-A buyers, according to estimates and research that I have reviewed. Its elementary as basically when the supply of homes grows; through foreclosures and new-homes dumped on the market by desperate sellers this depress prices (a supply/demand function), which in turn would further depress voluntary home sales and home building in a vicious downward cesspool type spiral.

Also when confronted with a weak market, many lower wage homeowners even numerous middle-class home owners facing higher resetting payment shock would find it difficult, if not impossible, to refinance their loan or sell their home for what they currently owe on it as home prices have been slipping downward. About 13-17% of the owners who face the unfortunate resetting of their mortgage rates this year have less than 3-5% equity in their homes, and therefore with tighter lending standards will be unable to refinance unless they have other hard tangible assets, and according to the industry research I have read if home prices fall 4-5% more the percentage of those with no equity would grow to 23-26%, this is a huge economic contagion folks…and if god forbid if home prices fall 8-10% the numbers could to 35-40%.

Now you ask why we should be so concerned about the housing market…well lets reflect on simple economics-101 when consumers have their discretionary incomes where they are severely impacted by higher mortgage rates it results in what we call a chilling effect on consumer spending and since the American consumer accounts for 65-75% of our economic activity the economy suffers. According to recently released Federal Reserve data, consumers have taken about $3 trillion in equity out of their homes in the past five years, adding about 7-8% to disposable incomes every year (hell their wages have been stagnate to decreasing when accounting for inflation). This ongoing scenario (cashing out equity) has consistently helped to boost kept the otherwise sagging economy, and it’s kept it humming however it has driven the personal savings rate below zero for over 2-years now the first time since the Great Depression.

If home prices continue to fall the American consumer's ability to continue to cash out home equity to feed their enormous appetites for spending will not only curtailed but significantly negatively impacted. What is also damaging to our overall economy will be the inability, of many consumers who have yet to extrapolate out any equity from their homes during this recent housing bubble. During this recent period where the housing bubble was increasing to mega proportions most homeowners experiencing rising equity, and they felt richer and didn't feel the need to save as much; however we see now that this situation/scenario called the paper “wealth effect” is coming to an end.

Also let’s face it folks homeowners are starting to be (and many more will be over the ensuing months/years) faced with much larger mortgage payments and you do not need to be a rocket scientist to determine that this will reduce their over all discretionary spending (especially on durable-goods and luxury expenditures) so as to avoid defaulting on their mortgages….this cut back in spending will affect many firms catering to these sectors.

The real $64,000 question that remains to be answered is what will happen to overall investor sentiment once these new contagions start to take root. If what I believe happens, happens then investor sentiment will start the erosion process with US investors and it has the potential to act like a cancer and undermine even global investor confidence. The result will most likely result in a general drying up of credit, and it will likely affect even the most qualified and untainted borrowers. The markets believe that helicopter Ben Bernanke come to the rescue and does he and his fed-heads even possess the know how or resources to be the saviors that everyone believes that they will be. So remember to ask yourselves can and will the fed come to the rescue and prevent an even more potentially more damaging crisis then we saw with the Asian financial crisis of 1997-98.

I sincerely believe that the markets haven’t even begun too priced in the risk associated with defaults on non-traditional loans, or of the even-more complex mortgage-backed derivatives; and I believe even investment-grade CDOs will experience significant losses if home prices continue to fall. And the contagions could take on a life of their own as any decreased the overall funding for mortgages from large banks, institutional investors and pension funds, and any such pull-back could set a chain affect creating a downward spiral in credit availability.

In the worst-case scenario involving a significant credit crunch (hopefully it will only be localized), is a ferocious cycle of weaker/lower spending, slower or hiring and most-likely lay-offs that could lead-toward mass-lay-offs, and these contagions will lead toward less income gains, tighter credit and significantly lower spending and it would result in the forcing our economy into a steep recession.
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Advanced Member
Username: Saint

Post Number: 344
Registered: 5-2005

Posted on Thursday, January 24, 2008 - 12:16 pm:   Edit PostPrint Post

Ouch...this has got to hurt! You would think in this day and age that this kind of thing was impossible. Just goes to show you that one individual can cause banks to lose BILLIONS of dollars. And this was just some lacky. Not exactly comforting to know that someone that isn't that important to a bank can cause them to lose BILLIONS of dollars. There are some SERIOUS risk management problems at the world's biggest banks.

SocGen reels from record $7 billion rogue trader fraud
January 24, 2008 c&printer=1;_ylt=AvPweMxr50WBRgIcvENrU3ub.HQA

A "massive fraud" by a junior rogue trader has punched a $7 billion hole in the finances of French bank Societe Generale (SOGN.PA), leaving its credibility in tatters and forcing it to get emergency cash.

France's central bank and government scrambled to shore up confidence in the banking system after Societe Generale, France's second-biggest bank, said on Thursday it had been the victim of massive and "exceptional" fraud resulting in losses of 4.9 billion euros.

Anxious to rebuild its shattered capital, the bank announced a capital increase of 5.5 billion euros, instead of beating a path to cash-rich sovereign wealth funds, as some U.S. banks have done during the recent credit slump.
It said the increase had already been underwritten by rival banks.

SocGen, one of France's oldest banks and a world leader in free-wheeling modern financial derivatives, said the losses came to light at the weekend and blamed a young backroom trader whom it said had tried to cover up bad bets on the stock market.
"It was an extremely sophisticated fraud in the way it was concealed," said Societe Generale Chairman Daniel Bouton, who offered to resign but has been asked to stay on.

Shares in the bank fell more than 6 percent to 74 euros.
"It is a serious case, but at the same time it has nothing to do with the situation on the financial markets," said Prime Minister Francois Fillon, speaking in Davos, Switzerland.
The Bank of France announced an inquiry by the Banking Commission. Governor Christian Noyer said SocGen had been able to overcome the crisis because it was "very solid."

If fraud is proved, the loss will be the biggest caused by a single trader, dwarfing the $1.4 billion loss by trader Nick Leeson that brought down British bank Barings in the 1990s.
SocGen declined to name the trader, but said he had been suspended pending dismissal after confessing to his actions.
It described him as a man in his thirties who had worked for SocGen since 2002 and earned less than 100,000 euros a year.
He now faces legal action from Societe Generale, which is in turn already being sued by a group of 100 angry shareholders.

The bank accused the trader of taking "massive fraudulent" positions in 2007 and 2008 on European equity market indexes, meaning he was gambling on broad movements in share prices.
When the bank discovered the concealed trades on January 19 and 20, it decided to close the positions in the market as quickly as possible, but this coincided with a sharp market sell-off, and the bank's losses on the deals spiraled to 4.9 billion euros.


Like Leeson before him, the trader apparently benefited from knowledge of the bank's control systems after working in the back office of its trading rooms, according to SocGen.
It said he had used a "scheme of elaborate fictitious transactions" to try to cover up his mistakes, but did not accuse him of profiting personally from his actions.

"He was not one of our stars," said a senior board member who declined to be named.

The announcement sent a shiver through the world banking industry, which is suffering a credit crunch as high-risk U.S. mortgage borrowers default on their loans.
Lehman Brothers CEO and Chairman Richard Fuld called it "everyone's worst nightmare" in a comment from the World Economic Forum in Davos, Switzerland.

In addition to the fraud, SocGen unveiled a further writedown of 2.05 billion euros related to the credit crunch.
"We get the feeling that the financial markets have become a big casino which has lost control. It seems incredible that the Societe Generale can lose 5 billion through one operator," said Alain Crouzat, a portfolio manager at Montsegur Finance.

Others said the crisis at SocGen, one of the top 10 banks in the eurozone by market value, could spell trouble elsewhere.
"The most serious thing is that this puts into doubt the risk-management systems at some banks," said Fortis analyst Carlos Garcia. "You can't suddenly announce this from one day to the next a hit of $7 billion. In the light of this, what we've done is to downgrade banks that are very linked to trading income or whose capital base is weak."

Analysts said the episode would have a major impact on the reputation of SocGen, which was founded in 1864 and is one of France's most prestigious blue-chip companies.
Several said the bank, which has for years been coveted by larger French rival BNP Paribas (BNPP.PA), could face a battle to remain independent.

Shares in BNP rose 7 percent.

SocGen said it expected a 2007 net profit of between 600 and 800 million euros, well below its 2006 profit figure.


Here is a good article on the situation with the SWF's. The USA government needs to be careful with their rhetoric as these SWF's are the only ones that have the money to bail out our USA banks. NO ONE else was stepping up to the plate to help out with BILLIONS of dollars.

'World a better place' thanks to sovereign funds
Funds, their government masters in spotlight at World Economic Forum

Jan. 24, 2008 alth-funds-inspire-fear/story.aspx?guid=%7B1DC5E52 D%2D807E%2D4950%2D9056%2DFD73CB8F2D17%7D&siteid=yh oof

DAVOS, Switzerland (MarketWatch) -- It's hard to find anyone unhappy with the decision of sovereign wealth funds to provide tens of billions of dollars to shore up U.S. and European banks ravaged by the subprime mortgage crisis.

"The world is a better place because of those transactions that have taken place over the past three months," said economist Lawrence Summers, the former U.S. Treasury secretary, in a panel discussion Thursday at the annual meeting of the World Economic Forum.

Nonetheless, the massive, government-controlled funds inspire fear as well as gratitude.

Their growing role in world capital markets has put the funds and their government masters in the spotlight at this year's gathering of elite corporate executives, financiers and politicians in the Swiss mountains.

Funds from the Middle East and Asia have combined to provide nearly $20 billion in additional investments to Merrill Lynch in recent weeks. That's made for a total of around $60 billion in investments in troubled banks since the subprime crisis began.

Rescue role aside, the combination of government control and the funds' growing footprint -- estimated at around $2.5 trillion and getting bigger -- has created a sense of unease in some quarters, prompting calls last fall from the Group of Seven industrial nations, for instance, for a code of best practices that would bar the funds from a range of politically motivated investment activities.

For their part, the fund managers say they don't understand what the fuss is about. There are no examples, they say, of a fund using market positions to manipulate a foreign nation's currency or to sway policymakers in a foreign capital.
The funds say the recent bank investments are characteristic of their overall investment style, seeking solid returns through acquiring "passive," non-controlling investments that are held for the very long term.

"Have you ever seen a sovereign wealth fund [with a position] leveraged 20 to 30 times and forcing a country to devalue its currency?" asked Bader M. Al Sa'ad, managing director of the Kuwait Investment Authority, in a panel discussion Thursday.
Such actions have only been undertaken by hedge funds, al Sa'ad said, referring to hedge-fund magnate George Soros' successful 1992 bet against the British pound that saw sterling ejected from Europe exchange-rate mechanism.

In the same discussion, Russian Finance Minister Alexei Kudrin saw a double standard at work in calls for a code of conduct.
When funds from developed economies "moved into markets and bought industries, we did not speak of restricting capital,"
Kudrin said. Now that funds from emerging economies are on the scene "we are having discussions about the aim of investment."
Summers, however, said he was "baffled" by the reluctance of sovereign wealth funds to put together a code of conduct prohibiting a range of activities they insist they would never undertake. Such measures would help to head off any future political backlash against the funds, he argued.

After all, the United States has chosen to invest its own Social Security Trust Fund solely in U.S. Treasury bonds, foregoing higher yields due to concerns that broader investments could create political conflicts, Summers noted. It's not unreasonable, therefore, for policymakers to seek assurances that the funds won't be used toward political ends.

A growing power

The attention being paid to the funds, many of which hail from regions where soaring prices for oil and other commodities have contributed to massive foreign exchange reserves, underscores the growing power of emerging economies, experts said.
Roger Kubarych, chief U.S. economist at UniCredit, said the funds are filling a demand for capital that other investors were unwilling to provide.

"It's a clear manifestation of the fact that we need them. We, meaning the various industrial countries, need whatever capital infusions people are willing to do," Kubarych said, in an interview last week.

Hedge funds are short-term oriented and private-equity firms aren't content to be passive investors. That leaves room for sovereign wealth funds to provide a form of "mezzanine capital, which is neither control-oriented nor short-term-trading oriented," Kubarych said.

Moreover, with sovereign wealth funds and other pools of government money expected to grow toward $15 trillion to $20 trillion in coming years, fund managers "will need capital markets to function and the capital markets need the liquidity," said Lehman Brothers CEO Richard S. Fuld Jr., in Thursday's panel discussion.

Meanwhile, U.S. politicians have been surprisingly subdued in their reactions to the sovereign wealth fund investments in banks, said Davos participants.

Indeed, one of the reasons politicians have been reasonably mute is that they finally realize the U.S. is a debtor nation, said C. Fred Bergsten, head of the Peterson Institute for International Economics, on Wednesday. That means they can't shut the door on needed capital infusions.

But Stuart Eizenstat, a veteran U.S. diplomat and international trade lawyer, said it was important for policymakers "to make sure that we keep the door open."

"If we put the stop sign in at a time we need" major infusions, the U.S. economy could face significant problems, he said in a Wednesday discussion.

Deputy U.S. Treasury Secretary Robert Kimmit, who participated in Thursday's panel discussion, acknowledged the funds have managed to invest without generating controversy. But he reiterated the G-7 case for a code of conduct, arguing that the rapid growth of the funds requires action to avoid the potential for future controversy.

"We welcome sovereign wealth fund investment and we don't fear it. But the growth in the number and significance means that vigilance is needed," Kimmit said.
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Advanced Member
Username: Saint

Post Number: 345
Registered: 5-2005

Posted on Thursday, January 24, 2008 - 4:52 pm:   Edit PostPrint Post tml?pagewanted=2&ei=5087&em&en=4e85881fe0057b04&ex =1201323600

January 24, 2008

A Fear That the Cure Could Be Poison

WASHINGTON — Even as the Federal Reserve grapples with the collapse of a speculative bubble in housing — the second speculative bust in less than a decade — is it at risk of repeating recent mistakes?

One day after the Fed slashed its benchmark interest rate to head off a possible recession, a small minority of economists warned on Wednesday that the central bank was in danger of invoking the same remedies that it did after the bubble in dot-com stocks burst seven years ago.

Though most experts agree that the economy is on the brink of a recession, and some even contend the recession has already begun, critics say the Fed’s attempted rescue looks uncomfortably similar to the aggressive rate reductions that aggravated the speculative bubble in housing.

“We’ve literally forgotten that this is the very policy environment that led to the housing and mortgage problems in the first place,” said Michael T. Darda, an economist at MKM Partners, an investment firm in Greenwich, Conn. “We’re not going to see another housing bubble, but we could see more inflation.”

Beyond the danger of higher inflation, some analysts warn that the Federal Reserve and its chairman, Ben S. Bernanke, could also lose credibility by appearing to act in knee-jerk response to plunging stock prices.

“They risk being seen as bailing out equity investors,” wrote Adam S. Posen, deputy director of the Peterson Institute for International Economics in Washington. “It makes it look as though stock market fears are driving the Fed to action.”

There are few signs yet of rising inflation, while the evidence is increasing that American economic growth has slowed to a crawl. Because a cooling economy usually damps inflation by reducing demand for goods and services, Fed officials are now far more worried about a painful slowdown than about inflation.

But other central banks are not following the Fed’s lead. Jean-Claude Trichet, president of the European Central Bank, strongly hinted on Wednesday that European policy makers would keep their benchmark rate unchanged.

“Particularly in demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility,” Mr. Trichet told the European Parliament in Brussels. The Bank of England is not expected to reduce rates quickly either.

European central bankers face challenges that are different from those the Fed confronts. Few European countries have a housing collapse even remotely comparable to that in the United States, though many European banks are suffering big losses on their holdings of American mortgage-backed securities.

But Mr. Trichet’s comments sent a chill through stock markets on both sides of the Atlantic on Wednesday. Stock prices in the United States endured another day of brutal swings, swooning badly in the morning and early afternoon and then skyrocketing back up at the end of the day. The Dow Jones industrial average closed up nearly 300 points.

For Mr. Bernanke, the biggest risk now is that financial markets will become paralyzed by fear and that investors, corporations and consumers will pull back on their investing and spending, setting in motion a spiral of economic decline.

Many economists argue that Fed policy makers were entirely justified in reducing the overnight Federal funds rate by three-quarters of a percentage point on Tuesday, to 3.5 percent, and investors are betting that the Fed will lower the short-term rate another half of a point at a policy meeting next week.

“Credit conditions have not gotten any easier,” said Robert J. Barbera, chief economist at ITG Hoenig, an economic forecasting firm. Because of the continuing anxiety about soured mortgages and the need for banks to keep large volumes of loans on their own balance sheets, Mr. Barbera said, the credit crisis is extending beyond subprime mortgages to many kinds of business borrowers.

But there are hints that the Fed’s rush to reduce interest rates has already had a slight impact on inflation expectations.

Mr. Bernanke and other Fed officials contend that inflation expectations are crucial to the actual course of inflation. Fed officials closely scrutinize two measures of popular expectations.

One, the University of Michigan’s monthly survey of consumers, offers reassuring evidence that consumers’ long-run expectations have not changed much, even though consumers do expect higher prices over the next year or two — a reflection of concern about higher energy prices.

The other measure is the difference between the prices of normal Treasury securities and an inflation-adjusted type, known as Treasury inflation-protected securities, or TIPS. The difference in prices is thought to reflect investors’ expectations about inflation.

Brian Sack, senior economist at Macroeconomic Advisers in Washington, said the premium on inflation-protected five-year Treasury securities widened slightly after the Fed announced its rate cut on Tuesday. The increase was small, to 2.52 percent from 2.47 percent, and Mr. Sack cautioned that it could simply reflect market noise. But he said the implicit inflation premium was at the upper range of its level in the past two years.

“One of the risks inherent in aggressive easing is the possibility of dislodging inflation expectations,” Mr. Sack said.

Mr. Posen of the Peterson economics institute predicted that the Fed’s new policy of lower interest rates would provide “too much rather than too little stimulus” and help push inflation noticeably higher in 2009 and 2010.

But Mr. Posen added that the Fed was facing undeniable pressures to act decisively against a potentially serious downturn.

Mr. Bernanke and other Fed officials are well aware of the risks, and of criticism by some experts that the Fed’s cheap-money policies from 2001 to 2004 may have aggravated the bubble in housing.

Indeed, Mr. Bernanke resisted demands from Wall Street to reduce interest rates faster. As recently as three weeks ago, the Federal Reserve’s official stance was that the risks of slowing growth were still roughly balanced against the risk of higher inflation.

If the Fed continues to lower interest rates, as many Wall Street analysts predict, Mr. Bernanke is nonetheless likely to absorb as many lessons as possible from its experience after the dot-com bubble burst.

Frederic S. Mishkin, a Fed governor with close ties to Mr. Bernanke, suggested in a speech in August what one of those lessons might be. If housing prices plunged, Mr. Mishkin said, the Fed should cut rates quickly and substantially. But once the economy begins to recover, he continued, the Fed should raise them back to normal almost as quickly.


January 24, 2008

Existing single-family home sales drop

Associated Press

WASHINGTON — Sales of existing homes fell in December, closing out a horrible year for housing in which sales of single-family homes plunged by the largest amount in 25 years. The median home price dropped for the entire year, the first time that has occurred in four decades.

The National Association of Realtors reported that sales of single-family homes and condominiums dropped by 2.2 percent in December to a seasonally adjusted annual rate of 4.89 million units.

For the year, sales of single-family homes were down by 13 percent, the biggest drop since a 17.7 percent plunge in 1982. The median price for a single-family home dropped 1.8 percent to $217,000.

That was the first annual price decline on records going back to 1968. Lawrence Yun, the Realtors' chief economist, said it was likely that the country has not experienced a decline in housing prices for an entire year since the Great Depression of the 1930s.

The new figures underscored the severity of the slump in housing, which has been battered for the past two years after enjoying a boom in which sales set records for five consecutive years.

