Wednesday August 18 Housing and Economic stories

Top Stories:

Large U.S. bank collapse seen ahead - (www.reuters.com) The worst of the global financial crisis is yet to come and a large U.S. bank will fail in the next few months as the world's biggest economy hits further troubles, former IMF chief economist Kenneth Rogoff said on Tuesday. "The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," he told a financial conference.
"We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks," said Rogoff, who is an economics professor at Harvard University and was the International Monetary Fund's chief economist from 2001 to 2004. "We have to see more consolidation in the financial sector before this is over," he said, when asked for early signs of an end to the crisis. "Probably Fannie Mae and Freddie Mac -- despite what U.S. Treasury Secretary Hank Paulson said -- these giant mortgage guarantee agencies are not going to exist in their present form in a few years."

Financials Clobbered Again On More Dire Forecasts - (www.cnbc.com) Financial stocks plunged for the second day in a row amid more dire predictions that the global financial crisis will get much worse before it gets better.
The latest comment to rattle the market came from former IMF chief economist Kenneth Rogoff, who said a large U.S. bank will fail in the next few months. "The U.S. is not out of the woods. I think the financial crisis is at the halfway point, perhaps. I would even go further to say 'the worst is to come'," Rogoff told a financial conference Tuesday.

Alabankrupt - (www.ft.com) On November 4, the good people of Jefferson County, Alabama, like so many other Americans, will help elect the next president. They will also voice their opinion about who should pay for their drains. The $3.2bn bill for a new sewer system threatens to push Jefferson into the largest municipal bankruptcy ever, beating easily the Orange County, California, default of 1994. Jefferson's predicament sums up the growing crisis in US local finance. Investing in new pipes to clean up its rivers, the county turned to Wall Street for innovative financing. Unusually, it was all done at variable rates, about two-thirds through auction rate securities, all hedged with interest rate swaps. Now, with ARS about as popular as raw sewage, Jefferson's costs have soared.

Mrs. Fields Gets Burned – (www.nytimes.com) A Bittersweet Bankruptcy Filing for Mrs. Fields. Mrs. Fields Famous Brands, the private-equity-backed cookie retailer, said on Friday that it planned to file for Chapter 11 bankruptcy protection to help restructure its business, according to a Securities and Exchange Commission filing. The company, which licenses and franchises about 1,200 Mrs. Fields Cookies and TCBY frozen yogurt locations worldwide, has begun soliciting votes from creditors for a “prepackaged” reorganization plan. The cookie seller, which is backed by a private equity fund, said it plans to seek bankruptcy protection.

‘Gone Wild’ Founder Faces I.R.S. – (www.nytimes.com) As founder of the “Girls Gone Wild” franchise, Joe Francis has often been accused of duping women into doing things they wish they had not, especially baring their breasts in front of a video camera. This time, it is Mr. Francis who says he was fooled — not by a cameraman, but by his accountant. The veracity of his claim is likely to be decided in September, when Mr. Francis will be tried in Los Angeles on federal charges that he deducted $20 million in fraudulent expenses on the corporate tax returns filed by his company, Mantra Films. If convicted, he could face up to 10 years in prison and $500,000 in fines. Even if he is acquitted, the Internal Revenue Service could still seek back taxes, plus penalties and interest.

