Tuesday August 17 Housing and Economic stories

Top Stories:

Silicon Valley posts job losses in July - (www.mercurynews.com) The Silicon Valley area job market ran into headwinds in July, snapping a four-year winning streak. The valley posted its first yearly job losses since July 2004, as fallout from the housing bubble put the brakes on a lengthy string of gains, the state Employment Development Department reported Friday. The unemployment rate in the San Jose-Santa Clara-Sunnyvale and San Benito County metropolitan area was up a bit, to 6.4 percent.

Merrill, Wachovia In Danger - (www.cnbc.com) Merrill Lynch, Wachovia and other financial companies are at risk of failure as the cost of raising capital soars at a time when the banks need to pay settlements over auction rate securities, David Kotok, chairman & chief investment officer from Cumberland Advisors, told CNBC Monday. "I think the financial problem is half way through the cycle … there's another shoe to drop ahead of us and it could be more severe," Kotok told "Worldwide Exchange.

Bernanke Tries to Define What Institutions Fed Could Let Fail - (www.bloomberg.com) Ben S. Bernanke is still trying to define which financial institutions it's safe to let fail. The longer it takes him to decide, the tougher the decision becomes. In the year since credit markets seized up, the 54-year- old Federal Reserve chairman has repeatedly expanded the central bank's protective role, turning its balance sheet into a parking lot for Wall Street's hard-to-finance bonds and offering loans through its discount window to investment banks and mortgage firms Fannie Mae and Freddie Mac. Since taking on $29 billion in Bear Stearns Cos. assets to facilitate the failing firm's takeover by JPMorgan Chase & Co., Bernanke has made several moves that imply further expansion of the central bank's mission. Student-Loan Collateral: He granted a congressional request to accept bonds backed by student loans as collateral for Fed securities loans. And he didn't object when Congress inserted a provision into the housing bill signed into law last month that makes it easier for the Fed to lend to failed banks under government control. Just three days after the Fed approved a loan against Bear Stearns securities, Pennsylvania Democratic Representative Paul Kanjorski and 31 other lawmakers sent Bernanke a letter asking him to open the discount window to nonbank education-loan companies. Bernanke refused.

Merrill Lynch To Face Legal Action For Securities Sale - (www.cnbc.com) The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, except the interest rates were reset at regular auctions, some as frequently as once a week. A number of companies and retail clients invested in the securities because they could treat their holdings almost like cash. The bond-like investments were widely held by many institutional and individual investors and were seen as highly liquid, money market-like investments. However the market for them collapsed in February amid the downturn in the broader credit markets. Regulators have been investigating the collapse in the market to determine who was responsible for its demise and whether banks knowingly misrepresented the safety of the securities when selling them to investors. Like the other banks that have reached agreements with regulators, Wachovia will buy back all auction-rate securities from retail customers, charities and small businesses. It will buy back those securities by Nov. 28. Wachovia will also reimburse customers who sold securities at a loss after the market collapsed in February.

San Francisco Real Estate, Two Tales Of A City - (www.housingdoom.com) - Instability in the region’s housing market is making it difficult to determine values, according to mortgage brokers and real estate appraisers. "It’s miserable," said Karen Mann, who runs a small East Bay appraisal firm called Mann & Associates. "I’ve been in the business 28 years, and this is the worst downturn I’ve seen.

Investors helped heat up Orlando-area housing market, got burned - (www.orlandosentinel.com) - A couple of years ago, real-estate investors were so hot on Orlando that hundreds of buyers from around the world paid an average $300,000 -- triple today's prices -- for old condos on a run-down corner next to a truck-driving school. The infusion of outside dollars contributed to a doubling of prices over five years. When investors could no longer flip properties by selling them for more than they paid, and when rental income dropped because of a mass of "for rent" signs, the market collapsed. Empty houses now glut the market. Condo towers remain darkened. And homeowner associations complain about overgrown lawns and unpaid dues at investor-owned houses.

House appraisers forced to inflate prices - (biz.yahoo.com) Nothing new here: "The higher the loan amount, the more money brokers and lenders make in the deal," said Ray Haynes, an appraiser from Cherryville, N.C. "And they threaten you. They say, 'If you don't play ball with us, we'll go somewhere else.' And they do. I've seen my business shrink. They're all doing it. It's hard to stay honest." Documents obtained by the AP also show that hundreds of appraisers complained to federal and state agencies about such fraudulent inflation of property values. The appraisal system has broken down before. In 1989, Congress concluded that "faulty and fraudulent appraisals were an important contributor to the losses that the federal government suffered during the saving and loan crisis." And it passed the Financial Institutions Reform, Recovery and Enforcement Act.