The housing bust has sent shock waves through the entire economy as defaults have risen, resulting in multibillion-dollar loses for big financial firms whose investments in subprime mortgages have gone sour.

There is a concern that the housing and credit troubles could be enough to push the country into a full-blown recession. After global stock markets experienced a sharp sell-off earlier this week, the Federal Reserve announced a bold three-quarter point cut in a key interest rate and held out the promise of more rate cuts to follow.

The Bush administration and congressional leaders are trying to quickly wrap up negotiations on a stimulus package in an effort to boost consumer and business confidence.

For December, sales were down in all regions of the country. Sales fell by 4.6 percent in the Northeast, 1.7 percent in the Midwest, 1 percent in the South and 2.1 percent in the West.

The inventory of unsold homes dropped by 7.4 percent, raising hopes that backlogs that had hit record levels were starting to be reduced, a key factor necessary to prompt a rebound in the market.

While Yun said he expected sales to start to rebound this spring, other analysts said housing is likely to remain in the doldrums throughout most of 2008, reflecting in part the credit crunch, which has caused lenders to tighten their standards, making it harder for prospective buyers to qualify for loans.

In other economic news, the Labor Department said Thursday that the number of laid off workers filing claims for unemployment benefits fell for a fourth straight week, dropping by 1,000 to 301,000.

Many economists cautioned that they still expected layoffs to start rising in coming weeks, reflecting the sharp economic slowdown that has taken place.

The economy, after racing ahead at an annual rate of 4.9 percent in the July-September quarter, probably slowed to a weak 1 percent rate in the final three months of 2007 and may even fall into negative territory in the current January-March quarter.

A recession is often defined as two consecutive quarters of falling economic output. Many economists believe the risks of a full-blown downturn are roughly 50-50.

The growing worries about the economy in an election year have captured the attention of President Bush and congressional leaders who are working to put together a $150 billion economic stimulus package that will include tax relief for households and businesses in an effort to bolster economic activity.

The drop in unemployment applications to 301,000 for the week ending Jan. 19 left total claims at the lowest level since 300,000 were recorded during the week of Sept. 22.

For the week of Jan. 19, 36 states and territories had increases in claims while 17 had declines.

The biggest increase occurred in California, up 27,194, an upsurge blamed on higher layoffs in construction and service industries, and Florida, with an increase in layoffs of 8,496, which was attributed in part to higher layoffs in construction. California and Florida have been particularly hard hit by the housing slump.
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Intermediate Member
Username: Welcometomendoza

Post Number: 114
Registered: 7-2007

Posted on Thursday, January 24, 2008 - 5:22 pm:   Edit PostPrint Post

Yeah ApartmentsBA that's amazing that french trader - probably more tip of the iceberg stuff..

What also was amazing is how the gold and the dollar closed today - if I was short-term trading those I would have bought gold (even at 910) , and shorted the buck...for what may be a short term surge in those directions here in the days to come....unless there are massive reversal coming lol- oh so fun to watch at least..

The world economic forum in Geneva is kicking out some great topics ( I find the water issue amazing, since the planet is more water thn land..and in all this techno life here in the 21st century, why havn't we invented mass methods to get the water out of the oceans and delivered to the appropite's sort of like not investing in oil infrasturcue in the 70's....duh

Bill Gates did a great (in my opinion) concept speech on Creative Capitalism and he's right I think...the big differemce between now and the 1930's of how to come out of all of this chaos productivley.

source: .html?mod=googlenews_wsj

Wealth of Ideas: Bill Gates Issues
Call for a Benevolent Capitalism
Davos Speech Sets a Plan to Use Market Forces
To Help Poor Countries; 'We Have to Find a Way'
January 24, 2008 2:10 p.m.

Free enterprise has been good to Bill Gates. But on Thursday, the Microsoft Corp. chairman called for a revision of capitalism.

In a speech at the World Economic Forum in Davos, Switzerland, the software tycoon called for a "creative capitalism" that uses market forces to address poor-country needs that he feels are being ignored.

"We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well," Mr. Gates told world leaders at the forum.

Mr. Gates isn't abandoning his belief in capitalism as the best economic system. But in an interview with the Journal last week at his Microsoft office in Redmond, Washington, Mr. Gates said he has grown impatient with the shortcomings of capitalism. He said he has seen those failings first-hand on trips for Microsoft to places like the South African slum of Soweto, and discussed them with dozens of experts on disease and poverty. He has voraciously read about those failings in books that propose new approaches to narrowing the gap between rich and poor.

In particular, he said, he is troubled that advances in technology, health care and education tend to help the rich and bypass the poor. "The rate of improvement for the third that is better off is pretty rapid," he said. "The part that's unsatisfactory is for the bottom third -- two billion of six billion."

Three weeks ago, on a flight home from a New Zealand vacation, Mr. Gates took out a yellow pad of paper and listed ideas about why capitalism, while so good for so many, is failing much of the world. He refined those thoughts into the speech he gave at the annual Davos conference of world leaders in business, politics and nonprofit organizations.

Among the fixes he called for: Companies should create businesses that focus on building products and services for the poor. "Such a system would have a twin mission: making profits and also improving lives for those who don't fully benefit from market forces," he said.

Mr. Gates's Davos speech offers insight into his goals as he prepares to retire in June from full-time work at Microsoft -- where he will remain chairman -- and focus on his philanthropy, the Bill & Melinda Gates Foundation.

Mr. Gates sees a role for himself spurring companies into action, he said in the interview. "The idea that you encourage companies to take their innovative thinkers and think about the most needy -- even beyond the market opportunities -- that's something that appropriately ought to be done," he said.

His thoughts on philanthropy are closely heeded because of the business success that made Mr. Gates one of the world's richest men. His eight-year-old charity is expanding rapidly following the 2006 decision by Warren Buffett to leave his fortune to the foundation. That donation, at the time valued at about $31 billion, increases to some $70 billion the hoard Mr. Gates says will be given away within 50 years of the deaths of him and his wife.

Serving the Poor

But Mr. Gates's argument for the potential profitability of serving the poor is certain to raise skepticism. "There's a lot of people at the bottom of the pyramid but the size of the transactions is so small it is not worth it for private business most of the time," says William Easterly, a New York University professor and former World Bank economist.

Others may point out that poverty became a priority for Mr. Gates only after he had earned billions building Microsoft into a global giant.

Mr. Gates acknowledges that Microsoft early on was hardly a charity. "We weren't focused on the needs of the neediest," he said, "although low-cost personal computing certainly is a tool for drug discovery and things that have had this very pervasive effect, including the rise of the Internet," he said.

Although Microsoft has had an active philanthropic arm for two decades, only in 2006 did it start seriously experimenting with software in poorer counties in ways that would fit Mr. Gates's creative-capitalism idea. Under that 2006 program, handled by about 180 Microsoft employees, the company offers stripped-down software and alternative ways of paying for PCs to poorer countries.

With Thursday's speech, Mr. Gates adds his high-profile name to the ranks of those who argue that unfettered capitalism can't solve broad social problems. Muhammad Yunus, the Bangladeshi economist who won the 2006 Nobel Peace Prize for his work providing small loans to the poor, is traversing the U.S. this month promoting a new book that calls capitalism "half developed" because it focuses only on the profit-oriented side of human nature, not on the satisfaction derived from helping others.

Key to Mr. Gates's plan will be for businesses to dedicate their top people to poor issues -- an approach he feels is more powerful than traditional corporate donations and volunteer work. Governments should set policies and disburse funds to create financial incentives for businesses to improve the lives of the poor, he said Thursday. "If we can spend the early decades of the 21st century finding approaches that meet the needs of the poor in ways that generate profits for business, we will have found a sustainable way to reduce poverty in the world," Mr. Gates said.

In the interview, Mr. Gates was emphatic that he isn't calling for a fundamental change in how capitalism works. He cited Adam Smith, whose treatise, "The Wealth of Nations," lays out the rationale for the self-interest that drives capitalism and companies like Microsoft. That shouldn't change, "one iota," Mr. Gates said.

But there is more to Adam Smith, he added. "This was written before 'Wealth of Nations,' " Mr. Gates said, flipping through a copy of Adam Smith's 1759 book, "The Theory of Moral Sentiments." It argues that humans gain pleasure from taking an interest in the "fortunes of others." Mr. Gates quoted from that book in his speech.

Talk of "moral sentiments" may seem surprising from a man whose competitive drive is so fierce that it drew legal challenges from antitrust authorities. But Mr. Gates said his thinking about capitalism has been evolving for years. He outlined part of his evolution from software titan to philanthropist in a speech last June to Harvard University's graduating class, recounting how, when he left Harvard in 1975, he knew little of the inequities in the world. A range of experiences including trips to Africa and India have helped raise that awareness.

In the Harvard speech, Mr. Gates floated the idea of "creative capitalism." But at the time he had only a "fuzzy" sense of what he meant. To clarify his thinking, he decided to prepare the Davos speech.

On Jan. 1, following a family vacation, Mr. Gates boarded a commercial flight in Auckland, New Zealand, and during the 21-hour, two-layover journey back to Seattle, he started writing his speech.

The Sword Swallower

He drew from influences ranging from the leading thinkers on capitalism and a sword-swallowing Swedish health expert to Norman Borlaug, the plant pathologist who won the 1970 Nobel Peace Prize for his role in the Green Revolution that boosted food production. A long talk with his wife, Melinda, in the first week of January also helped shape the speech, Mr. Gates said.

In setting up his foundation in 2000, Mr. Gates understood that widespread criticism existed of programs to help the poor. U.S. aid had often been motivated by broader Cold War goals and often had failed to advance living conditions for the world's poor. Successful programs, such as the Green Revolution, were overshadowed by growing awareness of their negative side effects on the environment and local cultures.

Meanwhile, companies including Microsoft had donated huge amounts of cash and products to developing countries without seeking to create sustainable growth. Free Microsoft software in some countries spawned broad use of computers, while in "other places you announce a big free software grant, come back a few years later, nothing," Mr. Gates said.

His growing awareness of such limits sparked new ideas on how businesses could approach poor countries. At a dinner near Seattle in 2004, Mr. Gates met one of the leading thinkers on that front, C.K. Prahalad, a University of Michigan professor who had written "The Fortune at the Bottom of the Pyramid." In that article and a subsequent book by the same title, Mr. Prahalad proposed that the world's four billion poorest people represented a huge market for companies willing to try.

Other books influencing Mr. Gates included "The Mystery of Capital" and "Good Capitalism, Bad Capitalism and the Economics of Growth and Prosperity" and "The Bottom Billion." This reading helped inform Mr. Gates's belief that leading companies should find ways to sell to and work with the poorest. "You have people who are inciting companies to say, 'Look, this is a lot of people,' " Mr. Gates said.

Mr. Gates in his speech noted several programs that "stretch the reach of market forces," including a World Health Organization venture with an Indian vaccine maker to sell a meningitis vaccine in Africa for far less than existing vaccines. He also highlighted a new program designed to give African coffee farmers better access to coffee buyers in rich counties. "We don't need some dramatic big new tax or requirement," Mr. Gates said in the interview. "What we need is the recognition of the creativity here that some of the leaders are exercising."

To a degree, Mr. Gates's speech is an answer to critics of rich-country efforts to help the poor. One perennial critic is Mr. Easterly, the New York University professor, whose 2006 book, "The White Man's Burden," found little evidence of benefit from the $2.3 trillion given in foreign aid over the past five decades.

Mr. Gates said he hated the book. His feelings surfaced in January 2007 during a Davos panel discussion with Mr. Easterly, Liberian President Ellen Johnson Sirleaf and then-World Bank chief Paul Wolfowitz. To a packed room of Davos attendees, Mr. Easterly noted that all the aid given to Africa over the years has failed to stimulate economic growth on the continent. Mr. Gates, his voice rising, snapped back that there are measures of success other than economic growth -- such as rising literacy rates or lives saved through smallpox vaccines. "I don't promise that when a kid lives it will cause a GNP increase," he said. "I think life has value."

Brushing off Mr. Gates's comments, Mr. Easterly responds, "The vested interests in aid are so powerful they resist change and they ignore criticism. It is so good to try to help the poor but there is this feeling that [philanthropists] should be immune from criticism."

Belief in Technology

A core belief of Mr. Gates is that technology can erase problems that seem intractable. That belief was deepened, Mr. Gates says, by his study of Julian Simon, a now-deceased business professor who argued that increases in wealth and technology would offset shortages in energy, food and other global resources.

Pacing in his office last week, Mr. Gates retold the story of a famous $10,000 wager between Mr. Simon and Paul Ehrlich, a Stanford University professor who predicted that human population growth would outstrip the earth's resources. Mr. Simon bet that even as a growing population increased demand for metals such as tin and copper, the price of those metals would fall within the decade ending in 1990. Mr. Simon won the bet. "He cremated the guy," says Mr. Gates. Mr. Ehrlich's administrator at Stanford said he was out of the country and couldn't comment on the wager.

In early 2006, Mr. Gates found further evidence of an improving world in the online video of Hans Rosling, a Swedish professor of international health. In the video, Prof. Rosling used an enormous animated graph to show that in the previous four decades life expectancy and family size in developing countries had come to approach the levels of developed countries.

The video so inspired Mr. Gates that he bought dozens of copies of Prof. Rosling's textbook on global health. Watching Prof. Rosling's most recent video last year, Mr. Gates saw the professor end his talk about improving global health by swallowing a Swedish army bayonet, "to prove that the seemingly impossible is possible," the professor said.

Mr. Gates wove the influence of such optimists into his comments Thursday. "In the coming decades we will have astonishing new abilities to diagnose illness, heal disease, educate the world's children, create opportunities for the poor and harness the world's brightest minds to solve our most difficult problems," he said.

Describing himself as an "impatient optimist," Mr. Gates said he would ask each of his Davos listeners to take up a "creative capitalism" project in the coming year.

And he vows to keep prodding them. "I definitely see, once I'm full-time at the foundation, reaching out to various industries -- going to cellphone companies, banks and more pharma companies -- and talking about how...they can do these things," he said.

Write to Robert A. Guth at
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Advanced Member
Username: Saint

Post Number: 346
Registered: 5-2005

Posted on Saturday, January 26, 2008 - 8:34 am:   Edit PostPrint Post

You are going to read about a lot of people getting out of their purchase contracts on new construction projects due to mistakes make while drafting the contract. These problems with the HUD issue and exemptions are happening on more and more projects.

I personally know several clients that are backing out on deals due to this issue and are extremely glad there are “legal loopholes” considering that some economists are saying prices in Florida need to fall another 30% before prices get realistic. The inflated prices of earlier years only went up because of all the bogus loans that banks gave out to people that they never should have given.

The sad part is many people thought they were “millionaires” due to the artificial value of their houses rising and now they feel like a guy that thought he had all 6 numbers to a lottery ticket, went out and bought a lot of new things and then went to cash in the ticket to discover one of the numbers was off and instead of willing $1 million he won $5,000.

Mistake voids deals on condos

People who bought into a $100-million Clearwater project can get refunds. stake_voids_deals_o.shtml

Published January 24, 2008


Clearwater leaders hailed the $100-million Water's Edge condominium tower as the catalyst that would kick-start downtown by creating a high-class residential base.
With 153 stylish condos, most scheduled to be ready by July, officials were counting on the influx of new homeowners to lure shops and restaurants to the area.

But a newly discovered mistake in the purchase contract between buyers and the seller threatens to puncture the city's vision and leave the developer with a mostly empty tower.
After reviewing the contract, lawyers for Water's Edge concluded the language wasn't tailored specifically enough to qualify for an exemption the project took from the U.S. Housing and Urban Development.

The upshot for the 109 buyers: Their contracts are null and void. Buyers can opt out of the sale and get their deposits refunded, plus interest.

With the condo market in a downward spiral, some local real estate agents, brokers and city leaders expect that to happen.
"There's no way to sugarcoat it, this isn't good news," Vice Mayor John Doran said.

Others, though, are trying to remain positive, saying the developer has offered discounts deep enough to keep some buyers.

Here's what happened:

Federal law requires large residential developments to provide HUD with a property report detailing the project. But if the developer includes language in the contract that guarantees the project will finish within two years or buyers can get their money back, then the developer doesn't have to give HUD the report.

Water's Edge officials thought they were exempt. But during a recent review by the company's lawyers, they decided the contract wasn't clear enough to meet the exemption.
Water's Edge late last week sent letters to its buyers, giving them two options:

-Sign a new contract that is compliant with federal law and get a discount. Brokers and buyers told the St. Petersburg Times that the developer knocked 10 percent off the original price. Water's Edge officials say the reductions differ based on where the condo is located in the tower.

-Receive a full refund of the deposit and any money advanced with interest.

HUD spokesman Brian Sullivan confirmed that Water's Edge is working "to make good" on the requirements. Water's Edge is not suspected of intentionally violating the law.

Water's Edge vice president of real estate Tony Martin said he's very optimistic buyers will stick with the project but concedes some will probably opt out. He declined to say whether his company would seek action against the attorneys who made the mistake.

"This is one of the most attractive properties that the buyers will ever find in that market, and I think most will take a look at the potential growth down the road and the excellent value and stay on," Martin said. "We're going to weather it, and whether there's a big effect or not, it's too early to tell. We just want to do right by our buyers."

The building is scheduled to be finished on time and within the two years mandated by the HUD exemption, he said.
Martin said since the buyers just received the notices, only "a very minimal" number so far have contacted his staff, and reactions have been mixed.

However, given the deteriorating market, some speculators may be looking to get out of their contracts, real estate experts say. But just how many is still uncertain.
Jackie Diaz, a Clearwater Beach resident and Realtor with JMC Realty, said she's not sure whether she'll follow through with her purchase of a $1.5-million three-bedroom, three-bath penthouse with a winding staircase.

Diaz, who sold 13 units in the tower, is waiting to see what her clients do. She said if they stay, then she'll be able to afford her condo. If they don't, she loses the valuable commissions from the sales.

Many of the buyers were investors and will probably walk, Diaz said.

"I don't know what's going to happen," she said. "I have a few who will stay, I know that.

"They're very beautiful (condos), and I love the place, but right now we have to wait and see."

The tower, downtown's largest building, sits atop a 40-foot limestone bluff next to City Hall. It boasts views of the Clearwater Harbor and the beach.

Water's Edge, a subsidiary of Tampa-based Opus South, which has built stylish condos in Naples and St. Petersburg, set prices starting in the $400,000s, with 12 penthouses for as much as $2-million. Marketing was launched a few months before the condo market soured in 2005, with buyers laying down deposits of at least 20 percent of the price.

The 25-story project not only created buzz but new confidence in downtown, city officials said.

Joanne Hiller, a broker and owner of Island Estates Realty, said she has about six clients who purchased units there, but they have not yet made a decision.

Vice Mayor Doran, who was disturbed by the news, said he doesn't expect people "to pull out en masse" and hopes the discounts will convince speculators to stay and make a few extra dollars in the future.

But Jim Warner, a broker with VIP Realty on Sand Key, said he knew one speculator who was ready to walk away even before the mistake was discovered.

"That's the option," Warner said. "They should build a big door because that's where people are going to go - out."


The positive thing is the homebuilders now are being realistic. They know the downturn will last a few years. All of them are admitting it now which is a good sign. It will take time to get the glut of homes off the market and only then will prices start to go up again. Many homebuilders will go bankrupt before it’s all said and done (some already have).


Ryland's CEO sees no end to the slump

January 25, 2008 5,1,3859695.story?ctrack=1&cset=true

The head of homebuilder Ryland Group Inc. didn't offer much hope for a quick turnabout as he discussed his firm's losses Thursday, saying there is no end in sight for the housing slump.

R. Chad Dreier, chairman and chief executive of the Calabasas-based company, said home prices were "very high" in both Northern and Southern California. Despite recent price declines, "it would take a pretty strong deal, with a great price and good terms to convince me to jump into that market," he said during a conference call with analysts.

