| 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 |
