| Author | Message | ||
     Roberto Board Administrator Username: Admin Post Number: 1419 Registered: 12-2004 |
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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 281 Registered: 5-2005  |
Roberto, 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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 282 Registered: 5-2005 |
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. BAD NEWS PRICED IN 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. http://www.guardian.co.uk/feedarticle?id=7170721 USA 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. http://www.bizjournals.com/twincities/stories/2007 /12/17/daily39.html UK 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. URL: http://www.msnbc.msn.com/id/22351422/ Switzerland 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. http://marketplace.publicradio.org/display/web/200 7/12/21/ubs_investors_upset_shareholders_ USA 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. http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=avuHjSdAT8Ik USA Fraud Seen as a Driver In Wave of Foreclosures Atlanta Ring Scams Bear Stearns, Getting $6.8 Million in Loans By MICHAEL CORKERY 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. URL for this article: http://online.wsj.com/article/SB119820566870044163.html 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." http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/21/BUQ9U25H7.DTL 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 http://www.bnamericas.com/news/banking/Popular_to_book_US*90mn-165mn_loss_in_4Q07 USA 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. http://www.chron.com/disp/story.mpl/ap/fn/5395609.html USA 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. http://money.cnn.com/news/newsfeeds/articles/newstex/AFX-0013-21843154.htm 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. http://www.euro2day.gr/articlesfna/52216647/ USA 12/21/07 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. http://www.sun-herald.com/Newsstory.cfm?pubdate=122107&story=tp3ch8.htm&folder=NewsArchive2 USA Market won't bottom out until '09, analyst predicts By LINDA RAWLS 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. http://www.palmbeachpost.com/business/content/business/epaper/2007/12/21/a6b_nahb_1221.html USA 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. http://www.theledger.com/article/20071219/NEWS/712190343/1178 USA 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. http://www.news-press.com/apps/pbcs.dll/article?AID=/20071219/BUSINESS/71219022/1075 | ||
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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." Collateral 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. http://www.marketwatch.com/news/story/aca-capital- 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. ______________________ http://www.ottawabusinessjournal.com/290567315596074.php 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. http://www.reuters.com/articlePrint?articleId=USN1963155820071219 _____________________________ As I mentioned before...you 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. ________________________________ http://www.thebusiness.co.uk/news-and-analysis/412341/barclays-sues-bear-stearns-over-subprime-funds-failure.thtml 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. http://www.bloomberg.com/apps/news?pid=20601087&sid=aiWFuQTJbvvY&refer=home 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 http://money.cnn.com/news/newsfeeds/articles/apwire/2e30897350d556222ce56c2220e0ccb5.htm | ||
| Richard Graham New member Username: Richg Post Number: 11 Registered: 6-2007 |
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! | ||
| WTMendoza.com Member Username: Welcometomendoza Post Number: 85 Registered: 7-2007  |
source: http://www.nytimes.com/2007/12/22/business/22siv.h tml?_r=1&oref=slogin&ref=business&pagewanted=print December 22, 2007 Big Fund to Prop Up Securities Is Scrapped By ERIC DASH 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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 284 Registered: 5-2005 |
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: http://news.yahoo.com/s/nm/20071221/bs_nm/usa_econ 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: Source: http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+December.htm 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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 285 Registered: 5-2005 |
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" http://www.abcnews.go.com/Nightline/RealtyCheck/St 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 URL: http://www.dailynews.com/business/ci_7782139 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 By George Avalos, BUSINESS WRITER Article Last Updated: 12/22/2007 URL: http://www.insidebayarea.com/sanmateocountytimes/c 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 http://www.nctimes.com/articles/2007/12/22/news/top_stories/1_02_9912_21_07.txt 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 http://www.inbusinesslasvegas.com/2007/12/21/feature1.html 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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 286 Registered: 5-2005 |
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 http://economist.com/finance/displaystory.cfm?stor 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 http://www.guardian.co.uk/business/2007/dec/21/friendsprovidentbusiness.creditcrunch 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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 290 Registered: 5-2005 |
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 http://money.independent.co.uk/property/mortgages/article3215745.ece 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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 293 Registered: 5-2005 |
More depressing news on the USA Economy. January 4, 2008 US jobs growth skids to near halt, recession feared By Glenn Somerville Source: http://www.reuters.com/article/marketsNews/idUKN04 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. EYES ON THE FED 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. FACTORY SECTOR SHRINKS 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) | ||
| Roberto Board Administrator Username: Admin Post Number: 1431 Registered: 12-2004 |
And a nice interview at Pimco website subprime/mortgage related. Perhaps of interest to those dealing in real estate in Argentina too... | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 294 Registered: 5-2005 |
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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 296 Registered: 5-2005 |
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 http://www2.tbo.com/content/2008/jan/01/bz-single- 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 http://www.palmbeachpost.com/business/content/busi 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 http://www.orlandosentinel.com/news/local/lake/orl -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. http://www.nctimes.com/articles/2008/01/01/news/ca 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 http://www.latimes.com/business/la-fi-homesales1ja 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." http://www.suburbanchicagonews.com/beaconnews/news /719884,2_1_AU31_FACES_S1.article The mortgage meltdown As credit crisis grows, more homeowners seeking help to make payments December 31, 2007 By HEATHER GILLERS Staff Writer 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." | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 297 Registered: 5-2005 |
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. URL: http://www.nctimes.com/articles/2008/01/05/business/news/7_02_521_04_08.txt ___________________ 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 URL: http://www.bloomberg.com/apps/news?pid=20601109&sid=aNCGKKPXpS8w&refer=home 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. | ||
| Roberto Board Administrator Username: Admin Post Number: 1435 Registered: 12-2004 |
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? | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 300 Registered: 5-2005 |
Roberto, 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. Cheers. | ||
| Roberto Board Administrator Username: Admin Post Number: 1437 Registered: 12-2004 |
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) | ||
| Arial Intermediate Member Username: Arial Post Number: 120 Registered: 10-2006  |