Ryland said it lost $201.9 million, or $4.80 per share, in the fourth quarter -- 10 times the estimate of analysts surveyed by Bloomberg News.

That compared to a gain of $87 million, or $1.98 per share, a year earlier. Revenue fell to $854 million, from $1.3 billion.

For the year, Ryland lost $333.5 million, or $7.92 per share, compared to net income of $359.9 million, or $7.83 in 2006. Annual revenue dropped 38% to $3 billion.

Shares of Ryland fell 69 cents Thursday to $30.53.

Dreier called the housing market "one of the toughest in my 30 years" in the homebuilding industry. He said "it's too hard to call a bottom" for falling prices but that historically downturns last two to three years.

His observations were matched by news that the pace of USA existing home sales fell by 22% in December from the previous year, according to the National Assn. of Realtors.

Re-sales of houses and condominiums for all of 2007 were down 13% from 2006, the group said.

The number of homes for sale dropped in December by 7.4%, to 3.9 million units. That represents a 9.6 month supply of homes at the current sales pace, down from 10.1 months in November.

NAR chief economist Lawrence Yun called the fall in inventory "encouraging" but said "inventories remain elevated, and buyers have a clear edge over sellers in many markets."



-- For those of you that follow my posts in detail you read last year how I flew to Spain a few times to look at the real estate market there. I posted how prices were too high and people were also too leveraged with loans. Now we are seeing that the predictions were correct and the bubble is bursting in Spain as predicted. Too much cheap and easy credit. We should see a lot of defaults and foreclosures start to happen there as well in the next 2 years. d=aQLr.wJu05yk&refer=europe#

Santander, Cajas Penalized as Bondholders Avoid Spain (Update3)

Jan. 23 (Bloomberg) -- Banks in Spain are being penalized as fallout from the U.S. subprime market makes its way to the country that contributes most to Europe's economic growth.

Lack of demand forced at least five Spanish financial institutions, including Banco Santander SA and Ahorro Corporacion Financiera SV, to cancel mortgage-backed bond sales between August and November, and no bank in the country has done a deal since then, data compiled by Bloomberg show. The difference in yields between AAA rated mortgage-backed notes and benchmark interest rates has more than quadrupled since July, leaving Spain with the widest spread in Europe, UniCredit SpA says.

Losses from rising home foreclosures in the U.S. are making bondholders more wary as Moody's Investors Service forecasts a 15-fold surge in Spanish mortgage defaults this year. The country's interest rates have doubled since 2004, hurting the bulk of borrowers who have adjustable rates. Home prices are falling for the first time in a decade, and household debt is 130 percent of income, twice the ratio in 2000, Bank of Spain data show.

``The subprime crisis is raising concerns about overheated property markets, especially Spain,'' said Raphael Gallardo, a strategist at Axa Investment Managers in Paris who helps oversee 600 billion euros ($876 billion) of assets. ``The real estate bubble is bursting. A lot of investors in Spanish mortgage-backed bonds may be hurt.''

Investor Concern

Spanish home loans account for 30 percent of the euro area's $1.2 trillion of outstanding mortgage-backed bonds, and the country's banks are Europe's second-biggest issuers after the U.K., according to Milan-based UniCredit, Italy's biggest bank. Since July, banks have publicly sold 2.55 billion euros of mortgage-backed debt, a fraction of the more than 72 billion euros sold in the first half, UniCredit data show.

Lenders sell pools of mortgages to investors to transfer the risk of borrower defaults and reduce the amount of capital they're required to hold as a cushion against losses. About two- thirds of Spain's mortgage-backed debt is sold to international investors, according to the Bank of Spain.

``Investors are concerned that the Spanish housing market will collapse as the U.S. market is doing now,'' said Meyrick Chapman, a London-based rates strategist at UBS AG, Europe's biggest bank.

Sales Scrapped

Santander, Spain's biggest bank by market value, scrapped a 1 billion-euro sale of asset-backed bonds in September, while Ahorro Corporacion Financiera, the Madrid investment group owned by 43 Spanish savings banks and known as Cajas, canceled the sale of at least $2 billion of covered bonds. Banco Popular SA, the third-largest bank, had intended to sell about $2 billion, and Bankinter SA, No. 6, at least 500 million euros of debt. Caja Madrid, No. 2 among savings banks, delayed the sale of 400 million euros of collateralized loan obligations.

Santander declined 4.8 percent, or 57 cents, to 11.27 euros in Madrid, after touching the lowest in 1 1/2-years yesterday. Banco Popular stock fell 1 percent to 9.51 euros and Bankinter dropped 44 cents, or 4.4 percent, to 9.61 euros.

The price of mortgage-backed securities issued by Santander in April dropped to 97.4 percent of face value from about 100 at the end of June, data compiled by Bloomberg show.

Debt with a similar five-year average maturity sold by HBOS Plc, the U.K.'s largest mortgage provider, fell to 98.57 percent in the past six months, while securities issued by Utrecht, Netherlands-based SNS Bank NV decreased to 98.38 percent. Notes sold by UniCredit fell to 97.87.

AAA rated mortgage-backed debt in Spain yields 0.90 percentage point more, on average, than the euro interbank offered rate, or Euribor, up from 0.20 percentage point more in July, UniCredit data show. The difference in the U.K. is 0.80 percentage point, and in the Netherlands, 0.60 percentage point.

Property Boom

Homeowners and developers owe Spanish banks 1 trillion euros in mortgages, more than three times their obligations in 2001, according to the Bank of Spain. The 443 billion euros of commercial mortgages to property and construction firms makes up about half of all corporate loans in the country.

Spain enjoyed the fastest-growing real estate market in Europe as retirees and foreign buyers snapped up 20 percent of the country's houses over the past decade, according to Vacation Homes Agency, a Madrid-based property industry trade group. The average price of a home in Spain has more than doubled since 2000 to 290,500 euros, data compiled by Sociedad de Tasacion SA, a Madrid-based property valuation company, show.

Price Fall

Deutsche Bank AG estimates Spanish house prices may fall as much as 8 percent this year as the highest European Central Bank interest rates in more than six years curb consumer spending.

Though loans aren't designated prime or subprime, about 95 percent of the country's mortgages have floating rates, according to Frankfurt-based investment bank Dresdner Kleinwort. Spanish developers and homeowners may be delinquent on 5.5 percent of total property loans by the end of 2008, up from 0.37 percent now, according to New York-based Moody's.

Spain is ``more vulnerable than other economies, due to its rapid lending development and the large amount of loans bearing variable interest rates,'' said Jean David Cirotteau, a Paris- based analyst at Societe Generale SA.

Bank Reserves

One reason Spanish banks may be able to weather a property market slump is the country's conservative reserving requirements, according to New York-based Morgan Stanley, the second-largest U.S. securities firm.

Banks on average have set aside reserves that account for 250 percent of their delinquent loans, compared with 63 percent for the rest of Europe. The country's central bank set rules in December 1999 that help banks cushion against loan losses when economic growth slows.

``With the current provisions, Spanish banks can face an increase in defaults of at least three times'' the current default rate on their loans, said Eva Hernandez, a bank analyst for Morgan Stanley in London. ``In most cases, the non-performing loans account for less than one percentage point of total credit awarded to clients.''

Since November, none of Spain's banks have raised money from unsecured bonds in the fixed-income market either, according to Bloomberg data.

As a short-term fix, they almost tripled borrowings from the European Central Bank to a record 52.3 billion euros between July and December, the biggest increase of any of the 15 member countries. They're now the second-largest users of ECB credit lines after German banks, accounting for 14 percent of borrowing, up from 4 percent in July.

``This is an unsuitable situation for banks, because they are financing long-term obligations on a short-term basis,'' said Luis Sanchez-Guerra, a director at Ahorro y Titulizacion in Madrid, Europe's largest issuer of home-loan bonds that are guaranteed by the lender. ``It's similar to a family that needs to finance their mortgage every week, instead of getting a 15- year loan.''

`Easy Credit'

A rapid cooling of Spain's housing market will reverberate through Europe because the country has contributed more than a third of new jobs in the region and accounted for almost a quarter of consumer demand over the past two years, according to Lombard Street Research Ltd. in London. That's more than Germany, where the economy is three times as large.

``This country has been living off easy credit since 2001,'' said Gonzalo Bernardos, professor of economics at Barcelona University. ``Everything became so cheap that people started to speculate. This is going to get worse.''


This is a good article that talks about the greed and lack of common sense that went on over the past few years. People like trying to blame someone else but no one in this mess is without blame. People have to take responsibility for their own actions as well.

The housing meltdown? It didn't have to be this way


America's housing meltdown has spawned an epidemic of home foreclosures and job losses. It has dealt huge hits to the bottom lines of big homebuilders and Wall Street banks. It has sent the stock market into a frightening tailspin. It's triggering fears of a recession and sending shock waves to financial markets around the world.

In the United States, the victims range from shell-shocked homebuyers unable to keep up ballooning subprime mortgage payments to middle-class investors seeing their 401(k) value plummet.

Most of this pain could have been avoided had it not been for greed, imprudence and sloppiness on the part of everyone from homebuyers to mortgage lenders.

Some damage control is occurring. Mortgage service companies have helped hundreds of thousands of homebuyers with subprime loans by modifying mortgages and setting up repayment plans. Congress is considering sorely needed legislation to help prevent future mortgage abuses, and a general economic stimulus package is planned to juice the economy. The Federal Reserve Board has ratcheted down interest rates, which could encourage refinancing of mortgages and the sale of many homes awaiting a buyer.

A massive government bailout targeted directly at the housing industry and beleaguered homeowners would be inappropriate, however.

Reckless homebuyers, mortgage lenders, real estate speculators and Wall Street investors who took risks and got burned must, as a general rule, suck it up and move on. American taxpayers shouldn't have to pay for their mistakes, which often resulted from greed, dishonesty, wishful thinking and throwing caution to the wind.

There were the homebuyers, for example, who lied about their income to qualify for loans. Many homebuyers foolishly entered into subprime loans with low "teaser" interest rates that are now resetting at higher levels and raising monthly payments by hundreds of dollars.

Then there were the greedy, sloppy lenders who issued loans they never should have and who in some cases didn't even bother to document the buyer's income (the infamous "no-doc" loans).
There were the big Wall Street banks that purchased subprime loans, packaged them into mortgage-backed securities and sold them to investors such as pension and hedge funds. Authorities in New York and Connecticut are investigating whether the banks failed to disclose sufficient information about the risk of loan defaults.

There were the real estate speculators whose capacity for wishful thinking was boundless. They worked on the theory that home prices would keep rising forever, even after home prices in California routinely began topping $400,000.

Some Americans were skeptical long before the housing collapse. They would, for example, hear about a young couple of modest means buying a $200,000 home and wonder how on earth they could afford it. Some people without steady jobs and a respectable credit rating somehow qualified for a mortgage.

In short, lending practices got far too loosey-goosey. The next time there's a housing boom, such laxity shouldn't be allowed, lest we want an inevitable housing bust to follow.

A young couple should wait to buy a home if the only choice is to take out an ultra-risky subprime loan. And if you're a lender, how could you sleep at night knowing that you had made such a potentially problematic loan to someone blinded by the prospect of realizing the American dream?

The negative impact of the housing meltdown probably will total trillions of dollars when you take into account everything from tumbling home values to falling stock prices.
Will we learn from this? How on earth could we not?


I've been talking for a few years how the banking system could have major problems in the USA and around the world. I think people now have stopped laughing and started taking some of what I've posted over the years now considering so far none of what I've posted since 2002 has been wrong. In fact, all the predictions have been spot on target.

I still believe the banks can have severe unprecedented problems. Look at what is going on around the world. Look at signs like people waiting in line to withdraw their money in the UK!!! We aren't talking about Africa or some poor Latin American country. We are talking about the UK. Look at what is going on with the banks in the USA and how weak they are.

Then you look at the situation in France. How in the world can a low level employee only making $148,000 a year cause one of the country's biggest banks to lose $7 BILLION?! The scarey thing is their CEO says if they didn't catch it in time the losses could have been 10 X the amount it was. tell me how can a bank lose $70 BILLION and recover? It can't. Plain and simple. It was a total fluke they caught the guy in the first place.
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Advanced Member
Username: Saint

Post Number: 347
Registered: 5-2005

Posted on Saturday, January 26, 2008 - 10:01 am:   Edit PostPrint Post

Unfortunately (for current owners of real estate in the USA) and Fortunately (for future investors that want to pick up real estate cheap) just about every economist is predicting that prices in the USA will continue falling into 2009. I'll probably start looking to pick up real estate in the USA at the end of 2008 or beginning or middle of 2009. Prices should be pretty good then.

Lower mortgage rates alone won't revive the ailing real estate sector

January 23, 2008

The Boston Globe icles/2008/01/23/lower_mortgage_rates_alone_wont_r evive_the_ailing_real_estate_sector/

Don't look for the Federal Reserve's rate cut to revive the housing market.

Mortgage rates already sit near historic lows. But larger forces are aligned against a revival: Falling home prices, tighter lending standards, and rising unemployment all are limiting how many people can buy homes, and how much they can spend.

"No matter what happens to mortgage rates, housing is not going to turn around," said Patrick Newport, an economist with the Waltham forecasting firm Global Insight. "Lower borrowing costs help a little, but the problem right now is that you're buying something that's losing value."

The Fed acted yesterday to reduce the cost of short-term loans to businesses and consumers, including credit card and car loans, hoping to contain the economic damage caused by the housing downturn. The action doesn't directly affect mortgage rates, which are determined by investors' decisions on where to put money, between, for example, stocks and bonds.

But investor reaction to the Fed's shock therapy could move rates in the next few weeks - lower, if they believe the economy is worsening, or higher, if it seems to be reviving.

Rates now average around 5.7 percent, down one percentage point since July and approaching the record low of 5.23 percent set in June 2003.

During the first half of this decade, similar rates sparked refinancing stampedes, pulled first-time buyers into the market, and contributed to a prolonged economic expansion.

Now, lenders say the lower mortgage rates are prompting increased interest from potential borrowers, but mostly they are people who own homes already.

The Mortgage Bankers Association says applications for refinance loans jumped 18.2 percent over the last month, while applications for loans to purchase homes barely budged. The association reported 63 percent of applicants want to refinance, up from about 50 percent last year.

"We've seen more refis than we ordinarily would see," said Bill Mullin, president of NE Moves Mortgage, an arm of Coldwell Banker Residential Brokerage that specializes in purchase lending. He said he was optimistic that home buying also would increase in the spring.

But rates are just part of what makes a home affordable and attractive as an investment. And all the other parts have gone wrong simultaneously.

Tighter lending standards counteract the impact of lower interest rates. A lower rate makes it cheaper to borrow a dollar, which means a person can borrow more dollars. But tighter standards reduce the number of dollars a person can borrow - or prevents him from borrowing anything at all.

Falling housing prices might seem to be a remedy, allowing people to purchase a home for less money. But many people are waiting for prices to stop falling, while others can't buy until they sell the homes they own. And economists say prices are likely to keep falling into 2009.

Meanwhile, the souring economy is leaving people with less money to spend on housing.

"Buying a house right now is really risky," said Newport, of Global Insight. "In many cases, it's smarter to rent."

The moment remains ripe for those who can qualify for a refinancing loan. Mortgage rates have dropped one percentage point since July. On a $300,000 loan, that's a difference of about $200 a month. History says the bottom is near.

And waiting has its own perils: While rates are dropping, lenders continue to tighten qualification standards.

"Borrowers gambling on lower rates could find tighter underwriting guidelines throw cold water on their plans," said Greg McBride, senior financial analyst for "If you're in the market to refinance and you can qualify for a loan, do it now, because the underwriting guidelines are just as much a moving target as interest rates."

Also, mortgage rates could start rising again, even if the Fed keeps cutting short-term rates.

The interest rates on mortgage loans are determined by investors who bid to purchase loans from mortgage companies. The price goes down when competition increases, generally because other investments, such as stocks, seem less attractive. If the Fed succeeds in turning the economy, competition to buy mortgages may decrease, which would tend to increase interest rates, undermining the largest factor working in favor of the housing market.
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Advanced Member
Username: Saint

Post Number: 348
Registered: 5-2005

Posted on Monday, January 28, 2008 - 6:35 pm:   Edit PostPrint Post

Just as I posted last month and earlier this month as well, there is no reason to be bearish on gold prices. I posted how gold prices would continue to go up for the reasons I mentioned. It's been a great investment over the years. As I mentioned before, I'm not adding/buying at these levels but I'm still not selling at these levels as I still see higher price points with volatility in the markets.

January 29, 2008 07:46am,23599,23125242-1702,00.html

THE price of gold shot to a record $US927.77 in London overnight as investors looked for safe havens from financial market turbulence and in response to stoppages at mines in South Africa.

Platinum too hit a record, rising to $US1705 an ounce.

Power shortages in South Africa paralysed mining activity for the fourth straight day.

Major mining houses said that while the state utility Eskom did agree during weekend talks to provide a limited amount of power, it was not enough for normal production to resume.

"We are continuing with maintenance and other things we can do without Eskom but none of our mines are operating at the present moment," Tom Tweeedy, spokesman for De Beers, the world's biggest diamond producer, said.

De Beers and South Africa's three main gold mining companies -- Gold Fields, Harmony and AngloGold Ashanti -- were all forced to halt production last Friday after Eskom switched off their power supplies.

Gold, seen as a safe haven, is also getting a boost from continued unrest on global stock markets, which in most cases fell again today on fears for the health of the US economy and ahead of an interest rate decision by the US Federal Reserve later in the week.


New home sales plunge record 26 percent in '07

Monday January 28, 6:29 pm s.html?.v=11

WASHINGTON (Reuters) - Sales of new single-family homes plummeted a record 26 percent in 2007 and builders slashed prices by the most since 1970 in a struggle to cope with a housing bust, a government report showed on Monday.
Sales in December fell 4.7 percent to an annual rate of 604,000 -- the slowest pace since 1995 -- from a downwardly revised rate of 634,000 in November, the Commerce Department said.

The report offered little hope for a turnaround any time soon as a record one-month drop in the median home price for December failed to stoke demand and the number of months needed to clear the inventory of unsold homes rose.

"Homebuilders are cutting production but with sales still collapsing they have to run to stand still," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

"We think the downside for activity and prices remains considerable ... There is no sign of a bottom in any of these data," he added.

The weak data weighed on U.S. stock prices in early trade, but prices later rose on expectations the Federal Reserve would lower interest rates aggressively to shore up the economy.

The Dow Jones industrial average (DJI:^DJI - News) closed up 1.45 percent.

The U.S. central bank begins a two-day monetary policy meeting on Tuesday, and many financial market participants expect it will follow-up last week's emergency rate cut in target benchmark short-term interest rates with another half-point reduction.

Prices of U.S. government debt fell as investors shifted into stocks, while the dollar slipped against most major currencies amid expectations for further U.S. rate cuts.


Builders have shelved developments and dumped land holdings as the bursting of a U.S. housing bubble two years ago has forced many to scramble to limit losses.

The figure of 774,000 homes sold last year was the lowest since 757,000 were sold in 1996. Sales have tumbled 39.6 percent from 1.283 million at the peak of the market in 2005.

The median new home sales price fell 10.9 percent from November to $219,200, 10.4 percent below the year-ago level.

However, despite those price cuts the glut of houses available continued to swell and put pressure on builders to slow construction below its current crawl, economists said.

The report was much weaker than expected on Wall Street. Economists polled by Reuters were expecting December sales to fall to an annual rate of 640,000 from November's previously reported rate of 647,000.

"It's a pretty big drop and it clearly shows the housing market continues to deteriorate," said Kurt Karl, chief U.S. economist with Swiss Re in New York. "Supply is building up and there's no indication demand will catch up any time soon."

There were 495,000 homes for sale at the end of the December, down 1.4 percent from November.