Trump to buy McMahon's house, let him live there - (news.yahoo.com) More in celebrity foreclosure news: Trump announced Thursday he would save the television personality's Beverly Hills mansion from foreclosure by buying it for an undisclosed amount and leasing it to McMahon. The developer told the Los Angeles Times he doesn't know McMahon personally, but acted out of compassion because helping out "would be an honor."

American 'Lust' for Houseownership Tied to Credit Crisis - (www.pbs.org) The drive to own more homes and renovate old ones in the U.S. fueled the number of bank loans that underlie the country's meltdown. In the first in a series of interviews on the economic downturn, Daniel McGinn, author of "House Lust," details his take on the factors behind the housing and credit crises.

Shares in China hit 18-month low - (www.iht.com) Stocks in China plunged Monday, extending an 18-month low, on concern the government will avoid introducing measures to boost the world's worst-performing market this year. Citic Securities, a brokerage firm, fell to the lowest level in 18 months after the securities regulator said China would seek to channel investment by pension funds, insurers and other large institutions into stocks, without giving details. Shanxi Lu'an Environmental Energy Development and Shandong Gold Mining led coal and metal companies lower on speculation the bear market in commodities will deepen. "There is no confidence in the market," said Wu Kan, a fund manager in Shanghai at Dazhong Insurance. "Everyone is disappointed that the regulator hasn't done anything concrete to stem the decline."

Lehman Faces Loss and New Need for Action - (online.wsj.com) Lehman Brothers Holdings Inc. has been taking its time as it wrestles with how to escape the problems haunting the investment bank. It probably can't wait much longer. With the end of the New York company's fiscal third quarter less than two weeks away, some analysts are girding for a loss of $1.8 billion or more, instead of the modest profit they previously expected. If the dour projections come true, Lehman's losses since the start of March would total at least $4.5 billion -- or more than the firm churned out in profit during fiscal 2007. The likelihood of back-to-back quarterly losses, fueled by widely anticipated write-downs in a portfolio saddled with more than $50 billion in risky real-estate and mortgage assets, puts even more pressure on Lehman Chairman and Chief Executive Richard S. Fuld Jr. to show that the losses won't keep piling up. If they do, Lehman could need to raise additional capital beyond the $6 billion it got in June.

A Year Later, Fed Faces Growing Financial Storm - (www.cnbc.com) When Federal Reserve officials gathered for their annual Jackson Hole conference last August, Bear Stearns shares were trading at well over $100 apiece. The benchmark federal funds rate was 5.25 percent, more than double where it stands now, and oil cost about $70 a barrel. Twelve months later, Bear Stearns is gone, as is about $400 billion from banks' balance sheets. Legendary oilman T. Boone Pickens thinks the days of oil under $100 a barrel may be gone, too. Looking back at the 2007 conference provides some cringe-inducing moments. In his speech at the Wyoming mountain resort, Fed Chairman Ben Bernanke declared that the central bank was ready to act to shield the economy from the credit crisis but would not save investors who made bad choices. "It is not the responsibility of the Federal Reserve—nor would it be appropriate—to protect lenders and investors from the consequences of their financial decisions," he said at the time, words that now sound ironic in light of the Fed's role in rescuing Bear Stearns from bankruptcy in March.
Now, Bernanke is hoping the Fed won't have to act again.

Financial Crisis Not Over: Morgan Stanley - (www.cnbc.com) The financial crisis will probably not end until next year or even 2010, Germany's Handelsblatt newspaper quoted Morgan Stanley co-President Walid Chammah as saying in a preview of its Monday edition. Chammah also expected more banks to fall victim to the crisis, the paper said. "We will likely see more insolvencies among small U.S. regional banks that have focused on mortgage business," the paper quoted him as saying.