Chinese stock market's Olympic specialty: tumbling - (www.latimes.com) Does anyone else think the Olympics are to China as Y2K was to the US Stock Market in 2000? Are Chinese people much different than Americans? Apparently not as these idiots are also blaming elected officials for their gambling in markets they know absolutely NOTHING about. They deserve to lose all their money. The Shanghai index has fallen 15% since the Beijing Games opened, including a big hit Monday. Investors, who had hoped for a reversal of the year's downward trend, are angry. The benchmark Shanghai composite index tumbled 5.3% on Monday, falling for the sixth time in seven trading sessions. The index has plunged 15% since the Beijing Games opened Aug. 8, and it now stands at 2,320 -- down 56% since the start of the year, making it one of the worst performers in the world. "Everybody said the market would turn [positive] in July before the Games, so we listened and stayed in it," said a retired textile worker surnamed Gu, her 70-year-old eyes fixed squarely on the stock tote board at Haitong Securities in Shanghai. "In July, they said that the market's spirit would return when the Olympics came. What spirit is that? Now we are all dead and have no spirit left in the market." "It should be good now, with the Olympics, inflation [going down], but that has nothing to do with the market in China. . . . I am so deeply trapped, there is nothing I can do. My account used to have $32,000, and now it's only something like $8,800." At a trading hall in central Shanghai called Guoyuan Securities, investors were fuming. The place is reminiscent of an old American horse-racing parlor, with mostly elderly people gazing at an electronic tote board, cigarette smoke thickening the air. By day's end, the board, listing stock ticker symbols and prices, was entirely green, the color that denotes losses here. Yelled one elderly woman: "This market has no credibility. All the leaders should resign."

The Endgame Nears For Fannie and Freddie - Barrons.com - (setup2.barrons.com) The almost inevitable government recapitalization of Fannie Mae and Freddie Mac will likely wipe out investors—and management. IT MAY BE CURTAINS SOON FOR THE MANAGEMENTS and shareholders of beleaguered housing giants Fannie Mae and Freddie Mac . It is growing increasingly likely that the Treasury will recapitalize Fannie and Freddie in the months ahead on the taxpayer's dime, availing itself of powers granted it under the new housing bill signed into law last month. Such a move almost certainly would wipe out existing holders of the agencies' common stock, with preferred shareholders and even holders of the two entities' $19 billion of subordinated debt also suffering losses. Barron's first raised the possibility of a government takeover of Fannie and Freddie in a March 10 cover story, "Is Fannie Mae Toast?" Ken note: Existing stock holders and debt holders should be wiped out, as without a government capitalization, these two entities would have failed anyway.

Fresh fears as Fannie and Freddie plunge - (www.ft.com) Fears about the financial system grew as money market liquidity tightened and sharp falls in the share prices of mortgage financiers Fannie Mae and Freddie Mac led the US stock market lower - 02:17

How Could My Big, Beautiful Loan Go So Bad, So Quickly? - (www.seekingalpha.com) It's surprising that you'd have a New York City multifamily [default] happening so quickly," said Manus Clancy, senior managing director at Trepp Research. Surprising, that is, unless the mortgage payment is more than double the monthly net income. Impossible you say? Not really, this was the beginning of 2007, and almost anything was possible. "Our job is to create loans for securitization," said an official from Wachovia Corp. (WB) a few years earlier. "We're trying to manufacture the product that the investor base wants." And so they did.

Washington offers no relief for savers - (biz.yahoo.com) Assailed by low savings rates and falling shares, savers find no relief from Washington. Important piece on how our politicians are penalizing those who saved versus those who loaded up on debt. Two giant mortgage companies get into hot water over risky investments. The government steps in to throw them a lifeline should they need it. Hundreds of thousands of Americans buy homes more expensive than they can afford. Congress approves a rescue package.
Troubles erupt at a Wall Street investment firm that made bad bets on mortgage investments. The Federal Reserve steps in and provides financial backing for the company's takeover. Meanwhile, tens of millions of people pay their mortgages on time, don't max out their credit cards and put money into retirement funds. They may even save a little extra on the side. In return, they get rates on their savings that don't even keep up with inflation. They also are witnessing the horror of their nest eggs shrinking as the value of their homes plummets and the stock market tumbles.

Single-family housing permits fall to 26-year low - (www.marketwatch.com) U.S. home builders sharply reduced the number of new homes starting construction in July and dropped the number of new single-family permits to the lowest level in 26 years, the Commerce Department estimated Tuesday. Housing starts fell 11% to a seasonally adjusted annual rate of 965,000 in July, close to the 960,000 expected by economists surveyed by MarketWatch. See Economic Calendar. It marked the lowest level for housing starts in 17 years. June's starts were revised higher to a 1.084 million annual pace. Housing starts are down 29.6% in the past year.