However, with sales falling faster than inventory, it would take 9.6 months to clear those unsold new homes at the current sales pace, up from the 9.4 months reported for November.
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Intermediate Member
Username: Welcometomendoza

Post Number: 120
Registered: 7-2007

Posted on Tuesday, January 29, 2008 - 9:33 am:   Edit PostPrint Post

This is not surpising given what the housing market has done between the late 90's up until 2006. Kind of like an Internet stock back in the day, check out this graph:

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Advanced Member
Username: Saint

Post Number: 349
Registered: 5-2005

Posted on Tuesday, January 29, 2008 - 1:57 pm:   Edit PostPrint Post

I've always liked real estate. I remember back when I was in Cuba I almost bought a place but my lawyer didn't allow me to go through with it. That was many years ago. It will be very interesting to see what happens in the real estate market there once Cuba opens up.

I always get offers to purchase the franchise for Cuba and I have always turned down offers as I know one day it will totally explode there. 8cuba.html?pagewanted=2&ei=5070&en=9f8b2151f2e8419 b&ex=1202187600&emc=eta1

January 28, 2008

The New York Times.

With a Whisper, Cuba’s Housing Market Booms

HAVANA — Virtually every square foot of this capital city is owned by the socialist state, which would seem sure to place a damper on the buying and selling of property.

But the people of Havana, it turns out, are as obsessed with real estate as, say, condo-crazy New Yorkers, and have similar dreams of more elbow room, not to mention the desire for hot water, their own toilets and roofs that do not let the rain seep indoors.

And although there is no Century 21 here, there is a bustling underground market in homes and apartments, which has given rise to agents (illegal ones), speculators (they are illegal, too) and scams (which range from praising a dive as a dream house to backing out of a deal at the closing and pocketing the cash).

The whole enterprise is quintessentially Cuban, socialist on its face but really a black market involving equal parts drama and dinero, sometimes as much as $50,000 or more.

These days, insiders say, prices are on the rise as people try to get their hands on historic homes in anticipation of a time when private property may return to Cuba. Exiles in Miami are also getting into the act, Cubans say, sending money to relatives on the island to help them upgrade their homes.

Officially, buying or selling property is forbidden. But the island has a dire housing shortage, despite government-sponsored new construction. And that has led many Cubans to subdivide their often decaying dwellings or to upgrade their surroundings through a decades-old bartering scheme known in Cuban slang as permuta.

Some of those housing transactions are simple swaps. Those the government permits, tracking each one to keep an up-to-date record of the location of every last Cuban. Many moves, however, are illegal and involve trading up or down, with one party compensating, with money, another party giving up better property.

A 1983 film, “Se Permuta,” portrays how complex the system can get: A mother scheming to get her daughter away from a boyfriend she dislikes organizes a multipronged property swap. Of course, the deal, which would have involved about a dozen people and taken mother and daughter from a tiny apartment into a spacious colonial-era house, ends up in a mess, as does the mother’s meddling in her daughter’s love life.

“It’s very Cuban,” Juan Carlos Tabío, who wrote and directed the film, said of his country’s real estate bartering process. “There aren’t enough houses, and families can’t buy them. So they trade.”

Mr. Tabío has no personal experience with changing homes, having lived in the same spacious third-floor apartment in the well-heeled Vedado neighborhood since 1957. Many Cubans live in the same dwellings their families owned before the revolution; others have been assigned units by the state.

But almost every Cuban is either plotting to upgrade residences or knows someone in the midst of the labyrinthine process.

Here is how it works. Imagine a married Cuban couple with two children and a baby on the way who find their two-bedroom apartment in the historic Old Havana neighborhood too cramped. What are they to do?

Well, with the help of an agent known as a runner they might start by locating a bachelor from the countryside looking to come to the capital. They could arrange for the newcomer to move into a tiny apartment in Chinatown and move its residents — who also have a house in Miramar where their elderly grandmother lives — to a first-floor unit they sought in Central Havana. The Central Havana flat is available because the residents have divorced; so the former wife would go to the bachelor’s country house, near where her parents live, while her former husband would go to Old Havana. The Old Havana family that started the whole process would then head to their dream house in spacious and quiet Miramar.

Sound complicated? It is. And the government adds even more hurdles by trying to regulate the swaps with a variety of forms and fees as well as inspections of the properties involved to ensure that they are of roughly equal value.

All trades have to be endorsed by the government, but Cubans say slipping money to bureaucrats increases the chances that deals of unequal properties — as in those that involve money and carry the taint of capitalist yearning — will be approved.

“Under the table, there are all sorts of things going on,” Mr. Tabío said.

The Cuban authorities occasionally make busts, but find the trades difficult to control.

“It’s something people shouldn’t do, but they do and we know it goes on,” said José Luis Toledo Santander, a professor of law and a member of the National Assembly. “It’s like saying you have to stop at the red light and you can’t go until it’s green. You ought to do it, but not everybody does.”

The trading occurs in plain sight. Under the watchful eye of a police officer, hundreds of people gather every Saturday under the ficus trees on El Prado, one of Havana’s grand avenues. Some carry cardboard signs describing their units: the neighborhoods, number of bedrooms and whether there are patios, garages, hot water, private bathrooms and gas supplies. Less desirable dwellings use tanks of gas for cooking and require residents to share toilets with others down the hall.

Ricardo Aguiar, 65, who lives in a two-bedroom apartment in the humble Marianao neighborhood with his wife, daughter, son-in-law and granddaughter, is looking for a more spacious place in Vedado, a popular area closer to the center of Havana. “It’s going to be difficult,” he said, scouring the signs on El Prado recently and checking in with the agents who sit on the stone benches trying to make deals.

“I’ve just started looking, but there are people who look for years and then something goes wrong and they never move,” he said.

Nearby, a woman was working the crowd in search of a first-floor apartment near her current third-floor unit in Central Havana so she would not have to climb so many stairs.

“You have your system and we have ours,” she said, identifying herself only by her first name, Alejandra. “I prefer our system. We don’t have mortgages and so we’re not facing foreclosure like so many of you are.”

Alejandra knows about the foreclosure crisis in the United States because her son lives in Florida and is struggling to make his house payments. “I worry about him,” she said. “If he loses his job, he’ll lose his home.”

Property is sometimes seized in Cuba as well, but by the government, not the bank. Property is taken from those who hop on boats to Florida, although most switch their houses to relatives’ names well before leaving. Those fleeing the island also frequently downgrade their accommodations before going into exile, trading big places for small ones and using the money exchanged on the side to pay for their voyages — the Cuban equivalent of a home equity loan.

Although it is not clear how many thousands of swaps take place annually, some of them involve the same people again and again, as in the case of a woman in her 60s who said she had moved 42 times over the last two decades. “I love to move,” she said. “I can’t live in the same place for a year.”

But her movement is about more than seeking new surroundings. She fixes up each place, then turns it over for a profit, she said in a low voice, declining to be identified out of fear that the authorities might catch up with her.

Moving through the crowd with her is a learning experience. She knows the regulars and can spot the deals. When money is discussed, she and the person she is negotiating with fall into whispers.

“There are so many liars here,” she said, surveying the crowd. “They say they have the best place in Havana, and you get there and you don’t even want to go in. I just stop at the door and say, ‘No, thanks.’ ”

She said she used money sent from relatives who fled to Miami years ago to keep her business going.

“It’s a good time to invest,” she said. “If you have family outside, $20,000 is nothing, and you can get a good place here. If change comes, and we all expect it, then you’re set.”

That is the philosophy of another mogul in the making, who also declined to be identified by name.

Standing in the living room of a two-bedroom apartment in Central Havana that he is renovating, the man estimated its current worth at $20,000, a mint in a country where monthly government salaries can be one one-thousandth of that. If private property ever comes to Cuba, he estimates the price will most likely multiply by five.

Through a complicated transaction, the man recently managed to obtain a historic home in Old Havana that he is also renovating. He said he researched the ownership history of the dwelling because he did not want to find one day that it had been expropriated from an American, possibly leading to a court battle in a post-Castro Cuba. As for his apartment, he rents rooms to tourists, which the government allows.

He is also buying up old chandeliers and other historic furnishings to decorate his units. With most people so desperate for money, he said, he pays next to nothing.

“This is the moment to buy,” he said, referring to Fidel Castro’s illness, talk of change by his brother Raúl and many Cubans’ view that their system, a half century old, will not remain as it is forever.
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Intermediate Member
Username: Welcometomendoza

Post Number: 121
Registered: 7-2007

Posted on Tuesday, January 29, 2008 - 3:52 pm:   Edit PostPrint Post

There are thousands of companies that have been licking their chops for years waiting for Cuba to "open up" (Fidel to die) ..The Europeans have gotten a great head start on this by quietly setting up shop there little by little. I have an Italian friend here in Argentina that has alread invested a ton f money into Cuba, but the lionshare of his funds is just waiting for the "event" to happen. Good luck ApartmentsBa - if you have the funds and the connections, it is a great next market.
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New member
Username: Amar

Post Number: 7
Registered: 12-2006
Posted on Tuesday, January 29, 2008 - 4:18 pm:   Edit PostPrint Post

May I ask you opinion on what is going on in Panama as far as real estate is concern? Would you buy there?
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Intermediate Member
Username: Welcometomendoza

Post Number: 124
Registered: 7-2007

Posted on Wednesday, January 30, 2008 - 5:56 am:   Edit PostPrint Post

if you are asking me, I get constant feedback from real estate prospects and clients that it is oversold, too rainy ("it's been raining for 9 months now"), and infastucture is real bad - .
I hear good things about the mountain communities though, like the weather and beauty.
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Advanced Member
Username: Saint

Post Number: 350
Registered: 5-2005

Posted on Wednesday, January 30, 2008 - 7:47 am:   Edit PostPrint Post

As I posted many, many times since last year. The banks STILL don't know all their potential losses with this toxic CDO/ SIV mess. Look at this mornings surprise announcement by UBS. Another u$s 4 BILLION loss. You will still continue to see losses at banks.

Long term these banks will bounce back if you have a long-term horizon. I posted before my downward target for at least one banking stock which it hit.

UBS hit by further $4bn writedown

The Financial Times 0000779fd2ac,dwp_uuid=e8477cc4-c820-11db-b0dc-000b 5df10621.html

Published: January 30 2008 07:21

UBS, one of the biggest casualties of the US subprime crisis, on Wednesday revealed a further $4bn in writedowns on its portfolio of troubled mortgage-related securities.

The surprise announcement, coming ahead of the Swiss bank’s annual results on February 14, means UBS will report a net group loss of about SFr4.4bn ($4bn) for 2007.

UBS said the full-year loss, which it had signalled when disclosing initial fourth-quarter subprime writedowns of $10bn last month, stemmed from additional losses on its portfolios in recent weeks and a very weak trading period in the fixed income, currencies and commodities division of its investment bank.

The latest writedowns take to $18bn the total UBS has lost in 2007 on its large holdings in US mortgage-related securities, including $4bn of writedowns reported in the third quarter.

The bank, once renowned for its caution and rigorous controls, surprised investors last year after it emerged that it held more than $40bn in subprime-related paper through positions taken by Dillon Read Capital Management, its now-closed internal hedge fund, and its conventional fixed income trading activities.

The latest writedown will increase speculation over the future of Marcel Ospel, UBS’s chairman, who has faced calls to step down. Mr Ospel has fiercely resisted the pressure, however, and has received backing in particular from the government of Singapore, one of the bank’s two new strategic investors.

Shares in UBS fell 1.6 per cent to SFr46.04 in early Zurich trading.

UBS’s terse announcement gave no details of its remaining book and said further information would come out at its results presentation next month.

The bank said only that it had suffered $12bn in writedowns in the fourth quarter on subprime paper, and $2bn on “other positions related to the US residential mortgage market.”

To rally support for its plans to raise SFr13bn by selling shares to Singaporean and Saudi Arabian investors, the bank said its BIS Tier I capital ratio – a key measure of its financial strength – amounted to 8.8 per cent at the end of December. That figure reflected its full losses and efforts to reduce risk, as well as capital raising plans such as a mandatory scrip dividend and the sale of treasury shares.

However, the 8.8 per cent, which is well below the 11-12 per cent ratio the bank has as its goal, did not include the additional financing from the sovereign wealth funds, explaining its concern to raise the extra capital.


Also, i'm not the only one predicting billions more in future losses for 2008. They will be coming.

Oppenheimer sees added write-downs for U.S fincl sector

Wed Jan 30, 2008 7:39am EST

Jan 30 (Reuters) - Oppenheimer said it saw additional write-downs for U.S. financial institutions in 2008 of a minimum of $40 billion on the impact of monoline downgrades, but added the figure could be as large as $70 billion, noting that majority of the write-downs would be concentrated amongst Citigroup Merrill and UBS.

The brokerage downgraded Merrill Lynch to "underperform" from "perform", citing valuation and negative outlook related to monoline insurers.

Oppenheimer said further downgrades of monoline insurers by rating agencies could put yet another $100 billion in assets held by banks in jeopardy of further write-downs, adding that it foresees a write-down of about $10 billion at Merrill if the downgrade happened.

Bond insurers have been clobbered by losses from backing mortgage-related securities, which have plunged in value during the past year. With their financial strength damaged, New York recently worked to broker a rescue plan for insurers involving Wall Street banks who otherwise might face big losses on claims that would no longer be covered.

The "AAA" ratings of these bond insurers are under threat as ratings agencies require that they raise additional capital to hold the top ratings, after revising loss forecasts due to deterioration in risky residential mortgages.

Stocks of monoline insurers such as Ambac Financial Group Inc , MBIA Inc and ACA Capital Holdings ACAH.PK have lost more than 75 percent of their market value, Oppenheimer noted.

Meanwhile, Sanford C. Bernstein cut its price target on Merrill Lynch to $53 from $55 and lowered 2008 estimates on the company.

Bernstein, which has a "market perform" rating on Merrill, said it believed that the company's holding of troubled assets on its balance sheet, even the hedged ones, is a "recipe for taking more writedowns."

The brokerage pointed out that management's goal to achieve 20 percent return on equity in 2008 is unlikely in the near term.

Oppenheimer cut its 2008 earnings estimates on Merrill to $4.50 a share from $4.88, and 2009 estimates to $5.50 a share from $5.63, while Bernstein cut its 2008 earnings per share view on the stock to $4.15 a share from $4.24.

Shares of Merrill were down almost 1 percent at $57.05 in trade before the bell, after closing at $57.47 Tuesday on the New York Stock Exchange.
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Advanced Member
Username: Saint

Post Number: 351
Registered: 5-2005

Posted on Wednesday, January 30, 2008 - 11:14 am:   Edit PostPrint Post

As I predicted last year...the UK market would start to tank just like the USA market. Now everyone sees it happening...they just don't know how bad it will be.

Also, as I posted last year, the SWF's are cash rich and buying up a lot of strategic assets. I happen to know some high level executive officers for some of these SWF's buying up all these assets. They have a good game plan if anyone can't already see it. They have the cash to buy up strategic assets at good prices and they have the patience to ride it out until things improve and make a fortune. Much of what they do never makes it to the press so imagine for every story you read about the SWF's there are hundreds of other examples that you will NEVER read about.

I've said it before and I'll say it again, these SWF's are going to end up owning a lot of strategic assets in many countries including the USA and throughout Europe. b20080128361762;_ylt=Auqb8avykO1QP7jZsLgS0ViyBhIF

Property Crunch Could Whack Brit Banks

Wed Jan 30, 8:08 AM ET

Walking around London's financial district is like touring a construction site. Giant cranes dot the skyline around St. Paul's Cathedral as workers busy themselves putting up the latest additions to Britain's long-running boom in commercial property.

But cracks are starting to appear in the edifice. The fallout from the U.S. subprime crisis has slowed demand for office space -- particularly from the financial services sector -- at a time when more mega-skyscrapers are in the works than ever before. According to real estate tracker Investment Property Databank (IPD), after surging 17% in 2006, British commercial property prices fell 12% in the last half of 2007. Analysts are now predicting a further 15% drop by the middle of this year.

Writedowns Likely to Accelerate

That's bad news for property companies like British Land (BLND.L) and Hammerson (HMSO.L). Perhaps even more worrisome, many major European banks, such as Britain's HBOS (HBOS.L) and Germany's Deutsche Bank (NYSE:DB - News), have lent billions of dollars to developers during the boom, which now could be at risk of default as projects lose value.

Estimates vary about how much is at stake, but Morgan Stanley (NYSE:MS - News) reckons as much as $212 billion in outstanding commercial real estate loans worldwide -- including assets left on banks' books and other securitized financial instruments -- could be vulnerable. How much of that might be written off depends on the property market's performance over the next 18 months, say the bank's economists. They argue that the probability of writedowns has increased since the third quarter of 2007 because investors are now shying away from complex, property-related financial products, such as securitized loans.

"There's no doubt that billions of dollars are at risk," says Ian Harnett, European strategy director at the London consultancy Absolute Strategy Research. "The whole sector has really fallen off a cliff."

Plummeting Property Values

Market fundamentals have indeed changed quite dramatically for commercial property. One indicator is the so-called "average prime yield," which has risen during the past year -- a sign of cooling demand and weakening returns on property investments. Data from realtor CB Richard Ellis (NYSE:CBG - News) show the underlying price of real estate assets in Britain has declined relative to rents, causing the yield to rise. It climbed 50 basis points, to 5.7%, in the fourth quarter of 2007 -- some 90 points higher than during the same period in 2006..

Downward trends look likely to continue this year, and not just in Britain, which remains Europe's largest and most dynamic commercial property market. Strains are showing up as well on the Continent, especially in Germany and Spain, where overbuilding and subprime losses are taking a toll. Since December, for instance, Spanish property firm Inmobiliaria Colonial (MOCE.F) has been forced to sell more than $450 million of its commercial portfolio to ease its rising debt obligations, which stood at $13.1 billion as of September, 2007. Given the spreading woes, real estate firm Jones Lang LaSalle (NYSE:JLL - News) predicts the value of property transactions across Europe will decline 20% this year, to $260 billion, from 2007 levels.

Central Banks Sound the Alarm

The potential implications for the financial sector already have caught the attention of central bankers. In the wake of massive writedowns from the subprime crisis, the last thing banks need now is further losses tied to commercial property. In its October, 2007, financial stability report, the Bank of England highlighted the problem, saying the risk of defaults could put extra strain on the already stretched financial system.

Similarly, a European Central Bank (ECB) report in December, 2007, cautioned against the rise of commercial, mortgage-backed securities, which sprang up as banks repackaged assets to be sold to third parties, a process similar to the securitization of U.S. subprime loans. And just as the subprime market implosion left banks unsure of who owed what to whom, the ECB worries that defaults in securitized loans resulting from a weakened commercial property market would "make it difficult for investors to understand the risks involved."

Is this Chapter Two of the subprime mess? Yes and no. The downward trend is unmistakable, but the losses are likely to be on a much smaller scale because commercial property lending is a safer and more stable business than writing home mortgages for people with bad credit histories. Kelvin Davidson, property economist at London-based consultants Capital Economics, notes that developers protect themselves better than they used to in the 1990s (when overbuilding promoted a brief collapse in the British commercial real estate market) by signing long-term leases and hitting higher occupancy targets before breaking ground on new projects.

What banks are most exposed to the downturn? According to estimates from the Bank of England, there were $369 billion in outstanding commercial real estate loans at the end of the third quarter of 2007 in Britain, which is Europe's largest market. Research from brokerage Dresdner Kleinwort (NYSE:AZ - News) shows HBOS and the Royal Bank of Scotland (RBS.L) are the most exposed, with $86.3 billion and $103.3 billion worth of loans, respectively. Analysts disagree on how much could be lost, although conservative estimates predict 5% of assets might be wiped out.

"Banks that have gone after the sector aggressively will have to face defaults from developers if there's a downturn," says banking analyst Alex Potter at stockbroker Collins Stewart (CLST.L) in London. "It might not be a vast amount, but it could come back to bite banks where it hurts when they're already suffering."

