Top Stories:
Washington Mutual tumbles 30 percent to 17-year low - (news.yahoo.com) Washington Mutual Inc (WM.N) shares sank 30 percent to a 17-year low and the perceived risk of its debt soared on worries the largest U.S. savings and loan will not find a buyer or raise enough capital to combat soaring mortgage losses. The stock closed down 98 cents at $2.32 on the New York Stock Exchange, and are down 44 percent in the last two days. It fell earlier to $2.30, the lowest since January 1991, according to Reuters data.Analysts attributed the decline in part to anxiety that potential buyers might walk away because of a pending accounting rule requiring they value the assets of targets at market prices, and perhaps the need to raise capital.
WaMu Outlook Lowered, Future Looks Uncertain - (www.cnbc.com) The credit default swaps, or the cost to protect WaMu's debt, traded at 40 percent upfront plus 500 basis points annually, up from 32 percent upfront plus 500 basis points a year, according to Phoenix Partners Group. That means it costs $4 million on an upfront basis plus $500,000 a year to protect $10 million of debt for five years. There also were fears that the company would not make an attractive candidate for sale because of new mark-to-market rules for acquisitions that would weigh on the company's takoever value. At the same time, the company faces challenges ahead as interest rates will reset for prime adjustable-rate mortgages in 2010 and 2011, presenting what some analysts feel is the next wave of trouble for banks after getting hit by subprime defaults over the past two years. "Washington Mutual has a ton of that toxic stuff. They reported earlier in the year, in April, that option ARMs account for 50 percent of prime loans in its bank portfolio," said Christopher Mayer, analyst and managing editor for the Capital and Crisis newsletter. "These things are just going to be a complete disaster."
Fannie & Freddie's $174 million bought congressmen, twisted laws - Sen. Barack Obama is the No. 3 recipient of Fannie and Freddie campaign dollars – (money.cnn.com). The former chief executive of Fannie Mae, James Johnson, was the original head of Obama's vice presidential search team. Johnson resigned from Obama's campaign amid controversy over discounted home loans he had received. The two mortgage finance companies doled out $174-million over the past 10 years to Washington lobbyists, report says. When it came to buying influence in Washington, Freddie Mac and Fannie Mae were among Corporate America's biggest spenders. The two mortgage giants paid $174 million to lobbyists over the past ten years to ensure the political climate would remain friendly to growing the mortgage business - even as the housing bubble began showing signs of bursting, according to a report by the Center for Responsive Politics, a watchdog group. "They tied up almost every lobbying firm in Washington, whether they used them or not, over the past several years," said Joshua Rosner, a financial analyst with Graham Fisher & Co. and long-time critic of both companies.
Oxley hits back at ideologues - (www.ft.com) The dominant theme has been that Congress let the two government-sponsored enterprises morph into a creature that eventually threatened the US financial system. Mike Oxley will have none of it. Instead, the Ohio Republican who headed the House financial services committee until his retirement after mid-term elections last year, blames the mess on ideologues within the White House as well as Alan Greenspan, former chairman of the Federal Reserve. The critics have forgotten that the House passed a GSE reform bill in 2005 that could well have prevented the current crisis, says Mr Oxley, now vice-chairman of Nasdaq. He fumes about the criticism of his House colleagues. "All the handwringing and bedwetting is going on without remembering how the House stepped up on this," he says. "What did we get from the White House? We got a one-finger salute." The House bill, the 2005 Federal Housing Finance Reform Act, would have created a stronger regulator with new powers to increase capital at Fannie and Freddie, to limit their portfolios and to deal with the possibility of receivership. Mr Oxley reached out to Barney Frank, then the ranking Democrat on the committee and now its chairman, to secure support on the other side of the aisle. But after winning bipartisan support in the House, where the bill passed by 331 to 90 votes, the legislation lacked a champion in the Senate and faced hostility from the Bush administration. Adamant that the only solution to the problems posed by Fannie and Freddie was their privatisation, the White House attacked the bill. Mr Greenspan also weighed in, saying that the House legislation was worse than no bill at all.