'Liar loans' threaten to prolong mortgage crisis - (biz.yahoo.com) 'Liar loans' threaten to prolong mortgage crisis for 2 more years in some parts of US. In the mortgage industry, they are called "liar loans" -- mortgages approved without requiring proof of the borrower's income or assets. The worst of them earn the nickname "ninja loans," short for "no income, no job, and (no) assets." The nation's struggling housing market, already awash in subprime foreclosures, is now getting hit with a second wave of losses as homeowners with liar loans default in record numbers. In some parts of the country, the loans are threatening to drag out the mortgage crisis for another two years. "Those loans are going to perform very badly," said Thomas Lawler, a Virginia housing economist. "They're heavily concentrated in states where home prices are plummeting" such as California, Florida, Nevada and Arizona. Many homeowners with liar loans are stuck. They can't refinance because housing prices in those markets have nose-dived, and lenders are now demanding full documentation of income and assets.

BOJ Cuts Economy View as Global Slump Spreads - (www.cnbc.com) The Bank of Japan cut its assessment of the economy for a second month in a row in a sign that a global slump sparked by the U.S. credit crisis may be spreading too quickly for Japan to avert recession.


Other Stories:

Government Projects do not "Create Jobs" - Mises Economics Blog – (blogs.mises.org)
Henry Cisneros on Fannie and Freddie Bailout: “Nothing Dramatic Will Happen Before the Election” - (www.ml-implode.com) - When asked if he thought the situation was as dire at the quasi-government entities as many analysts are implying, such as the n...
As U.S. Economic Problems Loom, House, Senate Sweat the Small Stuff - (online.wsj.com) The 110th Congress, whose term officially ends in January, hasn't passed any spending bills or attacked high gasoline prices. But it has used its powers to celebrate watermelons and to decree the origins of the word "baseball." Barring a burst of legislative activity after Labor Day, this group of 535 men and women will have accomplished a rare feat. In two decades of record keeping, no sitting Congress has passed fewer public laws at this point in the session -- 294 so far -- than this one. That's not to say they've been idle. On the flip side, no Congress in the same 20 years has been so prolific when it comes to proposing resolutions -- more than 1,900, according to a tally by the nonpartisan Taxpayers for Common Sense. With the mostly symbolic measures, Congress has saluted such milestones as the Idaho Potato Commission's 70th anniversary and recognized soil as an "essential natural resource." As legislation on gasoline prices, tax fixes and predatory lending languish, Congress has designated May 5-9 as National Substitute Teacher Recognition Week, and set July 28 as the Day of the American Cowboy.
Court upholds ABCP plan - (www.ml-implode.com) - Investors whose funds have been locked up for more than a year in frozen asset-backed commercial paper are much closer to gettin...
SoCal real estate - sales up, prices down ... way down - (www.ml-implode.com) - Earlier this morning, DataQuick reported on Southern California real estate sales activity for the month of July. Sales were...
Zillow Q2 RE Update - (www.ml-implode.com) - "Here are the details from Zillow's most recent discussion on RE transactions. Suffice it to say the Housing backdrop is, to quo...
Bernanke Tries to Define What Institutions Fed Could Let Fail - (www.ml-implode.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...
Merrill, Wachovia in Danger of Failing: Strategist - (www.ml-implode.com)
MBA: Government-Insured Share of Mortgage Applications Triples - (www.ml-implode.com)
Precious Metals Price Disconnect: Manipulation To Avoid Billions of Bank Losses? - (www.ml-implode.com)
Firms Target Growing Niche in Market for Bad Mortgage Debt - (www.ml-implode.com)
A hundred-year event every few years - (www.ml-implode.com)
Hard-pressed consumers refuse to read from the script - (www.ml-implode.com)
Freddie Mac debt sale weak, bailout concerns rise - (www.ml-implode.com)
Nonfeasance in Financial Oversight - (www.ml-implode.com)
U.S. likely to recapitalize Fannie, Freddie: report - (www.ml-implode.com)

SF Bay Area median dives below $500K; sales near record low - (dqnews.com)
Is Housing Bottoming? Don't Bet On It - (Charles Hugh Smith)