More Bargains for Sovereign Funds

That's tough news, but for other investors, particularly for cash-rich sovereign wealth funds, the possibility of banks selling off distressed assets to cover debts could provide an ideal investment opportunity. Without needing to raise financing in the contracting debt markets, these government-backed investors could snap up bargains only to resell them when the cyclical commercial property market once again turns bullish.

"They don't have to take leverage, so won't be too affected by the change in credit conditions," says Tony Horrell, head of European capital markets at Jones Lang Lasalle (NYSE:JLL - News) in London. Indeed, he argues that the change in ownership from cash-strapped developers to cash-rich funds could help stave off bank writedowns at a time when sentiment has turned negative.

The move is already under way. On Jan. 9, GIC Real Estate, an investment fund owned by the Singapore government, paid $266 million for a 3% stake in British Land, the shares of which have fallen 41% since the beginning of 2007.

Whether sovereign wealth funds will once again bail out banks still remains to be seen. But with billions of dollars invested and property values set to sag in 2008, banks are set for a bruising year that will only compound their current economic woes.
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Advanced Member
Username: Saint

Post Number: 352
Registered: 5-2005

Posted on Thursday, January 31, 2008 - 12:03 pm:   Edit PostPrint Post

Here is a pretty good article that gives the true situation in the USA for most "middle class" families. The tax rebate plan that Bush has as the article mentioned, most due much. It might help out the typical family for 1 month but no more. an28,0,1982619.story

Feeling Pinch: Middle Class Losing Ground In Financial Struggle

Courant Staff Writer

January 28, 2008


Petra Unander, who lives in a spacious, four-bedroom colonial in a scenic subdivision high above the Naugatuck Valley, can tell you exactly when she realized for sure that she was slipping out of the middle class.

It was three weeks ago, on Jan. 4 — the day her latest bills arrived from Connecticut Light & Power and Yankee Gas.

"I couldn't believe it when I opened those envelopes, because my CL&P bill was $221.15 — $30 more than the month before; and my gas bill was $292.33 — $110 higher than the month before," Unander said. "With programmable thermostats that keep the house at 57 degrees all night, and no lights on during the day, I thought that my bills would be going down by now. But I'm just falling behind every month."

So, Unander did what she often does in a pinch — she called her close friend and neighbor, Rachel Huzior. Huzior, a compulsive budgeter and frugal with her money, would be able to tell her what she was doing wrong.

"Well, I nearly had a heart attack when I talked to her, because Rachel's utility bills were even higher than mine — by $150," Unander said. "Maybe I would have to give her advice about cutting back."

With prices for everything from gas to food to local property taxes continuing to climb, the two friends spend a lot of time these days commiserating about money, sharing children's clothes to cut expenses and keeping each other company on lonely nights when their husbands are working overtime. And, over the past few months, they've realized that they have something else in common: Both are dipping into family savings every month to meet their bills.

"And my savings are not a lot of money," Huzior said. "Sometimes I just throw up my hands and say, 'Hey, Petra, this really sucks here. We're not a part of the middle class anymore. There is no middle class.' "

Unander and Huzior are expressing an insecurity felt by millions of American families whose costs are rising while real incomes remain stagnant, a squeezing of the middle class by now well documented in academic and government studies.

Last November, three scholars at Brandeis University's Institute for Assets and Social Policy released a new "Middle Class Security Index." The study showed that only 31 percent of middle-class families are really financially secure. (Economists generally define middle class as families with children with household incomes of $40,000 to $100,000.) In testimony before Congress last year, Harvard Law School Professor Elizabeth Warren pointed out that, in the early 1970s, the typical family was saving about 11 percent of its take-home pay. Today, revolving debt — mostly credit cards — gobbles up about 12 percent of the average family's income, and, Warren says, the national savings rate has dropped below zero.

"The economic rules have changed," Warren told the Senate Finance Committee, "leaving millions of hard-working, play-by-the-rules families caught in a battle for economic survival."

U.S. Department of Labor statistics released this month depict just how American consumers are being pinched, and help explain why the state of the economy has overtaken Iraq, global warming and immigration as a priority issue for many Americans. Indeed, the financial pressures on American families have been intense.

In 2007, according to the Labor Department, gasoline and home heating prices rose 29.4 percent, transportation costs rose 8.3 percent, food and beverage prices climbed 4.8 percent and medical care rose 5.2 percent. Most of these are historically high increases for a single year and, of course, few families have experienced commensurate increases in their incomes.

President Bush is expected to address the ailing economy in his final State of the Union address tonight, and economic issues are beginning to dominate the presidential race. Bush is pushing Congress to quickly pass a $150 billion stimulus plan, agreed upon with House leaders last week, which would channel tax rebates of $1,500 or more to families with children with incomes of $150,000 or less.

But this quick-shot-in-the-arm approach doesn't address the underlying causes of the middle-class squeeze, Unander and Huzior say. They feel the Bush stimulus will provide, at best, just a month or so of relief.

Economic Refugees

Unander and Huzior were, in a sense, already economic refugees when they met after moving to Naugatuck. In 2005, both had "surprise" third children after they thought their families were complete, both needed larger houses and both migrated to the Naugatuck Valley to take advantage of better housing values.

The Unanders moved from Hamden about a year and a half ago. Roger Unander is a retired U.S. Air Force technician who now works at the Sikorsky helicopter plant in Stratford.

Housing prices in the Fawn Meadow subdivision are in the $400,000 range. The Unanders and the Huziors both are in a supposedly comfortable, almost-six-figure income bracket, and Petra earns extra money by running a home business making trivets that she sells at crafts fairs.

She economizes by shopping for food at the Aldi discount chain, and the family has stopped taking vacations. But a look at just one important bill — her mortgage — shows how easily a family can fall financially and psychologically behind.

The Unanders recently received a new property tax assessment on their home, raising its assessed value from $201,290 to $252,530, and they anticipate having to pay higher taxes this year. Their semiannual home insurance has increased from $514 to $602. Their monthly mortgage payment has climbed from $2,200 to $2,400. In November, Petra had to pay a shortage fee of $1,600 in their tax escrow account.

While transferring money from her savings to her checking account to cover the escrow, Unander realized she had crossed a new financial threshold.

"Doing our budget was always easy, at least mentally for me, because Roger gets paid twice a month, slightly over $2,000 each time, and that first paycheck was always enough to cover the mortgage," she said. "The second check of the month covered all of my other expenses."

But in November, Roger Unander's first paycheck no longer covered the mortgage, and Petra began borrowing from savings to cover it, which she now does every month.

"When I realized that the first paycheck no longer covered the mortgage, I said, 'Roger, get out there in the garage and cut me some wood [for my crafts projects] — we've got to make some money around here,'" Unander said. "But that doesn't completely help, because running all those power tools sends the electric bill up."

Family members have adjusted in different ways to the economizing. The Unander's son, Chris, 14, always wears a blue plaid Dickies hooded sweat shirt in the house because the thermostat is set at 69 degrees.

"Some of my friends who live in smaller houses down the hill think we're rich," Chris said. "But I tell them, no, I've got to wear my hoodie inside all the time. I'm very aware that my parents are always trying to save money."

Long Commute

The Huziors moved to Connecticut from Long Island in 2006, accepting the 1 1/2 -hour commute to Darryl's job as a supervisor at Consolidated Edison in Astoria, Queens, because the couple wanted to live closer to relatives in Connecticut.

When their third son was born, Rachel decided to give up a good job at an advertising agency in New York to spend time with her baby. Darryl tries to make up for her lost salary by working as many as 58 hours of overtime a month. Rachel uses the roughly $1,700 extra pay a month to cover unexpected bills and increased costs. But, like Petra, she has found recently that the second check is not enough, and she has to transfer money from savings to meet their bills.

"The overtime check we just got was for only $432, because Darryl took time off over Christmas and was sick one week," Huzior said. "Well, that was $1,300 right there I had to take out of savings to cover our living expenses. It just doesn't seem that a good professional salary covers a middle-class life anymore."

The Huziors have had to make another life adjustment — Darryl's killer commute to Queens and his long hours. His 12-hour overtime shifts at night are often followed by a morning shift the next day, making it impractical for him to make the three-hour round trip to and from New York. So, a couple of times a week he sleeps in his car in the Con Ed parking lot.

"Our friends in New York have offered him a place to stay, and I've told him to rent a hotel room," Huzior said. "But Darryl just says, 'Why work overtime to pay a hotel bill?'"

On the nights when he's away, Rachel calls Darryl on his cellphone when she knows he's just settling in to sleep in the car, especially when it's cold.

"I mean, I just ask him these stupid things like, do you have a blanket in the car, or did you take your shoes off?" Rachel said. "It's not that I'm really so worried about him, but he works so hard, and the kids and I miss him."

On weekends, when he's not working overtime, Darryl is exhausted and just wants to relax around the house all day. Rachel would like him to cut back on his hours, but doesn't see a way out.

"He's tired a lot, and we both want him to slow down," Rachel said. "But then a month will come along when he knows we have something extra — this month, it's life insurance payments — and so what does he do? Works overtime. On a Saturday."

But finding a cure for Darryl's overtime, or for Petra's need to run her home business, will not be easy. Both women feel that the Bush tax rebate, though welcome, won't make much of a long-term difference.

"A tax rebate from Bush is better than nothing, but it's not going to stop a recession," Petra said. "And the price of gas and my property taxes aren't going down either."
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Board Administrator
Username: Admin

Post Number: 1481
Registered: 12-2004
Posted on Thursday, January 31, 2008 - 8:51 pm:   Edit PostPrint Post

Mike, besides the tax rebate... do you know if they will be giving cash to banks in the form of bonds (banks acquiring gov. bonds and using them as collateral to give money away as loans). If so, this may be a substantial amount due to the multiplier effect (keynes) that may reinflate things back. Example, 150 bill may turn into 5 trillion assuming banks should hold 3% reserve. That can be gargantuan, if you could only borrow a bit as the average Joe.
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New member
Username: Belsize

Post Number: 1
Registered: 2-2008
Posted on Friday, February 01, 2008 - 12:03 pm:   Edit PostPrint Post

Hello everyone,

I broadly agree with the previous comments in this forum. Due to a combination of luck and foresight I also positioned myself to profit from what I thought was inevitable in terms of the effects of what can only be described as lending too much money to people who shouldn't have been allowed to borrow. Hence I am waiting on the sidelines to invest not only in real estate but also in the stock market and expect to gradually enter from this spring onwards.

The one potential problem I see in case of a MAJOR breakdown in the financial markets, house prices, etc, is that if a sufficiently large proportion of the population have lost out and have more or less nothing left, the risk is that left wing populists will come to power and implement policies not necessarily positive for ownership/capitalism/generally making money out of investments (be it property or other things). This is potentially less of a real threat in the US, but I can see this happening in Europe or South America.
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Intermediate Member
Username: Welcometomendoza

Post Number: 127
Registered: 7-2007

Posted on Friday, February 01, 2008 - 12:21 pm:   Edit PostPrint Post

Hi NT, nice job on what you described in your first paragraph, and interesting comments in your second paragraph..

What do you consider a MAJOR brekdown? Can you list out some parameters? thanks
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Board Administrator
Username: Admin

Post Number: 1488
Registered: 12-2004
Posted on Friday, February 01, 2008 - 12:52 pm:   Edit PostPrint Post

Welcome, NT.

Interesting comment. Would left wing populists be the ones engaging in distribution of wealth? If one were to believe charts it appears we are at a critical juncture...

Top 1 percent income
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Gloria Melgar Estevez
Junior Member
Username: Glorita

Post Number: 42
Registered: 12-2007
Posted on Friday, February 01, 2008 - 2:54 pm:   Edit PostPrint Post

Securities Regulator of Massachuetts is suing Merrill Lynch over subprime loans. Will we see alot more law suits?

Ambac and MBIA are in trouble(to this board, this is not new) and guess who is "saying" they will help bail them out? Eight banks are joining in this bail them out, but as of yet "no representative of these institutions have come out with statements"........hmmmmmmmmm, wonder why?....among these banks is Wachovia, and Citigroup....correct me if I'm wrong, but aren't these two up to their necks in this subprime mess?????????...also in this bunch is Societe Generale(was not this the French instititution on so many front page news just days ago?)........Is it just me, or is the pot getting hotter?
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Advanced Member
Username: Saint

Post Number: 355
Registered: 5-2005

Posted on Tuesday, February 05, 2008 - 1:49 pm:   Edit PostPrint Post

Hi everyone,

I've been out of the country the past few days on business but kept up to date on some good articles on the real estate situation in the USA. Remember what I always said about the Option ARM's and how dangerous they were. These are some good articles below:


Higher loan limits will lead to Fannie Mae, Freddie Mac bailout 008/02/03/IN8LUO095.DTL

Sunday, February 3, 2008

Congress is about to sell us the biggest fraud in American history.

It's been highly touted as an economic stimulus bill that will help millions of Americans - and has the backing of both President Bush and House Speaker Nancy Pelosi. In the coming year, individuals would receive rebates of up to $600 and families up to $1,200. There are other goodies, too, including tax write-offs for small businesses and an expansion of the child tax credit.

But, as the old adage goes, nothing comes for free. As part of the bill, Congress is set to rush through an increase in the mortgage loan limits for Fannie Mae and Freddie Mac (and Federal Housing Administration insurance, too) - from $417,000 to $729,750 - the first step toward a massive financial disaster in which taxpayers will end up paying through the nose.

Here's how we got to this point. Domestic and international investors hold hundreds of billions of dollars in bad debt, because U.S. investment houses sold them junk securities based on often fraudulent mortgages. Many of these mortgages were sold to unqualified buyers under terms that made widespread foreclosures a certainty once the housing market began to fall.

Investment banks and bond rating agencies sat down and tried to figure out how to describe Americans with insufficient incomes and little for a down payment as great credit risks on loans too big for their incomes. The new rules focused on credit scores, because it was a good excuse to avoid looking at income and down payment, factors that would have restricted this moneymaking fiasco.

Now, thanks to Congress, junk bond investors will be able to pawn off their bad debt to Fannie and Freddie, instead of suing the big investment houses for ripping them off. This shift will certainly doom Fannie Mae and Freddie Mac, so don't be surprised if we, the taxpayers, have to bail out poor Fannie and Freddie - to the tune of more than $1 trillion.

Why more than $1 trillion? If Goldman Sachs is correct in its recent projections that home prices in California are going to drop 35 to 40 percent, the state's losses alone would top $2 trillion, because California has a disproportionate number of jumbo loans. The irony here is that the collapse in housing prices could make Fannie insolvent even without raising the loan limit. Increasing Fannie's limit is like going on a spending spree with your credit cards because you know you are going to file for bankruptcy in a few months. Only here the taxpayer is left holding the bag. Our children will pay interest on this debt in perpetuity. It is our debt. It is inescapable.

In the coming months, Fannie and Freddie will buy up mortgages based on old, fraudulent appraisals and on loans with bogus inflated incomes. Unfortunately, many of these loans will still default.

But that's just the start. Brace yourself for another wave of faxes, phone calls and junk mail urging you to refinance at only 1 percent. With zero new regulation, the same bad actors that caused this crisis can once again inflate property appraisals and begin a new cycle of fraud.

There are firms that rent assets to people to help them fraudulently qualify for a mortgage - like loaning them money to keep in their bank account for a couple months so they can fool the lender with documented savings that evaporate the day after the mortgage is signed. Another popular ruse: The borrower pays an employer to pay him a lot of money in a fake job for a month or two so he can show a fat paycheck in his loan docs. Some real estate agents and mortgage brokers actually refer buyers to these services.

Contrary to popular myth, Fannie holds a lot of subprime debt, option ARM debt and other dodgy securities. Fannie and Freddie owned or guaranteed almost 45 percent of all mortgages in America last year. BusinessWeek noted in 2007 that Fannie and Freddie have "moved more prominently into low-documentation loans, which require little or no proof of the borrower's income." Expansion of Fannie and Freddie's reckless lending is exactly what Congress wants because it's plausibly deniable.

Teary-eyed lawmakers can take to the airwaves a year from now and declare: "We had no idea Fannie could go under, but we can't cut and run now. We have to bail out Fannie and Freddie for the good of America! It's going to be a tough slog, but you're getting used to those, no?"

Those same lawmakers won't mention the fact that they get paid far more by real estate lobbyists than they do from our Treasury.

I've spoken with borrowers who stopped making mortgage payments seven or more months ago. None has received a default notice. Defaults may be much higher than banks are letting on. The data lags are growing suspiciously long. Nobody knows what's going on. Seven months without making a single payment! Will Fannie guarantee those loans because they aren't in formal default yet? Nobody wants to know, because if they know, they might be called to testify next year. That's why lawmakers want to raise the limits now and ask questions later.

This shortsighted plan poses a terrible risk to every American taxpayer, especially retirees, because Social Security money will be needed to bail out Fannie and Freddie. And even if you live in high-priced San Francisco, Los Angeles or New York - and stand to benefit from the increased loan limit - this is a horrible fraud on you, too, because raising the limit to $730,000 risks a systemic crisis that will cost far more than any temporary rebate check.

In support of the economic stimulus bill, Bush will have to face "working American families" and explain that some of their tax money is going to be spent guaranteeing $730,000 mortgages on $1 million homes. It's like some sort of upside-down communism where the poor pay the rich welfare. Why should taxes from families earning $48,000 a year be used to support expensive mortgages in New York, Los Angeles and San Francisco? Welfare for the hungry and homeless is evil, but welfare for million-dollar homeowners facing a tough refi ... well, that's called "helping the economy."

I can imagine the president's radio address playing in the heartland: "We have some families with million-dollar homes on the coasts who are really hurting and so we need you, the working families of America, to stand together with them and help them avoid the kind of home price depreciation that might leave them without a new Lexus for years."

I guess Congress' hope is that median-income families will be too busy using their rebates to buy much-needed groceries to notice that the rich folk are getting way with a new scam.
Several months ago, economist Nouriel Roubini of New York University's Stern School of Business suggested that the housing market has been effectively nationalized. At first it seemed crazy, but now it's fairly obvious. In August alone, Fannie and Freddie increased their loan portfolios by $62 billion, and the Federal Home Loan Bank by $110 billion. That total of $172 billion would come to just over $2 trillion annually - not much less than the entire federal budget.

Everyone seeking a loan, securitizing a mortgage, and buying or selling a mortgage security will now be dealing, in one way or another, with the U.S. government. This type of intervention is very expensive and will eat everything in its path, including Social Security.

If we're going to have a government-financed intervention, it should be to make sure that Social Security benefits go to those who paid for them, that the poor are fed and housed, or that the army of uninsured receive health benefits. If, as they say, we don't have enough money for those important things, then I think we don't have enough money to bail out banks and bond investors.

Don't let me down, my fellow Americans. Let's vote out anyone who dares to vote for this scam.

Business Week Magazine

Real Estate News February 1, 2008, t/jan2008/bw20080131_542105.htm

Getting Knocked Down by Prime ARMs

Prime ARMs went to borrowers with good credit because they were less likely to default, right? Wrong

We've been reading a lot lately about how subprime mortgages have submarined the economy. Lenders and banks have been taken to the woodshed for irresponsibly giving money to home buyers with poor credit just so they could bundle up the mortgages and resell them as toxic residential-mortgage bonds. But, while there's no denying the subprime problem, on closer look it's clear that even prime borrowers were taking on more debt than they could afford.

How bad is it? In Arizona, between the third quarters of 2006 and 2007, there was a 902% rise in foreclosures started against homeowners who had prime adjustable-rate mortgages, known as ARMs, according to the Mortgage Bankers Assn. ARMs, whether prime or subprime, are the real culprit in the housing crisis because they've allowed too many people to buy homes with almost no money down, with the hope that they could flip the properties or have rates drop before the loans reset.

