Monday October 13 Housing and Economic stories

TOP STORIES:

Illinois, Michigan Banks Shut by Regulators; Toll Climbs to 15 - (www.bloomberg.com) Redstone's family firm dumps $400 million of nonvoting shares to raise cash to pay down debt. Illinois and Michigan banks with $123 million in deposits were closed by state regulators as tightening credit and a deepening real-estate slump pushes failures this year to 15, the most since 1993. Meridian Bank of Eldred, Illinois, with $39 million in assets and $37 million in deposits, was shut by the state yesterday and National Bank of Hillsboro, Illinois, bought the deposits from the Federal Deposit Insurance Corp. Four branches in southern and western Illinois reopen today, a fifth opens Oct. 14, the FDIC said in a statement. Main Street Bank of Northville, Michigan, with $98 million in assets and $86 million in deposits, was turned over to the FDIC yesterday. Monroe Bank & Trust of Monroe, Michigan, bought the deposits and today will open its two offices near Detroit as branches.

Sumner Redstone forced to sell Viacom, CBS shares - (www.latimes.com) Billionaire Sumner Redstone got caught in the credit crunch Friday. The 85-year-old mogul, who has long bragged about his financial savvy and competitive drive, was forced to sell a fifth of his family's stake in his two media companies -- Viacom Inc. and CBS Corp. -- on a day when the companies' shares were trading at record lows. It shows that even the wealthiest people are not immune to the meltdown in the markets and are being thrust into once-unimaginable situations. On the most volatile trading day in the stock market's 112-year history, Redstone's family's holding firm, National Amusements Inc., had to dump $400 million of nonvoting B shares in Viacom and CBS to raise cash to "pay down debt to comply with covenants under [the company's] credit agreements," according to a statement from National Amusements.

Abramovich, Deripaska, Oligarchs Lose $230 Billion - (www.bloomberg.com) Russian billionaires from aluminum magnate Oleg Deripaska to soccer-club owner Roman Abramovich lost more than $230 billion in five months during the nation's worst financial crisis since the 1998 default on its debt. The combined wealth of Forbes magazine's 25 richest Russians tumbled 62% between May 19 and Oct. 6...

Sad Guys on Trading Floors - (sadguysontradingfloors.tumblr.com) Good photos of sad traders J

Scramble to deleverage takes heavy toll on stocks - (www.ft.com) In hedge funds they had the right target - but short selling, or betting on price falls, was not the problem: it was just plain old selling. It has been the hedge funds, investment banks and other investors who borrowed to buy shares - in other words, went long - who have been the main cause of the market falls as they scrambled to sell anything and everything to pay back debt and shift into cash. "People are selling what they can, rather than what they should," said the head of one large London hedge fund. "That's why equities are going down so much, because you can't sell property, you can't sell structured products." Shares popular with hedge funds have been hit far harder over the past six weeks than those in which hedge funds took little interest, according to research by Goldman Sachs. It is not just hedge funds that borrowed to invest. Many wealthy individuals, including Russian oligarch Oleg Deripaska and Iranian-born entrepreneur Robert Tchenguiz, have been forced to dump holdings either to meet margin calls from lenders or because their lenders themselves have hit problems, hurting stocks in Canada, the UK and Germany.

Hoping There's Hope - (Doug Noland’s Credit Bubble Bulletin at www.safehaven.com) This is the first all-encompassing global dislocation of contemporary finance, impacting virtually all economies, markets and asset classes. The media is now all over the "Wall Street" and "banking" crisis. I am of the view, however, that the collapse of the hedge fund industry has moved to the forefront - that it is now at the epicenter of global market upheaval. To watch silver lose more than 20% of its value today in intraday trading; to see the collapse in energy prices; to see the entire commodities complex absolutely routed; to view global currency markets in complete disarray, with double-digit intraday drops in the Brazilian real and Mexican peso; to witness major currencies such as the Australian and Canadian dollars suffer precipitous declines; for benchmark Fannie Mae MBS yields to surge 62 bps in three days; to see Brazilian dollar bond yields jump almost 200 bps in four sessions; for global equities indices to suffer rapid double-digit drops throughout both the developed and "emerging" markets; to witness a 1,000 point intraday swing in the DJIA. All the favorite trades are blowing up, and the leveraged speculating community is in a panic de-leveraging. There is no doubt that markets are in the midst of an unprecedented liquidation of positions across virtually all asset classes and a vicious unwind of a multitude of investment and trading strategies. The Massive Pool of Global Speculative Finance is being drained. Investors and speculators alike are desperate to flee risk. Having watched the ballooning of the hedge fund industry over the past few years in absolute awe, I can say today that an industry collapse would entail the sale (voluntary and forced by the margin clerk) and unwind of literally Trillions of positions. It has been history's most spectacular speculative Bubble and, especially over the past few years, it became very much global in nature and infiltrated virtually all asset classes. This Bubble is in a full-fledged collapse - entailing unprecedented liquidations - and it's taking global markets down with it. The situation is dire, as is now commonly recognized. The media is in a tizzy, and Wall Street makes for an easy and generally deserving villain. I fear the rapidly mounting anger. But I guess for this evening there is something about coming home after a distressing week and spending time with my little four month old baby. My wife and I gave our smiling and laughing little guy a bath and I just kissed them goodnight. I just don't have it in me right now to analyze and to write gloom and doom. I'd rather Hope there is Hope.