Second Mortgages: Why Absolve Consumers of Stupidity? - (www.seekingalpha.com) Sure, there is a great story here somewhere -- second mortgages rose remarkably in prominence over the last twenty years -- but saying that the root cause was sneaky mortgage marketers snowing stupid consumers is grossly trivializing and oversimplifying things. Matter of fact, you could argue that boundedly rational people responded fairly predictably. They saw that home prices had been rising for some time, and that they had equity in their houses and could cut payments and take money out of their real estate, and so they did it. Is it so surprising that mortgage marketers saw that happening and responded to it? I don't think so. To me, this is another example of absolving consumers of responsibility. It's not my fault; it's those evil mortgage marketers who did it to me! I am tired of that sort of thing. I am tired of the line of argument that says consumers responded stupidly to what was happening in real estate markets, goaded, in large part, by evil mortgage finance companies. That argument is too convenient by half.

House Equity Frenzy Was a Bank Ad Come True - (www.nytimes.com) Not long ago, such loans, which used to be known as second mortgages, were considered the borrowing of last resort, to be avoided by all but people in dire financial straits. Today, these loans have become universally accepted, their image transformed by ubiquitous ad campaigns from banks. Since the early 1980s, the value of home equity loans outstanding has ballooned to more than $1 trillion from $1 billion, and nearly a quarter of Americans with first mortgages have them. That explosive growth has been a boon for banks. Banks’ returns on fixed-rate home equity loans and lines of credit, which are the most popular, are 25 percent to 50 percent higher than returns on consumer loans over all, with much of that premium coming from relatively high fees. However, what has been a highly lucrative business for banks has become a disaster for many borrowers, who are falling behind on their payments at near record levels and could lose their homes.

Las Vegas- “Chances of selling your own home in this market are slim.” - (www.housingdoom.com) - "This video is pretty good- and Linda Reinberger, former GLVAR president is actually making more sense than usual:"


Other Stories:

Regional Firms Want ARS Underwriters Investigated - (www.cnbc.com)
AirTran to increase fee for second bag - (www.ajc.com)

Franklin Bank, 2 More Implodes, and more... - (www.ml-implode.com) – Subscription required.
A Year of Subprime Turmoil - (www.ml-implode.com) - "The media continues to talk about the "subprime mortgage crisis" without any regard to all the other funny money on the books. ...
The Next Matryoshka Event? - (www.ml-implode.com)
Fraud in Real Estate, Mortgages & Homebuilders - (www.ml-implode.com)
The other Dr. Doom - (www.ml-implode.com)
Silver Shortage Causes Price Disconnect - (www.ml-implode.com)
Title firm ready to do battle - (www.ml-implode.com)


Washington's solution: Wait it out - (money.cnn.com)
Second Mortgages Undermining New FHA Bailout Law - (mrmortgage.ml-implode.com)
Export Boom Helps Farms, but Not American Factories - (www.nytimes.com)
Pricey health coverage eases worries for future - (www.azcentral.com)
Morgan Stanley updates lending systems - (www.ft.com)
House appraisal fraud led to world financial pain - (business.theage.com.au)

Things will get worse: you can bet the house on it - (www.guardian.co.uk)
American housing: Ticking time bomb - (www.economist.com)
We'll All Pay For the Fed's Loose Money Follies - (online.wsj.com)
Wall St turns lower on financials, oil - (www.reuters.com)
Fannie, Freddie Fall as - (www.barrons.com) Says Bailout Likely - (www.bloomberg.com)
Gold futures rebound as U.S. dollar falls vs. rivals - (www.marketwatch.com)
Treasury Yields Near One-Month Low Before Housing, Price Data - (www.bloomberg.com)
Musharraf quits presidency for sake of 'harmony' - (www.marketwatch.com)
U.K. House Prices Decline Most Since at Least 2002 - (www.bloomberg.com)
Democracies owe money to dictatorships - (blogs.cfr.org)
Calif. June house price plunge 28%, worst in US - (lansner.freedomblogging.com)

25 percent of house sales in US result in loss - (realestate.yahoo.com)

Pressure builds on US banks - (www.ft.com)
Stocks Whistle Dixie As Bonds Sing the Blues - (online.wsj.com)
U.S. corporate bond risk pushed higher - (www.financialweek.com)
Private financiers in the spotlight - (www.azcentral.com)
Kicked in the ARS - (www.economist.com)
SEC Halts "Pump and Dump" Scheme - (www.cfo.com)

Inflation or Deflation? - (www.seekingalpha.com)
Foreclosures bring bargain house prices - (www.denverpost.com)
Bracing for Inflation - (www.businessweek.com)
Inflation Taxes Everyone - (www.seekingalpha.com)
Roubini: Dr. Doom - (www.nytimes.com)