The rise in prime ARM foreclosure starts isn't isolated to a few states. Nationally, foreclosure starts related to prime ARMs jumped 253% in the third quarter of 2007 when compared to a year earlier.

"The fact is the pain of the changing real estate markets is affecting more than just subprime borrowers," says Keith Gumbinger, vice-president of HSH Associates, a New Jersey-based financial information publisher. "It's more important to think of it as perhaps an ARM problem and a rate reset problem, not just a subprime problem."

Rising Foreclosure Starts

Arizona, Florida, Nevada, and California, which all had the greatest rise in prime ARM foreclosure starts in the third quarter of 2007, also have a heavy concentration of investor-owned properties. Many investors, who bought homes they hoped to resell quickly using no-interest loans and other mortgages with low teaser rates, got hurt when the housing bubble popped. Some investors are simply walking away from homes that are now worth less than what they owe to the bank (BusinessWeek, 1/3/08).

Maryland and Virginia, which also are among the states that have seen the greatest increase in prime ARM foreclosure starts, might have been hurt by an oversupply of new construction, which borrowers typically financed with variable-rate mortgages. Maryland prime ARM foreclosure starts increased 229% during the 12 months ending in the third quarter, 2007. Virginia, which like Maryland includes high-priced Washington, D.C., suburbs, had a 369% year-over-year increase.

Oregon, Massachusetts, and New Jersey also saw huge jumps in such foreclosure starts, in part because buyers with good credit in those states used ARMs to pay for homes that might otherwise have been out of their reach. Of course, nobody would be complaining about ARMs if home prices were still rising.

"There was so much competition for mortgages over the last couple years that the definition of prime became less and less stringent," says Addison Wiggin, publisher of Baltimore-based Agora Financial, which publishes investment advice for individuals. "Even in the prime market, you had people taking on larger loans than they historically were able to handle."

Refinancing and Option ARMs

Borrowers with good credit are in a healthier position than subprime borrowers because lenders see them as less risky candidates for refinancing and are willing to put them into fixed loans. But not all prime borrowers can qualify for refinancing, particularly if they owe more on a mortgage than the house is worth or if they've lost their job and can't meet salary or other underwriting requirements. Refinance applications from borrowers have surged in recent weeks, according to the Mortgage Bankers Assn., which doesn't break out prime and subprime applications.

Two aggressive Federal Reserve rate cuts in January are good news for borrowers with ARMs, especially those with resets coming this year. Although ARMs are not directly tied to the federal funds rate, borrowers could see their interest rates reset lower than they otherwise would have without the cuts.

One type of mortgage that was popular with prime borrowers during the boom was the so-called option ARM, which allows homeowners to choose each month from a variety of payments, including a minimum payment that doesn't even cover interest on the loan. As a result, with unpaid interest accumulating and house prices falling, some homeowners have seen the equity in their homes disappear and even head into negative territory. Lenders such as Calabasas (Calif.)-based Countrywide Financial (CFC), Seattle-based Washington Mutual (WM), and Charlotte (N.C.)-based Wachovia (WB) all have significant exposure to option ARMs.

Facing Foreclosure

Jay Brinkmann, the Mortgage Bankers Assn.'s vice-president for research, says the slumping home prices simply uncovered problems that borrowers could sidestep in the days of home buyer bidding wars and double-digit annual price increases. "Before, if somebody had a divorce or the main wage earner was injured and couldn't work, or some other issue, you would not have seen it because they would have sold their house and satisfied their mortgage," Brinkmann says. "Now if there's still the same level of job loss, more of those people end up in foreclosure because they can't sell."

Brinkmann says there are several scenarios in which a prime borrower with a record of on-time bill payments could now be facing foreclosure. A family that expected to move in a few years, for example, might have taken on an ARM expecting that when the time came to move, they'd easily be able to unload the home for a profit. Other borrowers might have taken on a large loan expecting their own finances to improve by the time the loans adjusted and their monthly payments ballooned.

"The magnitude of the [prime ARM foreclosure start rate] increase is somewhat large because we had a lot of activity in the last few years," says Robert Kleinhenz, deputy chief economist with the California Association of Realtors. "We thought the prime side of the market would be a steadying influence and what we had to focus on is the subprime market. That's not exactly true as the events are unfolding."

Many shoes will drop in subprime mortgage mess

In bad times, Wall Street falls back on simple companies many-shoes-will-drop-in-subprime-mortgage-mess/

Sunday, February 3, 2008

For the past few months, America's subprime mortgage drama has dominated the news, but its threat to the overall economy puzzles some people.

If mortgage providers unwisely extended credit to unqualified borrowers, they must refinance or repossess the properties, as they have in the past. Why on earth would this situation threaten the world economy?

According to a headline in the Dec. 27 Wall Street Journal, "Wall Street Wizardry Amplified Credit Crisis," financial gamesmanship apparently has ensured that what could have been a localized problem will instead hurt a lot of people.
The Journal explained how Collateralized Debt Obligations (CDOs), which are designed to spread and mitigate debt risk, instead magnified and concentrated risk. CDOs and similar products are packages of securities based on mortgages and other debt. Of course, when referring to subprime loans, "security" seems like an awful misnomer.

Banks package their loans into financial products like CDOs, selling as investments the cash flow and interest profits from the mortgages.

Theoretically, this dilutes default risk through diversification; many different types of loans are mixed together. How does such an instrument end up achieving the exact opposite of its intended outcome?

Our knee-jerk response is to quote Berkshire Hathaway Vice Chairman Charlie Munger: "When you mix raisins with turds, you've still got turds." But bad loans are just bad loans, even if banks make more bad loans than usual.

The greater risk to the economy can be found in the explanation of the Journa's of a CDO called Norma: "For Norma, N.I.R. assembled $1.5 billion in investments. Most were not actual securities, but derivatives linked to triple-B-rated mortgage securities. Called credit default swaps, these derivatives worked like insurance policies on subprime residential mortgage-backed securities or on the CDOs that held them.

"Norma, acting as the insurer, would receive a regular premium payment, which it would pass on to its investors. The buyer of protection, which was initially Merrill Lynch, would receive payouts from Norma if the insured securities were hurt by losses. In principle, credit-default swaps help banks and other investors pass along risks they don't want to keep. But in the case of subprime mortgages, the derivatives have magnified the effect of losses, because they allowed bankers to create an unlimited number of CDOs linked to the same mortgage-backed bonds."

If you did not understand that explanation, you are in good company; large banks writing down tens of billions of dollars in losses may not have understood it either.

The Journal summarized the gist of the argument: "Norma contributed to a speculative market that dwarfed the value of the subprime mortgages on which it was based. It was also part of a chain of mortgage-linked investments that took stakes in one another."

That's right: Knowing that subprime mortgages were pigs, bankers applied enough lipstick and rouge to make the loans attractive to investors. But the banks made these packages so attractive that they bought them from each other.

The misuse of CDOs reminds us of Mel Brooks' 1968 film and recent Broadway musical, "The Producers." You may recall the premise: Two con men oversell shares of a musical, intending to produce a flop, which will allow them to keep the money their investors will write off as losses. Unfortunately, the play is an inadvertent smash hit, ruining the con men's plans.

CDOs were invented so banks could transfer risk and earn fees in the process, but when banks started issuing multiple CDOs based on the same securities and buying them from each other, things got out of hand.

Those watching the subprime debacle and waiting for "the other shoe to drop" are in for an unpleasant surprise: it will soon be raining shoes.

Bank write-offs

Many financial institutions, large and small, invested heavily in mortgage-backed securities, but many have not yet written down the value of these securities. Because the market for CDOs has all but disappeared, banks can sweep these investments under the rug of "level 3" assets, a Financial Accounting Standards Board (FASB) category for illiquid investments.

As John Mauldin explains in his weekly newsletter, "Level 1 means assets that can be marked-to-market, where an asset's worth is based on a real price, like a stock quote. Level 2 is mark-to-model, an estimate based on observable inputs which is used when no quoted prices are available. You can go get several bids and average them, or base your assumption on what similar assets sold for. Level 3 values are based on unobservable' inputs reflecting companies' own assumptions' about the way assets should be priced."

So the value of level 3 assets is based on the owner's internal valuation formulae. This buys time before owners have to admit and write down their true losses. Frankly, no one can estimate how great these losses may be.

But moving the "assets" into level 3 creates a new problem, and one that directly threatens our consumer-driven economy. There's nothing inherently wrong with illiquid assets, but banks need to meet minimum capitalization requirements, so moving large stakes into the level 3 category requires that lenders rebuild capital. What is the easiest, quickest way to rebuild capital? Stop making loans.

This is how imprudent loans to unqualified borrowers, traded as financial instruments by fee-hungry financiers, lead to a credit crunch for everybody, possibly stopping the economy in its tracks.

The complexity of CDOs probably made them seem more attractive to many, but breaking the concept down to its simplest expression could have helped a lot of people see the danger sooner. Subprime mortgages and the instruments built on them rely on economies and financial markets that only go up, continuously and forever.

We do not know of any markets that only go up, so we think these instruments look more like a Ponzi scheme than a rational investment. For some reason, people fall for this over and over and over.

The long term

We don't fear complexity, but we prefer simplicity in our investments. Over time, the stock market rewards simplicity.
When we call Wal-Mart, Whole Foods, Hershey or Wrigley simple businesses, we do not mean to trivialize the competitive challenges these companies face every day.

We consider them simple because it is immediately clear how they make money, and how they make money for investors. Wal-Mart sells everyday goods at low prices, Whole Foods sells healthy foods, Hershey makes chocolate, and Wrigley makes chewing gum. That part is simple, but each company worked hard to achieve competitive advantage that allows it to execute its simple business in very profitable ways.

Even a company doing complicated things can qualify as a simple company. Noven Pharmaceuticals creates and markets superior drug delivery methods, such as patches for treatment of ADHD and estrogen therapy for menopause. The advantages of Noven patches are easy to see: They are much smaller than competing patches, stick better with less skin irritation, and investors get some additional margin of safety through long patents. Drug companies partner with Noven because the patches extend and differentiate proven drug compounds with low development costs and short regulatory approval time frames.

A "simple" company easily passes the elevator test favored by venture capitalists when hearing a proposal: If you can explain the business in the time it takes to get from the lobby to the office, it may have merit. To meet this test, a collateralized debt obligation based on credit default swap derivatives would require a very tall building indeed.

One reason we long-term investors prefer simplicity is that during times of trouble, Wall Street often experiences a "flight to quality," meaning that after their overcomplicated speculative gambles have gone sour, investors salve their wounds by turning to reliable performers. Thus, simple companies often have an edge when the market falters.

Déjà vu all over again

From junk bonds to tech bubbles to energy trading to subprime mortgages, Wall Street hotshots are forever inventing new and more complicated ways to make money, but for whom?
On the face of it, subprime lending made little sense: Why did lending money to unqualified individuals seem like a good idea? Regardless, when the Wall Street money wranglers stepped in, we saw that there's no bad idea that cannot be made worse through the intervention of a greedy MBA.

Any engineer will tell you that every increase in complexity includes an increase in possible points of failure. This is just as true for investments as it is for electronic circuits, skyscrapers and automobile engines.

In the review of our book, "The Entrepreneurial Investor," the writer noted that we cite Warren Buffett in nearly every chapter. Well, here we go again. In the 1990s, high tech investors and "new economy" analysts ruthlessly savaged Buffett for his old-fashioned adherence to obsolete concepts like "profit" and "cash flow."

Long-term, he was right, and they were wrong. And long-term is what matters: The objective of investing is not to boast about how rich you were for a few months in the 1990s, but to continuously build your resources over time. To do so, appreciate the value of simplicity.

Option ARMs, next chapter in U.S. housing crisis 36651820080201?sp=true

Fri Feb 1, 2008 3:39pm EST

CHICAGO (Reuters) - The U.S. housing crisis has focused attention on adjustable rate mortgages (ARMs) and the danger posed by their spiking interest rates.

But mortgage bankers, industry experts and nonprofit officials say that the impact of one particularly nasty kind of ARM -- called the Option ARM -- involving hundreds of billions of dollars of loans has yet to be felt. And, they say, it will hit prime borrowers and subprime borrowers alike.
People like Bruce Rose, 53, who never should have got a loan.
Rose, 53, bought his home in Boston in 1986. After stress and depression forced him to retire as a state employee in April 2006 he "maxed out" his credit cards on his annual income of around $16,000.

On medication, he refinanced his debts through the largest U.S. mortgage lender, Countrywide Financial Corp The new loan totaled $439,000. Rose said he did not know his mortgage broker and Countrywide used a stated income loan -- also called a "liar loan" because no proof of income is required -- and that they claimed his monthly income was $12,166.
"If I had known what I was signing I would never have agreed to the loan," he said. "Now I may lose my home."

With an Option ARM, borrowers can make a minimum monthly payment like a credit card, but if they do the principal increases. Rose's minimum payment rose from $1,200 a month to $2,800 and his loan now totals more than $500,000. He is fighting foreclosure.

"No reasonable lender would have given him a loan like that," said Virginia Pratt, a foreclosure prevention counselor at ESAC, a Boston nonprofit group, who is seeking legal counsel for Rose.

Countrywide -- set to be bought by Bank of America and seen by critics as a poster child for excesses leading to the housing crisis -- did not respond to a request for comment.
Rose's is an extreme case, but industry insiders say Option ARMs, also called Payment Option ARMs, will be the next chapter in the U.S. housing crisis and could push hundreds of thousands more subprime and prime borrowers into foreclosure.

"So far the public is largely unaware Option ARMs are going to cause problems," said Scott Stern, Chief Executive of Lenders One Mortgage Cooperative, whose 100 members originate $40 billion in mortgages annually. "But mortgage servicers know what's looming in the pipeline."

Subprime borrowers have weak credit histories, while prime borrowers have good credit. Industry insiders say a skewed system that paid mortgage brokers more to sell Option ARMs than traditional loans has left even prime borrowers struggling with monthly payments and unable to either sell or refinance.
"So far we have only seen the tip of the iceberg of this problem," said Michael Lefevre, CEO of trade group the National Association of Mortgage Professionals (NAMP).


Option ARMs have existed since the 1980s, but according to a U.S. Federal Deposit Insurance Corporation report, "Outlook Summer 2006," as recently as 2002 they were still quite rare.
Like a normal ARM, the interest rate on one of these loans resets periodically. But the payment option allows you to make a minimum monthly payment instead of the full interest-only payment. The trouble is that the portion you don't pay is added to the principal of the loan, so your mortgage goes up. This process is called negative amortization.

"This product is suitable for people with a lot of money who are financially astute," said David Zugheri, president of First Houston Mortgage, which offers loans in 18 U.S. states. "But very few people fit that category and that's why we didn't make many of these loans."

Unfortunately, many other lenders did.
According to the Fed, in 2005 $1 trillion in new mortgages were issued, with another $1 trillion in 2006. ARMs made up about half of the total, according to the Mortgage Bankers Association (MBA). The MBA said Option ARMs made up 7.2 percent of all home mortgages in 2005 and 14.4 percent in 2006, giving a total of around $210 billion for those two years alone.
"This product has been used by far more borrowers than it was ever intended for," said Brian Chappelle, a partner at mortgage consulting firm Potomac Partners LLC.

U.S. regulators tightened standards on Option ARMs in late 2006 and the number of new loans tailed off.

Until then, many mortgage brokers liked Option ARMs as they netted a far higher commission than a safer, fixed-rate loan.
"If you're a broker and you can get $4,000 commission for a traditional loan and $12,000 commission for an Option ARM, which one are you going to pick?" said NAMP's Lefevre.
Option ARMs also allowed people to buck the system and buy well beyond their means.

"An Option ARM fed the American aspirational mentality and allowed people to get into a home beyond what they could afford," said Joe Dombrowski, an executive consultant at Brookfield, Wisconsin-based Fiserv Lending Solutions. "The minimum payment makes that possible."

The problem is paying for it. According to a December 2006 Fitch Ratings report, almost 90 percent of people who got an Option ARM in 2006 used little or no documentation and more than 90 percent were suffering from negative amortization.
Industry insiders estimate at least 60 percent of Option ARM borrowers make only the minimum monthly payment. A Jan 22 issue of "Mortgage Strategist" a research note from investment bank UBS, estimated up to 80 percent pay the bare minimum.

"If you continue to make the minimum payments, a $600,000 loan can become a $750,000 loan within a couple of years," Fiserv's Dombrowski said. "You may have good credit, but now you're in a trap."

"And because you have good credit and are making your minimum monthly payments," he added, "you're not on anyone's radar screen yet."


Industry insiders say that as long as housing prices continue to rise and selling a house is not a problem, Option ARMs are straightforward to refinance.

"Unfortunately the economic conditions are working against a lot of borrowers facing resets," said Dale Vermillion, a mortgage industry consultant and consumer advocate.

With falling house prices, selling is difficult for Option ARM holders as they would net far less than they still owe their lender -- even supposing they can sell in a slow market.
As they owe far more than the house is worth and the market has been hit by a credit crunch, they also can't refinance. Bruce Rose's house in Boston, for instance, was valued at $325,000 in January 2006, but he owes more than $500,000.

"Falling house prices and negative amortization make the proverbial perfect storm," said Potomac Partners' Chappelle.
In the meantime, as borrowers continue to make their minimum monthly payments their mortgage increases in size. But the minimum payment also rises as a result.

"If people keep adding to the principal on their loan, eventually it becomes the bank's problem," First Houston Mortgage's Zugheri said.

For those borrowers who could never afford a conventional fixed-rate mortgage for their properties, most will probably end up losing their homes through foreclosure.

Others could afford their mortgages if a deal were struck with their lender for a fixed-rate mortgage with no spike in payments that comes with an Option ARM.

But that would leave investors who bought Option ARM-related bonds at a premium short on cash. Lenders One's Stern said that to avert a disaster with Option ARMs, U.S. Congress needs to broker a solution that "meets the needs of borrower, the needs of bond holders and preserves the sanctity of the housing market."

That may be too late for borrowers like Bruce Rose.
"Everything my lender told me was a lie," he said. "Surely that's illegal?"

Posted on Sun, Feb. 03, 2008
Time to reappraise system that's all too open to abuse .html

Real estate appraisers get paid $400, tops, for their role in a transaction that generates tens of thousands of dollars in fees. And they're supposed to hold the line and say no?
Little wonder that things got so out of whack in residential real estate.

In the past few months, as elected officials and regulators examine the meltdown in housing, more are focusing on appraisals. These independent assessments of a home's value are required for every mortgage, and they set the parameters on a loan.

Lawsuits have been filed recently against major lenders, alleging that they pressured appraisers to trump up home values so borrowers could get bigger loans. And appraisers are accusing lenders, home builders, mortgage brokers and real estate agents -- the major parties who rake in most of the fee income -- of threatening to blacklist them if they don't play ball.

California and Florida get most of the attention, because home prices grew by double-digit rates for several years and are now plummeting. But prices have been falling nationwide, too, and many fear that deeper declines are ahead. Last week, the Federal Reserve cited the housing market when it again cut interest rates.

Texas home prices have held up better than most, but we haven't escaped the rising pressure on appraisals. The strongest evidence of a problem: soaring foreclosures.
They're largely a result of more subprime lending, and those loans, in particular, depended on friendly appraisals, among other things.

"No place has been immune to inflating the numbers, and bad appraisals lead to bad loans," said John Brenan, director of research and technical issues for The Appraisal Foundation, an organization authorized by Congress to set standards and qualifications for the industry.

Appraisers have always felt some pressure to deliver the magic number -- the appraised value that enables a loan to be made and a home to be sold. But long ago, appraisers worked on staff for a bank or lender, and Brenan says their primary job was to make sure that the bank wasn't saddled with a bad loan.
Today, most of the work is done by independent appraisers, who are usually paid $275 to $400 for each appraisal. And they're often hired by mortgage brokers, the independent middlemen who bring together homebuyers and lenders.