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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 302 Registered: 5-2005 |
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." http://biz.yahoo.com/ap/080109/world_bank_economic _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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 305 Registered: 5-2005 |
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. http://www.reuters.com/articlePrint?articleId=INL1 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. INFLATION WORRIES 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) | ||
| WTMendoza.com Member Username: Welcometomendoza Post Number: 99 Registered: 7-2007 |
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 Forbes 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. Forbes.com 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, Forbes.com. All rights reserved. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 307 Registered: 5-2005 |
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. http://www.voanews.com/english/2008-01-09-voa14.cf 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. http://www.dailybusinessreview.com/news.html?news_ 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.” http://www.bradenton.com/local/story/321372.html 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. http://www.miamiherald.com/business/story/374966.h 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. STAYING POSITIVE ''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. `TOO LITTLE, TOO LATE' ''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. http://www.charlotte.com/business/story/442677.htm 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 http://www.thanhniennews.com/business/?catid=2&new 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. www.chicagotribune.com/business/chi-eng_nh_111jan1 1,0,5406139.story Europe, too, being hit by subprime housing woes Small $335,000 storage room highlights UK issue January 11, 2008 LONDON 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. http://www.modbee.com/business/v-print/story/17695 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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 308 Registered: 5-2005 |
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." http://www.theglobeandmail.com/servlet/story/RTGAM .20080108.wsarkozy0108/BNStory/International/home Sarkozy vows to defend France against wealth funds Reuters 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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 310 Registered: 5-2005 |
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. http://www.reuters.com/article/email/idUKN03217712 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. | ||
| Gloria Melgar Estevez Junior Member Username: Glorita Post Number: 27 Registered: 12-2007 |
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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 311 Registered: 5-2005 |
Gloria, 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 Google.com 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. | ||
| Gloria Melgar Estevez Junior Member Username: Glorita Post Number: 28 Registered: 12-2007 |
Thanks ApartmentsBA...you 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. | ||
| Arial Intermediate Member Username: Arial Post Number: 121 Registered: 10-2006 |
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 www.amazon.com and pay $29.00 . . . or you can go to http://www.mises.org/rothbard/agd.pdf and download it free in PDF format. | ||
| Roberto Board Administrator Username: Admin Post Number: 1447 Registered: 12-2004 |
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... | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 312 Registered: 5-2005 |
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 http://www.latimes.com/business/la-fi-optionarm14j 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." | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 313 Registered: 5-2005 |
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. | ||
| Arial Intermediate Member Username: Arial Post Number: 122 Registered: 10-2006 |
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 $65,000? And it has only just begun. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 314 Registered: 5-2005 |
Arial, Yes, there definitely are bargains that are starting. You have to selectively look and see. I have some friends that picked up some properties in California for HUGE mark downs compared to prices 2 years ago. There ARE many examples like the one you mentioned. As more homes go into foreclosure the prices should continue their downward shift on prices. Keep in mind however there are many people waiting on the sidelines with cash waiting to invest. Much on the prices will be when these investors jump on and decide prices are as low as they will go. The general property prices won't start going up until the available inventory goes down and right now there is too much inventory available in most major cities. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 315 Registered: 5-2005 |
"Remember before I said to distrust these banks. Many of them kept harping how they wouldn't touch the dividends and then you saw them cutting them at various banks. Citigroup keeps saying they won't touch the sacred dividend program but my guess is they will have to cut part of it. Even if they cut it in half they can save u$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 http://biz.yahoo.com/ap/080115/earns_citigroup.htm 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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 317 Registered: 5-2005 |
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 http://biz.yahoo.com/ap/080115/sovereign_wealth_backlash.html?.v=1 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. | ||
| Arial Intermediate Member Username: Arial Post Number: 124 Registered: 10-2006 |
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? | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 318 Registered: 5-2005 |
Arial, 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: http://www.bloomberg.com/apps/news?pid=20601087&si 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. http://www.bloomberg.com/apps/news?pid=20601087&si 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. http://www.boston.com/business/articles/2008/01/16 /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. http://www.sptimes.com/2008/01/13/Columns/Maybe_yo 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. http://www.palmbeachpost.com/business/content/busi 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. | ||
| WTMendoza.com Intermediate Member Username: Welcometomendoza Post Number: 103 Registered: 7-2007 |
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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 320 Registered: 5-2005 |
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. BREAKING DOWN THE WRITE-DOWN • $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. | ||
| Apartmentsba.com Advanced Member Username: Saint Post Number: 321 Registered: 5-2005 |
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 http://www.reuters.com/article/marketsNews/idUKN17 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. DO IT NOW 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. OUTLOOK DIM 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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Home sales, prices fall to lows across the region January 17, 2008 http://www.sacbee.com/103/story/642236.html 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?? http://money.cnn.com/2008/01/17/real_estate/wamu_l 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, mortgagefraudwatchlist.org. "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. http://money.cnn.com/2008/01/17/news/economy/housingstarts/?postversion=2008011709 January 17 2008: 6:46 PM EST NEW YORK (CNNMoney.com) -- 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 Briefing.com 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 http://www.bloomberg.com/apps/news?pid=20601082&sid=aza8vH4Q9hhg&refer=canada 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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http://money.cnn.com/2008/01/18/news/economy/econo 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 (CNNMoney.com) -- 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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