Credit derivatives provide more gloom - (www.ft.com) Credit derivatives markets were swamped with the same bleak sentiment as stock markets on Friday, although some of the losses from the morning’s major sell-off were made up again later in the day. In the investment grade markets, European insurers were among the worst hit along with industrials and resources companies, while banks also had a rough time. In the US, retailers were among the worst performing credits. However, it was the non-investment grade indices that saw the worst selling as the flight from risk that was apparent in the stock markets drove the cost of protection for junk-rated debt to new highs. Analysts said hedge fund and bank de-leveraging as a result of the failures in Iceland and the still-highly stressed money markets were behind the flight from risk.

Five days that shook the world - (business.timesonline.co.uk) AT the turn of the 20th century, toward the end of a brutal and surprisingly difficult victory in the Second Boer War, the people of Britain began to contemplate the possibility that theirs was a nation in decline. They worried that London’s big financial sector was draining resources from the industrial economy and wondered whether Britain’s schools were inadequate. In 1905, a new book — a fictional history, set in the year 2005 — appeared under the title, “The Decline and Fall of the British Empire.” The crisis of confidence led to a sharp political reaction. In the 1906 election, the Liberals ousted the Conservatives in a landslide and ushered in an era of reform. But it did not stave off a slide from economic or political prominence. Within four decades, a much larger country, across an ocean to the west, would clearly supplant Britain as the world’s dominant power. The United States of today and Britain of 1905 are certainly more different than they are similar. Yet the financial shocks of the past several weeks — coming on top of an already weak economy and an unpopular war — have created their own crisis of national confidence. On Friday, as the stock market finished one of its worst weeks by falling yet again, to roughly half of its level just one year ago, the Gallup Poll reported that Americans were substantially more pessimistic about the economy than they have been in more than two decades of polling. Nearly 60 percent say the economy is in poor shape, and 90 percent say it’s still getting worse.

Financial troubles spread to credit unions - (www.latimes.com) It's not just giant banks on the brink these days: Losses are clobbering nonprofit credit unions that have strayed from their conservative heritage or whose members have been pulled into economic downdrafts. With rising unemployment compounding the effect of tumbling home prices, more than a third of California's 485 federally insured credit unions lost money in the first half of this year, and three were seized by regulators. The number of money-losing credit unions nationwide as well as in the state has surged about 75% from last year, according to the National Credit Union Administration, a federal regulator.

The Debt Pyramid Collapses - (www.reochronicle.com) At the bottom of much of the instability is the fact that millions of households have been operating just like hedge funds for a long time. Millions of people have borrowed large amounts of money to invest in larger and larger houses, pyramiding their household investments over time with bigger and bigger mortgages. The whole household sector balance sheet looks like one gigantic hedge fund. Borrow ever-increasing amounts of money to finance an asset whose price depends on borrowing ever-increasing amounts of money. The financial profile of hedge funds and millions of households is almost identical. In the stock markets, everybody crowded in to the same trades at the same time–real estate, commodities/emerging country stocks, and oil, which caused a huge spike in prices. Now everybody wants out at the same time, since nobody noticed they were all in the same crowded theater, and somebody yelled “fire”. When everybody wants out of a fundamentally unsound investment at the same time, crashes occur. In the meantime, the financial sector is on it’s knees, since they financed the speculation. And, their collateral is vanishing into thin air.