Brokers don't just gravitate to appraisers who happen to provide higher numbers; they often seek them out.
Techniques used to be fairly subtle: a broker would say that an appraisal had to hit a set value and if that wasn't going to happen, the appraiser shouldn't do the work. More recently, some brokers have sent out mass e-mails, asking which appraisers would OK the price.

"I have an e-mail that went to 200 appraisers," said Pamela Crowley, who has been in real estate since 1970 and has been an appraiser since 1995.

She runs a Web site,, which collects reports from appraisers about suspicious activity. She often sends the information to regulators. She says that appraisers face even more pressure today than in the go-go times of a few years ago.

"A lot of people are upside down on their loans, and they can't refinance without a higher appraisal," said Crowley, who is based in Florida.

She even tells stories of appraisals being altered, with higher values inserted, after the appraiser has turned in the report. Such allegations help explain why investors remain so skittish about the housing problem -- it's hard to tell just how far the market may fall.

'Dialing for dollars'

Appraisers aren't supposed to bend to such demands, and many surely resist. But their livelihood hinges on landing business, and brokers are known to cast about -- a process that appraisers call "dialing for dollars."

In an industry survey last year by October Research, a stunning 90 percent of appraisers said they were being pressured to inflate values, up from 55 percent in 2003. Three in four respondents also said they faced negative ramifications if they didn't deliver.

More than 10,000 appraisers have signed an online petition, urging the federal government to step in and stop the abuses that they say are corrupting the system.

"A lot of people have money riding on this, and if a deal falls through, there's hell to pay," said Harry Davis, who's in Austin and has been an appraiser for more than 30 years.
He says that real estate agents are the root of the problem. Brenan points to mortgage brokers, because their numbers grew rapidly and they became a primary source of business. Others say that lenders hold the most responsibility. Big finance companies are key players, too, because loans are bundled into investments sold around the world, with the blessing of credit-rating agencies.

The bottom line is that all these parties get paid -- and paid well -- only if the loan closes. If it goes bad a few years later, well, that's someone else's problem.
Richard Bitner co-founded a subprime lender in Plano, Kellner Mortgage Investments, in 2000. It closed almost seven years later, and he recently wrote a book on the experience, Greed, Fraud & Ignorance: A Subprime Insider's Look at the Mortgage Collapse.

Bitner, who lives in Colleyville, says that everybody connected to the business had too much to gain by funneling borrowers to subprime loans and doing whatever was necessary to close the loan.

In half the loans, he says, appraisals were 10 percent higher than real values, but major lenders that he sold loans to -- Countrywide, Citi and others -- were willing to accept that variance. A few months later, though, he'd get a loan on a house in the same neighborhood, and it would be valued at 10 percent more than the earlier one.

A 'brilliant strategy'

He quickly concluded that values were getting out of control. To protect his company, he would order second appraisals from Landsafe, an affiliate of Countrywide, because Countrywide agreed to accept any appraisals approved by its unit.
"It was a brilliant business strategy," Bitner wrote. "It didn't matter if we thought an appraisal was overvalued by 20 percent -- if Landsafe blessed it, Countrywide treated it as gospel."

If a loan went bad quickly, Countrywide sent it back to Kellner and began assessing the details, including the appraisal. But it wouldn't use Landsafe's review; instead, it ordered a "broker price opinion," and in every instance, the second opinion was substantially lower -- in some cases by as much as 25 percent, Bitner wrote.

It was clear that as long as payments were being made, nobody cared about the true value of the house. Or whether borrowers had the income they had stated. Or whether they could cover the mortgage after the teaser rate expired.
Now that the house of cards is crumbling, the excesses are coming to light.

"Appraisers are supposed to provide the checks and balances in the system," said Brenan of The Appraisal Foundation in Washington. "But the housing market was going crazy. It was party time."

The bills are coming due.

Just say no?

More than 10,000 appraisers have signed an online petition, asking regulators to stop the pressure being placed on them by lenders, mortgage brokers, real estate agents and others. Among their complaints:

If they refuse to inflate values, they won't get hired.
If they refuse to guarantee a predetermined value, they won't get hired.

If they refuse to ignore deficiencies in the property, they won't get hired.

Payment is refused if their appraisal isn't high enough.
Honest appraisers are being blacklisted.
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Advanced Member
Username: Saint

Post Number: 356
Registered: 5-2005

Posted on Tuesday, February 05, 2008 - 2:18 pm:   Edit PostPrint Post

I heard from a few people I know recently that had their home equity lines of credits cut off. You should see more and more banks around the USA start to cut off home equity lines of credit as home values continue to fall and many people are upside down on their homes or negative now. And also for the simple fact banks are trying to conserve cash now. Many of the large ones already had to get cash infusions from the Middle East or China and it could get much worse.

Here is a good article that discusses this.

Lenders freeze equity lines in response to tumbling property values lifornian/riverside/22_14_122_1_08.txt

Countrywide Financial announced this week that it cut off borrowers

Several banks issued statements this week saying they were temporarily suspending withdrawals from open home equity lines out of concern that borrowers could owe more than the house is worth.

Historic declines in property values have stripped many local homeowners of their safety nets as lenders freeze lines of credit ---- even on people who are current on their mortgage payments.

"It's an emotional hardship," said Patti Lien of Menifee. "We kept our credit good. We've done everything right, and this is what we get because Countrywide made all these crappy loans."

Home equity lines of credit are loans that use a home as collateral and allow the borrower to withdraw money up to a maximum credit limit.

Those lines are drying up as Countrywide Financial announced Thursday that it has cut off 122,000 borrowers from pulling any more equity out of their homes. Wells Fargo, Washington Mutual and JPMorgan Chase released statements Friday saying they have also started halting equity lines because of tumbling home values but declined to provide numbers of suspended equity lines.

"It really wreaked havoc for me," said Dan Holbrook, a Fallbrook homeowner. Working in the real estate industry, he is often paid in lump sums.

At the end of the year, Holbrook paid off his equity line with a $50,000 payment. Four days later, Bank of America froze his equity line, he said.

"I'm scrambling right now," he said. "It has created a tremendous amount of stress because that was money to live on for me."

Unlike Holbrook, Lien said she did not rely on her home equity line as a source for daily expenses. But she said the loss of her equity line was nonetheless an upsetting shock because she thought it could cover unexpected medical expenses or other emergencies.

Lien said she has a 30-year fixed mortgage and has never missed a payment.

Holbrook, a real estate consultant, said most people view such loans as emergency-only money. That is how he viewed it until the housing market slowed, he said.

"A lot of people figured these equity lines were safety nets," he said. "The problem is many of us are on a high-wire act right now. And you think the net is there, and you fall and it's not."

Banks freeze the equity line to avoid lending more money than the property is worth because if the house then goes into foreclosure, the lender is unlikely to recoup the value of the loan.

Mortgage brokers said lenders are especially cautious about property values on equity lines because they generally act as second mortgages. When a home goes into foreclosure and sells for less than the loan amount, the lender on a second can get nothing on the loan because the original mortgage must be repaid in full first.

"Home equity line lenders are getting their butts kicked these days," said Dave Hopkins, a senior loan officer with Rancho Financial Mortgage, a brokerage firm based in Rancho Bernardo. "So (freezing equity lines) is helping them quite a bit in reducing their exposure. It's not good for the borrower, but on the lender side it makes sense."

The banks' reactions follow a 17-month drop in San Diego County home values, according to a Standard and Poor's report. And many analysts expect them to continue declining.

Riverside County has also seen falling home values, with some areas losing almost half their value, said Phillip A. Bellante, owner of Guardian Mortgage and Realty, a San Diego mortgage broker.

"I can show you areas in Murrieta and Riverside that have gone down 40 percent," he said. "And is it going to go down more? Yeah, it is."

JPMorgan Chase has been focusing on homeowners with loans that are close to the value of the home, said Tom Kelly, a spokesman for the lender. He said the lender is primarily concerned with preventing the borrower from owing more than the home is worth.

A statement released by Wells Fargo said that lender has increased the frequency of regular case-by-case reviews of homeowners' credit rating and property value to determine whether a line of equity should remain open.

When a homeowner signs the contract for a line of equity, lenders usually include language that allows them to close the line in response to changing factors.

Lien said she knew of the language, but thought it only applied to homeowners who encountered credit problems and did not know an external factor such as declining property values could cause a stop to the loan.

"It's a hardship. It's money that we thought was there and it's not," she said. "We didn't go on a cruise, we didn't buy new cars but we're still suffering because of others."
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Intermediate Member
Username: Welcometomendoza

Post Number: 136
Registered: 7-2007

Posted on Tuesday, February 05, 2008 - 7:11 pm:   Edit PostPrint Post

Wow. This is fairly significant:
"I've spoken with borrowers who stopped making mortgage payments seven or more months ago. None has received a default notice. Defaults may be much higher than banks are letting on. The data lags are growing suspiciously long."
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Advanced Member
Username: Saint

Post Number: 357
Registered: 5-2005

Posted on Tuesday, February 05, 2008 - 8:12 pm:   Edit PostPrint Post

Yes, it certainly IS significant and I've heard and read about the same thing from different newspapers and bank sources over the past several months. If anyone can't tell, I'm fairly detail oriented. Before I decide to short sell a company or an industry I do my homework.

I believe that the defaults are much higher than the banks are letting on as the article described. I posted long ago when the government first hinted about raising the loan limits. This is a sheer act of desperation. Many of these people can't afford their $400,000 mortgages and allowing them to borrow more than $700,000 isn't the solution that will have it's own consequences in the future.

Also, as I posted before, these option ARM's are going to be painfully felt in the future. The government can't freeze all these loan rates forever and many people don't qualify for the freezes anyway. Do the research and see the number/trend how many Option ARM's reset in 2010. The numbers aren't pretty.

As all these articles talk about, these appraisals were high and "toyed" with pretty much in every state in the USA. It should be a pretty interesting ride for investors on both sides (those who own and those who are waiting to buy). Good luck to all.
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Advanced Member
Username: Saint

Post Number: 361
Registered: 5-2005

Posted on Friday, February 08, 2008 - 9:40 am:   Edit PostPrint Post

COMING SOON to a city Near you......

Exploding ARMs Roil Bernanke's Drive to Calm Markets d=aFCgFMs3dlSk&refer=home#

Feb. 7 (Bloomberg) -- Joe Ripplinger took out a $184,000 mortgage in 2006 and makes his payments every month.
Now he owes $192,000.

The 66-year-old Minneapolis house painter has a payment- option adjustable-rate mortgage. It allows him to write a check for $565 a month even though he owes $1,300. The difference is added to the mortgage, and when his total debt reaches $212,000, or after five years have passed, he said his monthly minimum could jump to about $2,800, which he can't afford.
``We're barely making it right now,'' Ripplinger said.

The estimated 1 million homeowners with $500 billion of option ARMs are beyond the help of interest-rate cuts by Federal Reserve Chairman Ben S. Bernanke. While subprime borrowers face an average increase of 8 percent or less when their adjustable- rate mortgages reset, option ARM homeowners may see their monthly payments double after their adjustments kick in.

``We call them neutron loans because they're like a neutron bomb,'' said Brock Davis, a broker with U.S.A. Express Mortgage Corp. in Las Vegas. ``Three years later the house is still there and the people are gone.''

Once option ARM borrowers' loan balances reach a predetermined limit, called a negative amortization cap, usually 110 percent to 120 percent of the mortgage amount, their payment rates immediately increase. They also automatically shoot up after five years. Otherwise, increases typically are capped at 7.5 percent of a borrower's initial payment per year.

One in Five

``These could be called long-fuse, exploding ARMs,'' said Kathleen Keest, former assistant Iowa attorney general and now senior policy counsel at the Center for Responsible Lending in Durham, North Carolina. ``I've heard people say they are the most complicated product ever offered to consumers. They are the real liar loans.''

The loans accounted for 8.9 percent of the almost $3 trillion in U.S. home loans made in 2006, up from 8.3 percent in 2005, according to an estimate by industry newsletter Inside Mortgage Finance. Originations of option ARMs fell 50 percent during the first nine months of last year, the newsletter says.

One in five option ARMs packaged into bonds last year required less than 10 percent down payment and no proof of a borrower's income, according to a Jan. 22 report by New York- based analysts at UBS AG, Europe's largest bank by assets. Two percent required no down payment at all from the borrower, the analysts said.

Better Scrutiny

Delinquency rates on option ARMs tend to be low in the early years, misleading some investors to think they will remain safe, said Sean Kirk, a debt trader at Seaport Group LLC, a New York- based securities firm focused on bonds of distressed or restructured companies.

Four types of home buyers typically get option ARMs.
Speculators, who plan to sell the property quickly, made up 12 percent of all option ARMs packaged into bonds last year, according to UBS. That included only borrowers who identified themselves as investors and not residents, who get lower mortgage rates. Wealthy people have used the loan for its flexibility, according to Thornburg Mortgage Inc. in Santa Fe, New Mexico.

The rest either took out the loans as an ``affordability'' product to buy more expensive homes, according to Standard & Poor's, or borrowers may have been misled about the terms, according to federal bank regulators.
Minnesota Legislation

``I never heard of a payment-option ARM before,'' said Ripplinger, the Minnesota borrower. ``We thought they were putting us on a 30-year fixed. They didn't put us on a 30-year fixed. I believe that's why a lot of people are losing their homes now.''

Borrowers who tapped home equity in refinancing represented more than 44 percent of the option ARMs underlying securities created in each of the past four years, according to UBS.
Minnesota passed legislation in August requiring mortgage brokers to act in borrowers' best interest, a law that may have made Ripplinger's mortgage illegal, said Brandon Nessen, executive director of Minnesota ACORN, a housing activist group in St. Paul.

``You can't make a loan that puts someone in a worse position than they were in before,'' Nessen said.
Sophisticated borrowers can take out option ARMs and avoid problems, said Ira Rheingold, executive director of the National Association of Consumer Advocates in Washington. It's just that mortgage sellers marketed them to people who didn't understand the terms and couldn't afford them, he said.

`Cheat People'

``It was used to cheat people,'' Rheingold said. ``It helped artificially keep housing prices higher than they should have been.''

Delinquencies of more than 90 days on option ARMs increased to 5.7 percent in the fourth quarter from 0.6 percent in the same period of 2006 on loans held by Countrywide Financial Corp., the Calabasas, California-based company said in a regulatory filing last week.

Lenders hold loans in their portfolios when they don't bundle them into securities for sale to investors.
Countrywide had $28.3 billion in option ARMs in portfolio at the end of October, according to Inside Mortgage Finance. The only banks with more were Charlotte, North Carolina-based Wachovia Corp., with $117.8 billion, and Seattle-based Washington Mutual Inc., with $57.9 billion, according to the Bethesda, Maryland-based newsletter.

Option ARMs, which can adjust monthly, are more attractive for banks to keep in portfolios than fixed-rate loans because they adjust at the same time as savings accounts and other deposits used to fund the loans.

Staying Current

Countrywide wrote down the value of $35 million of the loans in the fourth quarter, up from $1 million a year earlier, according to a regulatory filing. The company agreed to be acquired by Charlotte, North Carolina-based Bank of America Corp. after losing as much as 89 percent of its market value.
Wachovia-originated option ARMs were higher quality than other companies' option ARMs, Chief Executive Officer G. Kennedy Thompson said in a Jan. 30 conference call. That's because the bank made sure borrowers could stay current on monthly payments at the reset amount, not just the teaser interest rate, which can be as low as 1 percent, he said.

That was a standard that regulators, including the Fed, recommended in 2006 after the total U.S. foreclosure rate climbed to a five-year high. It has since surged to the loftiest level since at least World War II, according to data compiled by the Washington-based Mortgage Bankers Association.
Tougher lending guidelines have made it more difficult to refinance into new option ARMs.

Regret Making Loans

``The option ARM volume that was done was part of the excess,'' IndyMac Bancorp Inc. CEO Michael Perry said in a telephone interview from his office in Pasadena, California.
IndyMac, the second-largest independent U.S. home lender, made $43 billion of the loans from 2005 through the third quarter of 2007.

``Obviously we've been through what we've all been through, there's many things we regret,'' Perry said. IndyMac no longer makes the loans because mortgage-bond buyers aren't interested, he said.

Washington Mutual also is no longer offering option ARMs to borrowers who put down little or no money or home equity as a deposit, CEO Kerry Killinger said on a conference call last week.

``Washington Mutual continues to offer option ARMs under tightened credit standards,'' Alan Gulick, a spokesman, said today by phone.

The company's unpaid principal balance of option ARMs exceeded their original principal amount by $1.73 billion at the end of 2007, almost double the $888 million of a year earlier, Washington Mutual reported on Jan. 17.

Regional Banks

Regional banks are feeling the effects of option ARM delinquencies, said Andrew Laperriere, managing director of New York-based research firm International Strategy & Investment Group.

FirstFed Financial Corp., the Santa Monica, California-based savings and loan whose net income slumped 75 percent last quarter, blamed option ARMs hitting their negative-amortization caps for higher delinquencies. More than 1,800 of its borrowers hit the limits, and 2,400 more may this year, the company said Jan. 25.

Laperriere estimates that 85 percent of option ARM borrowers owe more than their original loan balance.
``The problem is, you can refinance an option ARM to a 30- year conventional loan at a 5.5 percent interest rate, and you're still looking at your payment going up 150 percent,'' Laperriere said. ``That's pretty ugly.''

About $460 billion of adjustable-rate mortgages are scheduled to reset this year, with the next spike in resets coming in 2011, when $420 billion in mortgages will adjust to new interest rates for the first time, according to New York-based analysts at Citigroup Inc.

That's the year that Joe Ripplinger's payment will jump, provided he doesn't reach his negative amortization cap before then.

``It's the worst thing we could have done,'' he said.


Miami Herald

Thu, Feb. 07, 2008
Foreclosure auctions clog the courts

A flood of foreclosures has forced county offices in Miami-Dade and Broward counties to expand their services to handle the load.

With more than 1,000 foreclosed homes ready to hit the auction block in February, the Miami-Dade County Clerk's office is increasing the number of days it hold auctions from two to three per week.

''We've been running into some serious problems,'' said Michael Henderson, a spokesman for the Miami-Dade clerk. ``We've needed an extra day for a couple of months now.''

In Broward County, clerks also are discussing adding an extra auction day to alleviate the backlog of filings.

The Broward court is now asking lenders and banks to agree to extend sale dates by nearly a month.

So far, that seems to be working, said Barbara Brown, court operations manager for the Broward Circuit, Civil and Family courts.

As more homeowners and investors succumb to spiking mortgage payments, the number of properties scheduled for auction -- the last step of a lengthy legal process in which a lender either sells or regains title to a property -- nearly tripled from 2006 to 10,209 in 2007 -- plus another 1,467 in January, according to Foreclosure Information Systems, a Miami data services company.

If recent foreclosure filings are any indication, the numbers will continue to swell. Lenders opened foreclosure cases on some 8,829 home loans in Miami-Dade County in the fourth quarter of 2007, and 10,207 in Broward. Another 3,247 cases were filed in Broward in January.

The figures represent part of the rolling tsunami of troubled home loans nationwide that continues to wreak havoc among the country's biggest financial institutions. Record defaults are being blamed for touching off a probable recession, as lenders tighten standards for doling out the credit that fuels the U.S. economy.

The foreclosure auction represents a lender's final attempt to recover at least a portion of the amount loaned on a home, before taking the property back.
Clerks locally said they are grappling with an ever-growing load of new cases.

''It's never been like this, not for as long as I can remember,'' Brown said.

She pointed out the Broward court has been auctioning about 240 properties per week since January, up from about 30 or 40 per week the same month last year.

The extra auction day in Miami-Dade is expected to be added starting in March, most likely on Fridays.

Henderson said the office was trying to find the resources to pay staff and make other arrangements for the change. Right now the office is having to pay employees costly overtime.

