Thursday September 11 Housing and Economic stories

Top Stories:

Cost of US loans bail-out emerging - (www.ft.com) The US on Tuesday began to face the financial consequences of the bail-out of Fannie Mae and Freddie Mac after Congress’s budget watchdog said the housing giants’ operations should sit on the government’s books and the cost of insuring against a US default crept higher. With the stock market tumbling, the non-partisan Congressional Budget Office said the government takeover of Fannie and Freddie meant the companies should no longer be regarded as outside the public sector. The Bush administration appeared to be caught by surprise. A spokeswoman for the Office of Management and Budget told the Financial Times: “We are working through this issue with Treasury and other stakeholders.” The White House could take a different view on Fannie and Freddie and exclude them from its budgets. But this would be difficult because the CBO is regarded as the leading independent authority on US finances and its assessments guide spending decisions by Congress. The two mortgage companies have between them $5,400bn in liabilities, equal to the entire publicly traded debt of the US, alongside mortgage-related assets of about equal value. These will now all be accounted for by the CBO, although public accounting rules mean that its tally of US government debt may not necessarily increase by $5,400bn. The CBO bombshell came as it raised its baseline estimate for the US budget deficit to $407bn this year and a record $438bn next year owing to falling revenues and higher spending, some of it related to the fiscal stimulus. The price of credit default swaps on five-year US government debt hit a record 18 basis points in early trading, according to CMA Datavision. This means that it costs $18,000 a year to buy insurance on $10m of US government debt.

9% of homeowners are late with bill or in foreclosure - (www.usatoday.com) An industry group says a record 9.2% of American homeowners with a mortgage were either behind on their payments or in foreclosure at the end of June, as damage from the housing crisis continued to mount. The latest quarterly snapshot by the Mortgage Bankers Association on Friday broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure. The percentage of loans at least 30 days past due or in foreclosure was up from 8.8% in the January-March quarter, and up from 6.5% a year earlier.

Outrageous Severance For Fannie/Freddie CEOs -- Paid By You - (www.businesssheet.com) Taxpayers are now on the hook for tens of billions of dollars of capital necessary to save Fannie Mae (FNM) and Freddie Mac (FRE). The CEOs of both companies--the ones who ran them into the ground--have thankfully been shown the door. But they're taking a nice pot of money with them. Specifically, Dan Mudd, the CEO of Fannie Mae, is getting $9.3 million of severance for destroying his company. Richard Syron, the CEO of Freddie Mac, is getting $14.1 million--in part because of a clause he added to his employment contract two months ago, when it was clear the company was headed for disaster.

Rogers : Let the Fannie and Freddie go bankrupt - (www.youtube.com) Jim Rogers ripping Bloomberg News reporter a new asshole as she wants to justify bailing out FNM and FRE. Jim Rogers in interview with Bloomberg said that government has no authority to buy Fannie and Freddie stocks and should have allowed them to go under. He said also that Paulson and Bernanke hear only Wall Street but don't care about inflation and the rest of Americans. full interview: http://www.bloomberg.com/avp/avp.htm?..

Boom time for Spain's costumed debt collectors - (www.independent.co.uk) If you owed a few thousand euros and found your footsteps dogged by a man wearing a top hat, tails and silken cummerbund, wouldn't you pay up rather than face the humiliation of being shadowed by someone dressed like Count Dracula? As Spain's economy falters, the debt-collecting business is booming and has devised colourful new variants to play on people's embarrassment at having their indebtedness paraded in public. El Cobrador del Frac – "The Debt Collector in Top Hat and Tails" – is a nationwide operation which sends employees dressed like Hollywood villains to collect debts. To underline the message, the theatrically-clad collector carries a black briefcase with his calling spelled out in capital letters. Chasing bad debts has grown 30 per cent this year, says Juan Carlos Granda, a director of El Cobrador del Frac, adding: "We expect demand for our services to soar in the autumn and winter as the crisis deepens." Following the collapse of Spain's building boom, the clients who use the company to get their debts repaid are mostly small and medium-sized construction firms. "We advise the debtor initially by fax," says Mr Granda. "Some pay immediately and others don't. So we send a collector round in uniform, in a conspicuously labelled car. They feel ashamed because we have made their indebtedness public."

Seizure of Fannie & Freddie may cause wider banks woes - (money.cnn.com) Government seizure of Fannie and Freddie could cause problems, even failure, for many small banks, even if it helps to stabilize the battered mortgage market. The takeover of Fannie Mae and Freddie Mac is likely to cause big problems for hundreds of community banks nationwide and could lead to a new round of bank failures. That's because many smaller banks had a large amount of funds tied up in the preferred shares of Fannie and Freddie, depending on the dividends for reliable income, and the value of those shares to meet the capital levels required by regulators.