House builders stay grim in August - (biz.yahoo.com)
What is Equity? - (irvinehousingblog.com)
From US house-loan defaults to global economic debacle - (mmorning.com)
Toronto Fraud Scheme Manipulated 'Puppet' Purchasers - (movesmartly.com)
Fair House Deals Undermined From Within - (huffingtonpost.com)
'Liar loans' threaten to prolong mortgage crisis - (nytimes.com)
Markets cheer global slowdown as preferable to stagflation - (thenational.ae)
Sliding commodities point to rocky week - (thestar.com)
Sliding stocks suggest bleak week on the TSX - (money.canoe.ca)
On Language - No Docs - (nytimes.com)
Housing Going Straight To Hell - (washingtonpost.com)
Unspeakable Evil and Realtors - (youtube.com)

U.S. Producer Prices Surge More Than Forecast in July - (www.bloomberg.com)
Home building at 17-year low - (money.cnn.com)
Recessation: The worst of both economic directions - (www.nypost.com)
Liar loans to prolong mortgage crisis - (www.azcentral.com)
Major auto insurers raising rates in Texas - (www.chron.com)
"Fire sale" boosts SoCal home sales; Prices down 31% from '07 - (www.latimes.com)
California Budget Impasse Persists As GOP Refuses Income-Tax Rise - (online.wsj.com)

American Consumer Satisfaction Slips, Portends Economic Woes - (money.cnn.com)
Fannie's Perilous Pursuit of Subprime Loans - (www.washingtonpost.com)
As Oil Giants Lose Influence, Supply Drops - (www.nytimes.com)
Industry group expects Labor Day air travel to be down - (www.ajc.com)
GM offering employee pricing to clear 08 fleet - (www.azcentral.com)
Home Depot Second-Quarter Profit Falls on U.S. Housing Slump - (www.bloomberg.com)
Lehman May Report $4 Billion Writedown, JPMorgan Says - (www.bloomberg.com)
BP's troubles in Russia show Big Oil's clout fading - (www.chron.com)
Fannie Mae Extends Decline to 19-Year Low in European Trading - (www.bloomberg.com)

When Henry Met Fannie - (online.wsj.com)
Running a Hedge Fund Is Harder Than It Looks on TV - (www.nytimes.com)
U.S. Stocks Retreat on Inflation Concern, Housing Data, Losses - (www.bloomberg.com)
Five-Year Swap Spread Tops 100 on Risk Aversion - (www.bloomberg.com)
Treasuries Pare Gains; Producer Prices Rise More Than Forecast - (www.bloomberg.com)
Gold Falls in London as Crude Oil Declines; Silver Also Drops - (www.bloomberg.com)
Credit crunch may take out large US bank warns former IMF chief - (business.timesonline.co.uk)
Zimbabwe annual inflation rate soars to 11.2 million percent - (news.yahoo.com/s/afp)
China May Spend $58 Billion to Stimulate Economy, JPMorgan Says - (www.bloomberg.com)
German Producer-Price Inflation Reaches 27-Year High - (www.bloomberg.com)
Household debt rises as economy slows - (www.reportonbusiness.com)l
Tough Road Ahead for China’s State Banks - (www.nytimes.com)
Inflation soars in Vietnam and cripples economy - (www.iht.com)
CDO Default Events Accelerate With New `Wave,' JPMorgan Says - (www.bloomberg.com)
Analysis: CDO values in free-fall - (www.ft.com)

Large U.S. bank collapse coming, former IMF economist warns - (www.financialweek.com)
Fewer Deals but More Junk-buying - (www.cfo.com)
'Downstream' Sellers of Auction-Rate Securities Balk at Prospect of Buybacks - (online.wsj.com)
Freddie and Fannie fix under market pressure - (www.ft.com)
Five-Year Swap Spread Tops 100 on Risk Aversion: Chart of Day - (www.bloomberg.com)
Success, and failure, in auction-rate fallout - (www.boston.com)
Insight: After the credit crisis - (www.ft.com)
Junk Bond Offerings Total $9.1 Billion Since June 1 - (www.bloomberg.com)