The rationale for adding an auction day was rooted mainly in concern for investors, Henderson said. Winning bidders must pay the full auction price for their purchases in cash by 3 p.m.
With auctions running later than usual, Julian Dominguez Jr., president of Foreclosure Information Systems and an investor, said the 3 p.m. deadline gives buyers -- who must put down at least make a 5 percent nonrefundable deposit upon winning a bid -- a mere 90 minutes to get to the bank and return with the difference.

''It'll make you nervous. If you've ever gone to the bank to have a cashier's check made, you might get there and there's 20 people in front of you,'' Dominguez said. ``By the time you're out of there with your check, you're stressed.''

Dominguez added that more than 95 percent of the properties for sale were being bought back by lenders.
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Intermediate Member
Username: Welcometomendoza

Post Number: 142
Registered: 7-2007

Posted on Saturday, February 09, 2008 - 6:55 am:   Edit PostPrint Post

Let's hope, for the sake of many, there are some "good pays" in those 1 million homeowners
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Advanced Member
Username: Saint

Post Number: 362
Registered: 5-2005

Posted on Saturday, February 09, 2008 - 10:40 am:   Edit PostPrint Post 7173620080209

Regulators deliver grim assessment on credit crisis

Sat Feb 9, 2008

TOKYO (Reuters) - Financial regulators and central bankers delivered a grim assessment of the credit market upheaval on Saturday, warning that worse may lie ahead as banks tighten lending and an economic slowdown spreads.

In an interim report to the Group of Seven finance ministers, the Financial Stability Forum cautioned against a rush to regulate into this vicious cycle of credit writedowns, preferring to allow markets-based systems to operate.

But authorities must remain on heightened alert, ready to jump in and impose discipline to the messy repricing of credit risk where necessary, it said.

FSF President Mario Draghi told a news conference that the next 10 days to two weeks would be crucial to understanding the extent of damage to the financial system as many banks issue their first audited accounts since the crisis started.

Asked about the extent of total exposure to the U.S. sub prime mortgage sector, he replied, "the only thing we know is that it's big and we keep on discovering new dimensions to it."

Draghi, also the governor of the Bank of Italy, said it was not appropriate to draw conclusions from the fact that bank writedowns had been far lower in Europe than in the United States.

"We are in the middle of the road. It's not over yet," he said.

Already the credit crisis has claimed British bank Northern Rock as its first victim. French bank Societe Generale is embroiled in a rogue trader scandal and huge international banks from Citigroup to Merrill Lynch have resorted to Middle Eastern and Asian funds to bolster their faltering capital.

The FSF did not discuss the SocGen case, Draghi said.

Policymakers are considering a range of steps to inoculate the world from future bouts of excessive risk-taking, which led to the current credit crisis. Tougher disclosure standards for ratings agencies, strengthened capital standards for banks and better risk management systems were on the FSF's list.


More immediately though, the group of central bankers and regulators studying the causes of the credit crisis that began in the U.S. subprime mortgage sector and has spread through financial institutions around the world and sent stock markets tumbling, said further upheaval may lie ahead.

"As institutions adjust to these conditions, the potential exists that risk shedding could tighten credit constraints on a widening set of borrowers and thereby slow economic growth, which could further impair credit," the FSF said in its interim report.

"There remains a risk that further shocks may lead to a recurrence of the acute liquidity pressures experienced last year. It is likely that we face a prolonged adjustment, which could be difficult," they said in the report.

Central banks since last August have pumped many billions of dollars of cash into money markets to grease the wheels of the financial system, which threatened to seize up when complex credit derivatives lost value. Banks stopped lending to each other, spooked by credit writedowns and spreading uncertainty about the value of structured assets.


Banks already have taken more than $100 billion in writedowns to clean up their balance sheets and have bolstered their capital base and German finance minister Peer Steinbrueck said write-offs could reach $400 billion.

As well, the credit markets are still creaking, with few buyers willing to pay prices for assets of uncertain value leaving masses of debt on bank books.

The FSF recommended a number of steps to address these problems, and promised more specific recommendations when it delivers its final report in April.

-- Bank capital may need strengthening. Supervisors should consider supplementary capital buffers to complement risk-based capital measures, and the Basel Committee should assess whether refinements are needed to new Basel II capital standards. Supervisors also need to examine the incentives that prompted banks to move some assets off balance sheet, even though they still held the risk exposure.

-- Liquidity risk supervision should be examined by supervisors and central bankers for cross-border banks.

-- U.S. regulators should review weakness in the underwriting system for credit derivatives and possible fraud.

-- Credit ratings agencies must improve the information they provide investors on structured finance products and take steps to address potential conflicts of interest, whereby they are paid by the issuer they rate.

-- Cooperation among bank supervisors, central bankers and financial regulators needs to improve at the national and international level. Better methods of handling weak and failing banks are necessary.


MANY Americans played the "refinance game" using their homes as a virtual ATM machine..... of course that all comes to an end now... Unfortunately the stories/example below is not too uncommon these days in the USA. Odds are (even if you don't know it) you know someone personally that played this "game" and they are in trouble....

Bucks couple struggling as debt crisis hits home

"Crappy decisions" led to a fight to avoid foreclosure.

Frank Salamone blames himself, mostly, for his small role in the subprime-debt crisis that has helped hobble the global economy.
With his household debt soaring from a $123,000 mortgage in 1990 to a $425,000 mortgage on the same house by 2006, Frank and his wife, Joan, are a striking example of how the housing bubble's easy credit allowed consumers to bury themselves in debt.

Now, they are struggling to avoid the worst consequence of what Frank called "crappy decisions." That would be the loss of their house in Bucks County's Warwick Township. "I'm not an Oprah victim. I don't blame anybody," he said.

Their five refinancings since 1997 ran the gamut of the subprime universe, including piggyback loans, no-doc loans and two-year adjustable-rate loans - sometimes known as exploding ARMs.

Cash from increasingly onerous refinancings went toward home improvements, medical expenses and credit-card debt that ballooned out of control during the 18 months Joan was out of work battling cancer.

In an interview last month, Frank, a quality-assurance manager at an electronics company, said a steady stream of credit-card offers and increased borrowing limits were "ruining this country. Ignorant people like me are what's getting sucked into it."

The Salamones have been two months behind on their $3,148 monthly mortgage payments since Frank - who comes across as a man who can eventually laugh at anything that does not kill him - took a 10 percent pay cut last summer. At that point, all the equity had been taken out of the house and the subprime-lending market had largely shut down.

To catch up, they took a second job in December delivering newspapers from 2:30 to 5:30 a.m. They work together. Frank needs Joan, who sat quietly during an interview paging through a training manual, as the navigator.

Income from the paper route has made the monthly payments on their mortgages more manageable. Those payments had represented 55 percent of their gross income; now they consume 38 percent, Frank said. But the Salamones, who have two daughters, still owe more than $50,000 on credit cards, plus medical bills.

Unlike hundreds of thousands of other borrowers with a crushing debt load, the Salamones have managed to avertforeclosure, which usually starts when payments fall 90 days behind.

Experts expect foreclosures to soar this year, increasing pressure on the housing market, whose troubles have been a major factor dragging down U.S. economic growth.

SMR Research Corp. in Hackettstown, N.J., predicted that 5,800 houses in the Philadelphia region would be lost to foreclosure this year, up from 2,300 last year. Many more debtors will enter the foreclosure process but not proceed all the way to a sheriff's sale.

The federal government is trying to spur the economy through interest-rate cuts and tax rebates, but those efforts are running up against families such as the Salamones, who are slashing spending because their borrowing binge is over.

The Salamones changed car insurance, even though that meant taking business from a family friend. That cut their monthly bill to $130 from $180. They switched from Comcast Triple Play for $160 a month to Verizon FiOS for $110.

They've cut their grocery bill about $75 a week; fish sticks were on the menu one Sunday night last month. "We just deal with it," Frank, who still smokes a pack of cigarettes a day, said during an interview in their living room, which they painted blue and rag-rolled to give the walls texture.

They still do what they can for their children. For example, in November they started paying $25 every other week for their 12-year-old daughter's voice lessons.

Their house needed a long list of repairs when they moved there in 1990, Frank said. They pulled out the refrigerator and found a hole in the floor; the roof leaked, and the septic system was failing.

At first they tried to pay for repairs out of pocket, but then Frank got a real estate license in the mid-1990s. "I discovered the wonderful world of refinancing," he said.

Cash from the first three refinancings - $160,000 in 1997, $230,000 in 2000 and $360,000 in 2003 - went mostly into home improvements including kitchen repairs, a new roof, a new furnace, vinyl siding, new windows, a new outside staircase, an upstairs addition, and hardwood floors for the living room.

The size of the Salamones' refinancings outpaced the growth in average house prices in Warwick Township.

The median sale price there - meaning half the homes in the township sold for more and half sold for less - climbed from $168,650 in 1997 to $375,000 in 2006. That's a 122 percent gain, compared with a 165 percent gain for the amount lent against the Salamones' house.

Trouble started after the 2003 refinancing, the first involving a so-called piggyback loan. That type of loan, usually for 20 percent of the total house value, was designed for borrowers without enough money for a down payment to buy a house.

"We were doing OK with the refis, but then medical problems hit," Frank said.

Soon after that loan, Joan was diagnosed with cervical cancer and was out of work for 18 months. Insurance would not cover about $10,000 of her medical expenses, Frank said. Then she had a kidney stone.

Without Joan's income, credit-card bills mounted. Frank refinanced into a $320,000 mortgage with an $80,000 piggyback loan to consolidate debt in 2005.

That was his first experience with a so-called no-doc loan, which means that income was not documented. Otherwise, he said he would not have qualified.

Frank took it because he was desperate without his wife's help. "You figure out where my head was at that point," he said. "It was basically how do I keep things running."

The idea was that he eventually could refinance out of the $80,000 loan, which had a fixed rate of 9 percent. He soon could not afford the $2,800 in payments on those loans. When he called the Arizona-based lender back, the broker who had promised him help was gone.

Meanwhile, "I was getting literally three dozen calls a week" from brokers and lenders offering new deals.

The latest refinancing, for $425,000, occurred in August 2006 through Mortgage Lenders Network, which went bankrupt six months later.

That loan was not big enough to pay all the credit cards and Frank's car loan, as they had hoped. Despite all the refinancings, the Salamones still have $53,000 in credit-card debt, including $30,000 on accounts at American Express.

Help with the mortgage might be coming. A Philadelphia lawyer, Robert P. Cocco, said he found a violation of the federal Truth in Lending Act in the Salamones' loan documentation and sent a letter this month to the current servicer, Wilshire Credit Corp., demanding that the loan be rescinded. The originator misstated the annual percentage rate as 10.3 percent rather than the actual 10.6 percent, according to Cocco.

Adjustable-rate mortgages, Cocco said, "are so complicated and they shoveled them out the door so quickly to investors that it was difficult even for the lenders themselves to accurately calculate and then disclose the costs of the loan."

Meanwhile, the Salamones will keep plugging away - starting each day at 1:30 a.m.

Joan said there is one thing she enjoys about delivering papers in the middle of the night. "It's nice to see the deer outside. It's really pretty," said Joan, who brings carrots and apples to feed them.



Danish construction industry bankruptcies jump to highest ever

Thursday, February 7, 2008

New York - Bloomberg

Bankruptcies in the Danish construction industry rose to the highest level in at least 15 years in January, indicating the economy is in the grips of a slowdown led by declines in the real-estate market.

Bankruptcies in the construction industry jumped 60 percent from December to 59, Statistics Denmark said in a statement on its Web site yesterday. That's the highest since the office started collecting data in January 1993.

“The golden years in Danish construction are over and there are signs that not all companies are prepared for the cyclical shift we're seeing,”said Steen Bocian, head of global economic research at Danske Bank A/S, the country's biggest lender.

Apartment prices dropped an annual 9.1 percent in the three months through December, while house-price growth slowed for a sixth consecutive quarter, the Association of Danish Mortgage Banks said on Jan. 30. Demand for housing has slipped after the central bank raised the benchmark lending rate nine times since

December 2005.

Total bankruptcies grew 17 percent to 232 in January, the most since October 2005, the office also said yesterday. The data are adjusted for seasonal swings.


Oh how the tables have turned..... Look at countries like Vietnam where the real estate market is booming and the price per sq. foot surpasses many areas in the USA. Just like in many neighborhoods of Buenos Aires where flats can go for more than the typical house in the USA.

The USA in the past showed a disdain for certain countries and they thought they were invincible but this is proving not to be the case now and I predict it gets worse. This is a pretty interesting article below about the real estate market in Vietnam.

January 30, 2008

Wall Street Journal

HANOI -- Housing markets around the world may be in the doldrums. But not in Vietnam, where speculators are lining up to buy condos and international developers are building whole cities in what amounts to an enormous bet on the country's economic future.

Six months ago, thousands of individual Vietnamese investors swarmed the trading floors of brokerages in Hanoi and Ho Chi Minh City hoping to make a quick profit in stocks. Today, with parts of the global economy showing signs of slowing and Vietnamese shares also taking a hit, those investors have relocated to real-estate offices.

"Buying condos seems a more secure investment than the stock market," says Nguyen Van Thai, a 32-year-old advertising executive from Hanoi. "There's a lot more interest from foreigners in Vietnam since we joined the World Trade Organization [in 2007], and this is giving the property market a boost."

At the launch of closely held property developer Hoang Anh Gia Lai Group's new condo project in Ho Chi Minh City last month, 3,000 local investors lined up for the opportunity to buy one of the available 800 units. In the following days, 10,000 more people lined the sidewalk outside the company's offices, blocking traffic in the sweltering heat.

Foreign investors can also get in on the game. Individual foreigners can buy condo units as long as they are for their own residential use. Vietnam-based Indochina Capital Advisors Ltd. is launching a fund to enable foreign investors to get wider exposure to Vietnam's property market. Ho Chi Minh City-based VinaCapital Group manages a $633 million London-listed fund offered to global investors and which is dedicated to the real-estate market.

In Vietnam's capital, Hanoi, South Korean company Keangnam Enterprises Co. is building Pride Tower, a $1 billion, 72-story structure, reflecting how cash-rich global investors are still willing to gamble on up-and-coming markets. Keangnam will own the building when it is completed.

Another Korean concern, Posco Engineering & Construction Corp., is building a $3 billion satellite city outside Hanoi in a joint venture with a Vietnamese company on a site currently occupied by herds of grazing cows.

"Some people think this kind of development isn't appropriate for Vietnam at this early stage of its development," says Sohn Juk Weon, Posco's chief manager at its joint venture with Hanoi-based Vinaconex Corp. "But we aren't building a city for the next 10 years, but one for the next 100 or 150 years."

Vietnam, like most countries with open or partially open economies, is vulnerable to a global slowdown. Much of its economic progress in recent years has been built on exporting electrical goods and agricultural products to the U.S. and other developed countries that are now teetering on the brink of recession. The exports from Vietnam to the U.S. alone grew 39% in 2007 to more than $10 billion. Trade and Industry Ministry officials say they expect exports to the U.S. to rise 30% this year to $13 billion. Total exports are forecast to rise to $58 billion this year from $48 billion in 2007.

Since eschewing Communist economic planning in the early 1990s, Vietnam has been moving toward becoming the next "Asian tiger." Global manufacturers -- particularly Asian companies such as Samsung Electronics Corp., Canon Inc. and Taiwan-based chip-producer Hon Hai Precision Industry Co. -- have chosen Vietnam as a low-cost production hub, just as Japanese and American companies built up Thailand, Malaysia and Mexico in the 1970s and 1980s.

As a result, Vietnam's economy has grown an average 7.5% a year since 2000; last year it grew 8.5%and officials predict similar growth this year, although economists say it won't fully escape the ill effects of a U.S. slowdown.

Although no reliable countrywide statistics are available on property investment in Vietnam, anecdotal evidence and property professionals say some of the money going into the market comes from foreign-based specialist funds investing in emerging economies -- places such as Algeria, the Gulf States and Kazakhstan -- which are attracting fresh interest in part due to the economic problems now confronting the U.S. and other larger economies.

"Investors are looking for opportunities in previously untapped markets outside the emerging market mainstream," Merrill Lynch analysts Michael Hartnett and Lucila Broide said in a recent report. "The key positive is the enormous growth potential of frontier economies in the Middle East, Africa and Asia, particularly Vietnam."

That potential is reflected in rising condo prices and office rents in Hanoi and Ho Chi Minh City, the southern commercial hub formerly known as Saigon. In a global survey of office-rental prices released in November, property consultancy CB Richard Ellis found that annual office rents in Ho Chi Minh City had risen 29% in the previous 12 months to $49 per square foot.

That compares with $53 per square foot in downtown Manhattan. It is double the $24 per square foot charged in Bangkok.

Officials at Keangnam and Posco say they are unconcerned with the problems in the U.S. banking sector and a broader economic downturn. Instead, they are eyeing the growing demand from local and multinational companies for office space and homes as Vietnam continues its advance toward free-market economics.

"We saw there is a need for a new urban district, and we have experience building new cities in South Korea," says Ha Jong Seuk, Keangnam's chief representative in Hanoi. "We didn't think it would be hard to bring the concept to Vietnam."

While Posco is jointly developing a new satellite city with a local partner and Keangnam is erecting its 72-story tower, Vietnam's leaders are planning a similar development on state-owned land to the north of Hanoi across the Red River. Officials say it will feature exhibition centers, high-rise office buildings and residential areas among levees built across the flood plains of the river. Its estimated cost: $7 billion.

Local investors share the Koreans' confidence in Vietnam's property market. Many prosperous Vietnamese are trading condo units before they are even built, just as investors in Hong Kong and Singapore have done for years.

Brokers say residential prices have risen 50% since the beginning of 2007, although in some areas prices have tripled, and Vietnam's leaders are drafting a new capital-gains tax to skim the froth off the market. Some property specialists worry there is so much investment in the sector that there could be oversupply when many projects are completed in three to five years.

In 2006, 25 condominium projects were launched in Ho Chi Minh City, with an additional 22 beginning construction last year. CB Richard Ellis expects 49 new office buildings will be completed there in the next three years, injecting an additional supply into the marketplace.

In Hanoi, a glut of office space will hit the market in the next three years. That means projects such as Keangnam's Pride Tower may take awhile to earn a solid profit.

"You could call it diplomacy by other means," says Marc Townsend, Vietnam representative at CB Richard Ellis, suggesting that companies that pitch in to help deal with Vietnam's office-space shortage now might be well placed to pick up more business later.
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Gloria Melgar Estevez
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Username: Glorita

Post Number: 43
Registered: 12-2007
Posted on Sunday, February 10, 2008 - 12:30 am:   Edit PostPrint Post

Hi everyone. As the posted articles you all have posted in the recent days, I can tell you things are truly getting grim here in the states. I must say, that I'm so glad that I followed my gut and didn't get on the refinace bandwagon, and use my home equity. I must say that at times I questioned myself as I saw neighbors, and friends fixing up their homes, taking trips to Europe, and driving new cars, as to why I just didn't join them. I have never been into the herd mentality....I'm more of a "doing it my way" kind of person. And as I learn and research I'm finding out that this type of thinking is what makes so many successful. Well, I've been really busy these past few weeks....I have started my home hunting....and boy I am like a fish out of water....I have gone to seen many homes...most of them are pre-forclosures...some really desperate sellers....most of the homes I've seen are empty...these are homes that have been coined "jingle mail"...the owners mail the keys to the bank and just "walk away from their mortgages". I recently have googled walk away from your mortgage and there are people now setting up services to give people advice on "just walking away". Anyways, back to my "vulture home shopping adventure". I must have looked at over 30 homes in these past two weeks. I'm just looking for the time being because the word out is that homes will drop possibly another 30% and it is a buyers market after all and there is so many homes to choose I am a cash yes, like I said, I am like a fish out of turns out that being odd is not such a bad thing afterall...LOL.