The Appraisal Racket - (www.slate.com) At the height of the housing bubble, 90 percent of residential real estate appraisers—the people who decide whether the house you made the winning bid on is really worth what you're about to pay—reported feeling pressured, frequently by mortgage brokers, to increase their estimate of the property's true value so that the deal could go through. The value of your house serves as the collateral for your mortgage; it's the only thing the bank has left if you don't pay up. Given this reality, you might think that the crash of the housing market would make it easier for appraisers to do their jobs without interference. But while there have been some big changes in the appraisal business, many appraisers say privately that things have gotten worse, not better. And while the Dodd-Frank financial reform bill, which President Barack Obama signed into law this past summer, made a well-intentioned effort to fix the problem, there's reason to fear that it won't. Appraisers have long been the mopes of the U.S. home loan industry. In other countries, such as Mexico, you have to be an architect or an engineer to make home appraisals; here, you just have to get a license, the requirements for which are not at all onerous. One appraiser says that in international forums, he's seen the Chinese laugh as the U.S. requirements are translated.
Owner of NY's Lipstick Building files bankruptcy - (www.reuters.com) The owner of the Lipstick Building, the Manhattan office tower where Bernard Madoff ran his Ponzi scheme, filed for bankruptcy protection, becoming the latest victim of a downturn in commercial real estate. Metropolitan 885 Third Avenue Leasehold LLC filed its Chapter 11 petition on Tuesday. Royal Bank of Canada (RY.TO), its main lender, sued in June to force a sale of the property following a default on a $210 million loan. Under the prepackaged reorganization, a new entity known as New Lipstick LLC would be created, and pledge its entire ownership stake to the Canadian bank, court records show. Completed in 1986, the 34-story Lipstick Building gets its name from its elliptical shape, which resembles an open lipstick tube, and red granite exterior. It was designed by the architects Philip Johnson and John Burgee, and is one of midtown Manhattan's most recognizable buildings.
California will default on its debt says Chris Whalen - (www.finance.yahoo.com) Municipal bonds have plummeted in recent days, as investors have suddenly focused on huge state and city budget deficits that there's no easy way to fix. Nowhere has this collapse been more visible than California, which faces a massive $25 billion shortfall and red ink for as far as the eye can see. After years in which every looming financial crisis has been met with a government bailout, you might think that the same solution awaits California, as well as all the other states that have huge obligations that they can't afford to meet. But this time that may not happen, says Chris Whalen, a financial industry analyst and Managing Director of Institutional Risk Analytics. In fact, Whalen thinks that California will default on its debt--hammering all the pension funds and other investors who have loaded up on apparently safe state bonds. The state won't immediately default, Whalen says. It will start by issuing the same sort of IOUs that it issued to by itself time during its budget crisis last year. But, eventually, the debts will have to be restructured, and this will result in those who own California's bonds receiving less than 100 cents on the dollar. Why won't California just get a bailout? Because the Republicans now control Congress, Whalen says. And also because, if California gets bailed out, dozens of other states will immediately line up with their hands out. The public is fed up with bailouts, Whalen says--and eventually, the country will be forced to face up to its bad debts and write them off.
Europe Fears That Debt Crisis Is Ready to Spread - (www.nytimes.com) European officials, increasingly concerned that the Continent’s debt crisis will spread, are warning that any new rescue plans may need to cover Portugal as well as Ireland to contain the problem they tried to resolve six months ago. Any such plan would have to be preceded by a formal request for assistance from each country before it would be put in place. And for months now, Ireland has insisted that it has enough funds to keep it going until spring. Portugal says it, too, needs no help and emphasizes that it is in a stronger position than Ireland. While some important details are different, the current situation feels eerily similar to what happened months ago in Greece, where the cost of borrowing rose precipitously. European authorities stepped in with a rescue package, expecting an economic recovery and the creation of new European rescue funds to fend off future panics by bond investors whose money is needed by countries to refinance their debt.
Is the gold bubble about to go manic? - (www.marketwatch.com) NovaGold Resources Inc. (NG 14.65, +0.05, +0.34%), the small mining stock with huge gold deposits in Alaska, is suddenly going vertical. The shares, which were below $10 a couple of weeks ago, rocketed to nearly $15 last week. I’d been wondering when it would move. I highlighted NovaGold here as an investment opportunity back in July. At the time, it was $6.35. I also mentioned the January 2010 $5 call options, which were $2.85 per share. Anyone who bought the stock has already more than doubled his or her money; anyone who bought the options has more than trebled it. It’s great when things go right. One of the downsides of my job is that I am not, of course, permitted to invest in stocks I recommend. So I sincerely hope many of you took a wager on NovaGold and have made some money. Please let me know! I hate to see opportunities wasted.
Commercial Real Estate: Slow-Mo Cliff-Dive Gathers Speed - (Charles Hugh Smith of www.oftwominds.com)