U.S. Treasury Credit-Default Swaps Increase to Record, CMA Says - (www.bloomberg.com) The cost of hedging against losses on Treasuries rose to a record on concern the U.S. government faces higher liabilities because of its rescue of mortgage companies Fannie Mae and Freddie Mac, credit-default swaps show. Contracts on U.S. government debt increased 3.5 basis points to a record 18, up from 6 basis points in April, according to CMA Datavision prices for five-year credit-default swaps at 5 p.m. in London. Credit-default swaps on German government bonds cost 8 basis points and Japanese bonds 16.5 basis points. The Treasury committed to invest as much as $200 billion to prevent a collapse of Fannie and Freddie, protecting investors owning more than $5 trillion of their debt and mortgage-backed securities. The U.S. budget deficit will grow next year to $438 billion, the Congressional Budget Office said today, making it harder for President George W. Bush's successor to either cut taxes or increase spending. ``The bailout of Freddie Mac and Fannie Mae is weakening the balance sheet of the U.S. and that is causing a deterioration of creditworthiness,'' said Mehernosh Engineer, a credit strategist at BNP Paribas SA in London. ``The market is anticipating there might be more bailouts.''

Condo Buyers In Florida Seek To Exit Deals - (online.wsj.com) With Florida awash in tens of thousands of empty or unfinished condominiums, many investors there are turning to the courts in an effort to cancel their contracts and recoup their deposits. So far, they haven't had much luck. Condo buyers in hard-hit markets across the country have been scouring their contracts for loopholes and flaws that would allow them to back out. Investors in Florida, where many were looking to flip their condos for a quick profit in a rising market, have been particularly aggressive in using the courts. And that's no surprise, given that the condo market there is one of the worst in the country, with average condo prices down 22% since the market peaked in 2005, according to the Florida Association of Realtors -- and they're still falling. Yet a series of recent legal decisions in the Florida courts indicate that it won't be as easy as buyers might hope to get out of these deals. The bottom line: Unless it's a bona fide contract dispute, an investor's chances of winning appear to be slim.

GMAC in possible Bankruptcy mode – (www.ml-implode.com) - GMAC may file for Bankruptcy as early as Wednesday, September 10, 2008. We believe they are scrambling to move/sell assets prior to this tentative filing date, and we're attempting to find other sources to confirm the information received. Described on their web site

The Power of De - (www.nytimes.com) Good Paul Krugman story: We’ve come a long way from the days when Alan Greenspan declared a national housing bubble “most unlikely.” There was indeed a bubble, and since it popped two years ago home prices have fallen faster than they did during the Great Depression. Falling home prices, in turn, have led to the much-feared phenomenon of “debt deflation.” Yes, deflation: prices are going up at the checkout counter, but the prices of assets, which are what matter for balance sheets, are dropping fast. As the economist Irving Fisher observed way back in 1933, when highly indebted individuals and businesses get into financial trouble, they usually sell assets and use the proceeds to pay down their debt. What Fisher pointed out, however, was that such selloffs are self-defeating when everyone does it: if everyone tries to sell assets at the same time, the resulting plunge in market prices undermines debtors’ financial positions faster than debt can be paid off. So deflation in asset prices can turn into a vicious circle. And one consequence of what he called a “stampede to liquidate” is a severe economic slump. That’s what’s happening now, with debt deflation made especially ugly by the fact that key financial players are highly leveraged — their assets were mainly bought with borrowed money. As Paul McCulley of Pimco, the bond investor, put it in a recent essay titled “The Paradox of Deleveraging,” lately just about every financial institution has been trying to reduce its leverage — but the plunge in asset values has nonetheless left these institutions with more debt relative to their assets than before.

US Is "More Communist than China": Jim Rogers - (www.cnbc.com) The nationalization of Fannie Mae and Freddie Mac shows that the U.S. is "more communist than China right now" but its brand of socialism is meant only for the rich, investor Jim Rogers, CEO of Rogers Holdings, told CNBC Europe on Monday. "America is more communist than China is right now. You can see that this is welfare of the rich, it is socialism for the rich… it's just bailing out financial institutions," Rogers said. Stock markets jumped after the U.S. government's decision to launch what could be its biggest federal bailout ever, in a bid to support the housing market and ward off more global financial market turbulence. But Rogers said in the long term the move spelled trouble. "This is madness, this is insanity, they have more than doubled the American national debt in one weekend for a bunch of crooks and incompetents. I'm not quite sure why I or anybody else should be paying for this," Rogers told "Squawk Box Europe."