Pimco makes $1.7 billion in one day from taxpayer-funded bailout - (lansner.freedomblogging.com) A huge winner from the Fannie Mae/Freddie Mac federal takeover was Bill Gross’ mortgage-heavy Pimco Total Return Fund, which rose 1.3% in price on Monday. That’s a huge jump for any bond fund, and the Newport Beach money manager believes it was likely a record gain for the mutual fund. That 1.3% gain, due in large part by anticipating the federal rescue, is not chump change. Assume that Total Return Fund held $129.6 billion — yes, BILLION, the latest figure on its fund fact sheet. So, Monday’s gain equaled a roughly $1.7 billion one-day profit. Some have argued that Gross has been unfairly talking up his own portfolio while aggressively calling for federal help for the ailing housing market. (Such as THIS critical blog post. Or THIS ONE.) Pimco is a huge owner of mortgage bonds — 65% of Total Return Fund’s money is in home-loan debts, as of July, triple 2007’s lowest levels. Many of those investments are backed by those two ailing mortgage-bond machines, Fannie and Freddie.
Charlie Rose - Fanny Mae and Freddie Mac Takeover - (video.google.com) A discussion about the U.S. government's takeover of mortgage giants Fannie Mae and Freddie Mac with Mohamed El-Erian, co-CEO co-CIO for PIMCO, Gretchen Morgenson, Floyd Norris both of The New York Times and Nouriel Roubini of New York University
Why American Savers Have Drawn the Short Straw - (www.businessweek.com) Since August of last year, the Federal Reserve has slashed interest rates from 5.25% to 2.00%—wielding a blunt instrument that was swung enough to bend the yield curve in favor of suffering banks. You know, the institutions that screwed up but were too big and important to be deprived of an inalienable right to cheap deposits that they can loan out at several points higher. Indeed, a year ago, a six-month certificate of deposit earned, on average, 3.53%, according to Bankrate.com (RATE). Today, that's down to 2.03%. A one-year CD that earned 3.75% at this point in 2007 was offered for as little as 1.92% in April, before inching up to its present 2.38%. It's hardly a secret that banks are only able to pay out such pittances thanks to depositors' knee-jerk desire for security: "Hey, I might be earning crumbs on my cash, but at least I'm not losing money."
Michael Hudson on Worsening Debt Crisis - (www.counterpunch.org) The Treasury emphasized that it was under a Sunday afternoon deadline to finalize the takeover details before the Asian markets opened for trading. This concern reflects the balance-of-payments and hence military dimension to the bailout. The central banks of China, Japan and Korea are major holders of these securities, precisely because of the large size of Fannie Mae and Freddie Mac – their $5.3 trillion in mortgage-backed debt that you mention, and the $11 trillion overall U.S. mortgage market.
When you look at the balance sheet of U.S. assets available for foreign central banks to buy with the $2.5 to $3.5 trillion of surplus dollars they hold, real estate is the only asset category large enough to absorb the balance-of-payments outflows that U.S. military spending, foreign trade and investment-capital flight are throwing off. When the U.S. military spends money abroad to fight the New Cold War, these dollars are recycled increasingly into U.S. mortgage-backed securities, because there is no other market large enough to absorb the sums involved. Remember, we do not permit foreigners – especially Asians – to buy high-tech, “national security” or key infrastructure. The government would prefer to see them buy harmless real estate trophies such as Rockefeller Center, or minority shares in banks with negative equity such as Citibank shares sold to the Saudis and Bahrainis.
Other Stories:
Lehman Brothers Wants To Sell Half Of Neuberger Berman - (www.ml-implode.com) - ``The deal under consideration at Lehman Brothers is a sale of about half of Neuberger Berman, according to sources familiar wit...
Thinking Like “Fat Tony” - (www.ml-implode.com) - More on "the government cutting people off from gold and silver" saga: Here’s something even more bizarre. One would assume t...
Bankers Stare into the Abyss - (www.ml-implode.com) - What does it say about the character of a financial system that pays someone $150 million for destroying a company that he was h...
S&P Puts Lehman on Watch for Downgrade - (www.ml-implode.com) - "Credit ratings agency Standard & Poor's put Lehman Brothers on watch for a possible downgrade because of a rapidly declining sh...
Lawsuit Filed to Block Fannie / Freddie Bailout - (www.ml-implode.com) - Constitutional Law expert Judge Andrew Napolitano has confirmed that the first of what I would expect to be a flood of lawsuits ...