OTHER STORIES:

Treasury Trashes the Market, No Help from Ben - (www.ml-implode.com) - ``Sickeningly, there’s likely to be little letup given the amount of supply that must be settled tomorrow and Monday and the cer...
Paulson: Will Buy Equity "Soon" - (www.ml-implode.com) - ``Paulson also seemed to say buying equity provided a bigger bang for the buck than buying troubled mortgage assets.''
The Bankruptcy of The United States - (www.ml-implode.com) - "“Mr. Speaker, we are here now in chapter 11.. Members of Congress are official trustees presiding over the greatest reorganizat...
Capital Flight is now being discussed - (www.ml-implode.com) - ""Is this the beginning of the end for the dollar and the Treasury market? Is this the first sign of the bursting of the bubble ...
"Are Central Banks Making Libor WORSE?" - (www.ml-implode.com)
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets - (www.ml-implode.com)
LIBOR defined, and why you care - (www.ml-implode.com)
Gold prices getting fishier and fishier - (www.ml-implode.com)

The Fallacy of the Bailout - (www.blownmortgage.com)
Which "Representatives" voted for the $700 Paulson theft? - (www.bailoutvoteout.com)

We need less home ownership - (www.seekingalpha.com)
Nearly 1 in 6 houseowners is underwater - (www.msnbc.msn.com)
US debt clock runs out of digits - (news.bbc.co.uk)
Global co-operation, nationalisation, state intervention - all in one day - (thescotsman.scotsman.com)
Global recession almost certainly on the way - (www.economist.com)
Libor Holds Central Banks Hostage - (www.bloomberg.com)
Lehman Swap Auction Initial Results Show Payout of 90.25 Cents - (www.ml-implode.com)
AIG, Castigated for Resort Event, Plans Another One - (www.ml-implode.com)
Roubini Discusses the Double D's, Deflation and Depression - (www.ml-implode.com)
Hank Paulson and Neel Kashkari star in "Mortages are Forever" - (www.ml-implode.com)
Doctor asks federal judge to issue restraining order stopping bailout bill - (www.ml-implode.com)
Global Melt Down Heats Up - (www.ml-implode.com)

Tremonti Says Italy to Weigh Abolishing `Opaque' Hedge Funds - (www.bloomberg.com)
Lehman Credit-Default Swap Payout Could Climb as High as $365 Billion - (www.washingtonpost.com)
Lehman Auction Leaves Cloudy Picture For Banks - (www.forbes.com)
Illinois sheriff scolds banks for evictions of innocent renters - (www.cnn.com)
Housing prices down in Holland - (www.nrc.nl)
Housing Crash May Not Hurt Property Tax Revenues - (www.portfolio.com)
Bailout, English-Style - (opinionator.blogs.nytimes.com)
U.S. May Take Ownership Stake in Banks - (www.nytimes.com)
It Now Takes Three Men to Do What J.P. Morgan Did Alone - (www.newsweek.com)
Big Money Exits Stock Market - (dividendinc.blogspot.com)

Insurance on Lehman Debt Is the Industry’s Next Test - (www.nytimes.com)
Sarkozy, Merkel Call for Joint Action by Europeans - (www.bloomberg.com)
China to Maintain `Fast and Stable' Economic Growth, Yi Says - (www.bloomberg.com)
IMF warns of financial meltdown; Europe seeks unity - (www.reuters.com)
White House Overhauling Rescue Plan - (www.nytimes.com)
Economic Uncertainty Spreads - (www.nytimes.com)
Rich Nations Pushing for Coordination in Rescue - (www.nytimes.com)
Paulson says U.S. planning to buy financial equity - (www.reuters.com)
World Leaders Vow Concerted Action - (www.washingtonpost.com)
America's Luxury Foreclosure Capitals - (www.forbes.com)
Across the Country, Fear About Savings, the Job Market and Retirement - (www.nytimes.com)
Global Credit Crisis Hits Home for Local Businesses and Customers - (www.washingtonpost.com)
Can the G-7 Save the World from Financial Chaos? - (www.time.com)
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets - (www.bloomberg.com)

G.M. and Chrysler Explore Merger - (www.nytimes.com)
Morgan Stanley Enters Weekend Beset by Doubts on MUFG Deal - (online.wsj.com)
GE Finance Arm Tightens Lending Standards Worldwide in Crunch - (www.bloomberg.com)
GM, Ford, Chrysler Face Bankruptcy Risk on Crisis, S&P Says - (www.bloomberg.com)

Morgan Stanley, Goldman May Gain Investment From U.S. Treasury - (www.bloomberg.com)
MGIC May Be Cut by Moody's on Housing Market Slump - (www.bloomberg.com)

Regulators in Need of Rehab - (www.nytimes.com)
A Power That May Not Stay So Super - (www.nytimes.com)
The Anatomy of Fear - (www.newsweek.com)
The Next World War? It Could Be Financial - (www.washingtonpost.com)