Big Non-Event In Fannie, Freddie Credit Default Swaps - (Mish at globaleconomicanalysis.blogspot.com) - Investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market. Thirteen "major" dealers of credit-default swaps agreed "unanimously" that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said. "This is a big deal," said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management in Sydney. "The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown." Thirteen "major" dealers of credit-default swaps agreed "unanimously" that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Hmm. Interesting that this was such a unanimous declaration. I wonder when the bulk of those CDS contracts were initiated. Could it by any chance be March or July of 2008? And who was on the other side? Imagine betting on a default, getting it, and losing your ass. It seems to me that is what happened.Who Lost?
· Taxpayers
· Small Banks holding F&F preferreds
· Investors holding F&F common or preferreds
Who Won?
· Thirteen "major" dealers of credit-default swaps.
· PIMCO


Other Stories:

Asian Stocks Decline as Growth Concerns Eclipse Fannie Rally - (www.bloomberg.com)
Be on red alert for US market chaos - (articles.moneycentral.msn.com)
Long-Term Capital: It’s a Short-Term Memory - (www.nytimes.com)
Treating the Symptoms, Ignoring the Disease of Debt - (www.minyanville.com)

Housing Reforms Built on Sand - (article.nationalreview.com)Mortgage bailout unlikely to lift U.S. out of slump - (www.signonsandiego.com) If the government bailout of Fannie Mae and Freddie Mac is a salve to help heal what's ailing the U.S. economy, it's likely to be a slow-acting medicine that may not stop the infection before it gets worse. Analysts predict the vicious cycle where housing, credit and financial problems force Americans to hunker down further – hobbling the economy and in turn aggravating those very troubles – won't be easily broken.
“The negative psychology has become embedded and will take time to unwind,” said Brian Bethune, economist at Global Insight. “It is not instant coffee.”
Last Ditch - (jameshowardkunstler.typepad.com)Did We Learn Nothing from the Dotcom Bust? - (www.seekingalpha.com)Welcome to the Mortgage Business, Taxpayer - (www.seekingalpha.com)Paulson Aims to Do What Eluded Fed: Get Banks to Lend - (www.bloomberg.com)Canadian real estate values set to plunge - (www.cbc.ca)US "More Communist than China" says Jim Rogers - (biz.yahoo.com)
NO MORE BAZOOKAS FOR YOU! - (www.ml-implode.com) - On Capitol Hill, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) said he will summon Paulson to appear ...
A Silent Dependence On Foreign Money, Not Just Oil - (www.ml-implode.com) - . on behalf of these overseas investors and customers, thank you America, Mr. Obama AND Mr. McCain for not speaking out about ...
Long-Term Capital: It’s a Short-Term Memory - (www.ml-implode.com) - No firm had a closer view of Long-Term Capital than Bear Stearns, the broker that cleared its trades. And it was Bear that sound...
HUD SECRETARY STEVE PRESTON ON GOVERNMENT SPONSORED ENTERPRISES - (www.ml-implode.com)
Paulson And Others Translated - (www.ml-implode.com)
Anatomy of a bank failure: Why Integrity fell - (www.ml-implode.com)
Update: MILA CEO Sued By Bankruptcy Trustee - (www.ml-implode.com)
Update: Homecomings Financial LLC - (www.ml-implode.com)
Courts Could Derail Fannie and Freddie Bailout Plan - (www.ml-implode.com)
Economists Pleased with Government Takeover of Fannie Mae, Freddie Mac - (www.ml-implode.com)
Luminent Mortgage files for Chapter 11 bankruptcy - (www.ml-implode.com)
Update: Washington Mutual Ousts Killinger; Signs Memo of Understanding with OTS - (www.ml-implode.com)
TransUnion: Mortgage Delinquencies Rise, Should Taper off in 2009 - (www.ml-implode.com)

U.S. Fourth-Quarter Hiring Plans at 5-Year Low, Manpower Says - (www.bloomberg.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)
Slowdown sees groups cut IT spending - (www.ft.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)
Dollar loses ground after post-bailout rally - (www.marketwatch.com)
Reinventing Two Mortgage Giants: A Big Rebuild or a Teardown? - (www.nytimes.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)
Fannie, Freddie Seizure Triggers Credit-Default Swap Settlement - (www.bloomberg.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)
System cloud over syndicated loans - (www.ft.com)
Camulos Offers to Sweeten Terms As Investors Try to Exit Fund - (online.wsj.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. House Prices Fall as Sales Drop to Record Low - (www.bloomberg.com)