For sale: Allen Iverson's six-bedroom home in Villanova, PA - (www.ml-implode.com)
Citi wholesale eliminates popular stated and 40-year products - (www.ml-implode.com)
Lehman Brothers to Announce Takeover/Buyout - (www.ml-implode.com)
Experts Moderate Initial Enthusiasm for GSE Takeover - (www.ml-implode.com)
GMAC in possible Bankruptcy mode - (www.ml-implode.com)
Pending Home Sales Index Fall 6.8% - (www.ml-implode.com)
La Jolla Tops List as Most Expensive Housing Market in Nation - (www.ml-implode.com)
Korea FSC: KDB, Lehman Investment Talks Have Ended - (www.ml-implode.com)
Dodd Questions Fannie Mae, Freddie Mac Takeover - (www.ml-implode.com)
Fannie & Freddie: Buying friends in D.C. - (www.ml-implode.com)
Freddie, Fannie Scam Hidden in Broad Daylight - (www,bloomberg.com)
Paulson And Others, Translated - (Mish)
Paulson Meets BombleGok - (Mike Morgan)
Mortgages may get cheaper, but who is buying a house? - (reportonbusiness.com)
An Introduction to the Wall Street Fashion System - (knol.google.com)
Property tax reductions limited by Prop 13 - (lansner.freedomblogging.com)
Pondering the 'Pain of Paying' - (www.seekingalpha.com)
What should investors do? - (www.marketoracle.co.uk)
Real estate market shrinks on Long Island - (www.newsday.com)
Economic Breakdown Result of Moral Breakdown? - (www.thetrumpet.com)
Board-up guys see boom in housing bust - (msnbc.msn.com)
U.S. Treasury Credit-Default Swaps Increase to Record, CMA Says - (www.bloomberg.com)
Reinventing Two Mortgage Giants: A Big Rebuild or a Teardown? - (www.nytimes.com)
Cost of US loans bail-out emerging - (www.ft.com)
Fannie and Freddie's New Derivatives Cliffhanger - (www.businessweek.com)
A Risky High-Wire Act - (www.nytimes.com)
Hedge Funds' Capital Idea: Fee Cuts - (online.wsj.com)
Home-Loan Banks Draw Focus Amid Rescue Plan - (online.wsj.com)
Rescue Risks Setting Stage For New Woes - (online.wsj.com)
Congress weighs the fate of Fannie, Freddie - (www.ap.com)
Survey of Hedge Funds Finds 35% Lost Assets - (online.wsj.com)
A Major Deal Lands in Court - (online.wsj.com)
Hedge Hogs Huncker - (www.nypost.com)
Rescue of Mortgage Giants Displays Paulson’s Clout - (www.nytimes.com)
2008 turning out to be tough year for hedge funds, but assets still growing - (www.chicagotribune.com)
Fannie, Freddie need restructuring to limit risks: IMF - (www.reuters.com)
U.K. Economy Contracted in the Past Three Months, Niesr Says - (www.bloomberg.com)
U.K. House Prices Fall as Sales Drop to Record Low - (www.bloomberg.com)
Russia's RTS Falls Most in 2 Years; Oil Stocks Drop on Tax Plan - (www.bloomberg.com)
Japan could yet outperform - (www.economist.com)
U.S. Fourth-Quarter Hiring Plans at 5-Year Low, Manpower Says - (www.bloomberg.com)
U.S. Economy: Pending Home Resales Decline More Than Forecast - (www.bloomberg.com)
Condo Buyers In Florida Seek To Exit Deals - (online.wsj.com)
States' jobless funds shrink - (www.usatoday.com)
'Moral hazard' may prove steepest cost - (www.chicagotribune.com)
Large companies scale back technology spending, says research firm Forrester - (www.chicagotribune.com)
Mortgage Giants' Rescue Imperils Some Banks - (www.washingtonpost.com)
MGM Mirage CEO says casinos, facing change like newspapers, had to reinvent themselves - (www.chicagotribune.com)
An Itchy Finger on the Trigger of a Bazooka - (www.nytimes.com)
Thursday, September 11, 2008
Friday September 12 Housing and Economic stories
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