Thursday October 9 Housing and Economic stories

TOP STORIES:

Nightmare Day For Banks - (Mish at globaleconomicanalysis.blogspot.com) Prime Minister Gordon Brown and Chancellor Alistair Darling call an emergency meeting with finance chiefs after nightmare day for banks. Gordon Brown and Alistair Darling were tonight meeting with finance chiefs to discuss the recapitalisation of the UK banking system after a turbulent day on the markets which also saw British savers hit by the collapse of the Icelandic bank Icesave. The Prime Minister and Chancellor will meet the Mervyn King, Governor of the Bank of England and Lord Turner of Ecchinswell, Chairman of the Financial Services Authority at 5pm. No 10 denied that it was “an emergency meeting” and had been in the diary for sometime. But officials had to admit they had not given notice of the meeting at an earlier briefing today. This suggests that Mr Brown and Mr Darling have been convinced that they must show the market that they are at least close to an announcement in order to restore some calm. On another rollercoaster day for the markets, banking shares were badly hit as a report leaked out from top-secret talks between the banks and the Treasury in Downing Street last night. HBOS shares were down 41.5 per cent at 94p, Royal Bank of Scotland was below £1 at 90p, 39 per cent, down, while Lloyds TSB fell 12.9 per cent, or 33.5p, to 225p. Barclays was 9 per cent down at 285p. HSBC was the only big bank to rise by 19p, or 2 per cent, to 901.25p. The Government is furious with the banks for apparently divulging details of their meeting with the Chancellor at which they asked him to speed up the injection of taxpayers money into their coffers. In Europe, the 27 member states today agreed to more than double the minimum level of bank deposit protection in Europe to €50,000, and the US Federal Reserve announced that it would start making loans directly to businesses to help them with short-term funding difficulties. Meanwhile, Icesave's 300,000 British now face a struggle to extract their cash, after withdrawals were blocked this morning when, Landsbanki, the Icelandic parent bank, went bust and was nationalised. Iceland has been battling to stave off national bankruptcy after its banks took on massive debts in expanding overseas, far exceeding the country's gross domestic product. British Taxpayer On Hook For £50bn Bailout. In the US the word "recovery" replaced the word bailout. The UK is calling their bailout an "investment". Whatever you want to call it, British taxpayers are on the hook for a £50 billion. Taxpayers will be committed today to providing more than £50 billion to bail out high street banks in an attempt to avert a cataclysmic failure of confidence. Alistair Darling was due to tell the City in an early morning announcement today that the sum will be available for “investment” in banks that have demanded help from the Government. The drastic rescue move is designed to help to reassure savers and to kickstart the paralysed credit markets by encouraging banks to lend to each other again. After meeting Mervyn King, the Governor of the Bank of England, Downing Street was forced to make the announcement earlier than it had intended because of fears that a second day of hammering for bank shares had made leading institutions vulnerable. HBOS shares slumped by 42 per cent yesterday, Royal Bank of Scotland was down 39 per cent and Lloyds TSB dived 13 per cent in another torrid day for the banks.

FHA Will Take on Subprime Loans Shunned by Lenders - (www.bloomberg.com) The Federal Housing Administration has grown so large that by the end of the year it will guarantee mortgages for three in 10 U.S. borrowers, many of whom have bad credit or loans that required no verification of income. Congress wants FHA to do more. The Hope for Homeowners program, unveiled Oct. 1, authorizes the agency, part of the cabinet-level Department of Housing and Urban Development, to guarantee up to $300 billion of 30-year, fixed rate home loans for struggling borrowers over the next three years. The Congressional Budget Office estimates that 400,000 households will get FHA- insured loans and about one-third of those will fall behind again on their new loans. Hope for Homeowners is one way the U.S. government is trying to prevent further losses in the worst housing decline since the Great Depression of the 1930s. The rewritten mortgages may not be enough to stem rising defaults, said David Olson, a 40-year veteran of the U.S. mortgage industry. ``FHA has completely replaced subprime and Alt-A,'' said Olson, former director of market research at Freddie Mac, the second-biggest mortgage buyer, who now runs Wholesale Access Mortgage Research & Consulting Inc. in Columbia, Maryland. ``I hope it's not setting them up for another crackup. There have been so many crackups.''

Third "Extreme Makeover" Home Going Bust - (www. perezhilton.com) Could doing good cause a negative affect? Yet another house built by ABC's Extreme Make over: Home Edition is in jeopardy of being foreclosed on. This is the third house in the last few months that is facing financial problems, the others are in Atlanta and South Jersey. A 7,000 sq ft home was built in Seminole County, Florida, back in 2006 for Sadie Holmes. The upgrade left the community activist Holmes with a beautiful six-bedroom home. Holmes is a former drug addict who - after turning her life - around began a charity to distribute food, clothes and furniture to needy neighbors. But Holmes says she's now struggling. The amount of debt she has built up might cost her her $400,000 house, which she also uses for her charity. Holmes says, "I'm grateful for this building, but it's causing

Panic in UK and Iceland as bank shares crumble:
· UK savers left in lurch as Icesave crumbles - (business.timesonline.co.uk) Landsbanki, Iceland's second largest bank, goes into receivership, leaving 300,000 UK internet savers unprotected
· Q&A - what now for Icesave depositors? - (business.timesonline.co.uk)
· RBS shares close under £1 on bailout fears - (business.timesonline.co.uk)
· British taxpayer tied into £50bn bank bailout - (business.timesonline.co.uk) Alistair Darling will tell the City in a morning announcement that the sum is available for 'investment' in leading banks
· Spain goes it alone as Europe squabbles - (business.timesonline.co.uk) Spain is latest European country to announce unilateral rescue package, while Iceland receives €4 billion loan from Russia

The Panic Of 1873 -- A Better Model For The Crisis? - (www.itulip.com) - Our current episode has more in common with the 1870s depression which, as Nelson notes, was considerably worse. It was primarily caused by over-indebtedness in the commercial real estate sector, which mortgages were based on new forms of financing which were intermingled on the balance sheets of commercial banks with less rarefied assets that the banks added by making business loans. As the panic deepened, ordinary Americans suffered terribly. A cigar maker named Samuel Gompers who was young in 1873 later recalled that with the panic, "economic organization crumbled with some primeval upheaval." Between 1873 and 1877, as many smaller factories and workshops shuttered their doors, tens of thousands of workers — many former Civil War soldiers — became transients. The terms "tramp" and "bum," both indirect references to former soldiers, became commonplace American terms. Relief rolls exploded in major cities, with 25-percent unemployment (100,000 workers) in New York City alone. Unemployed workers demonstrated in Boston, Chicago, and New York in the winter of 1873-74 demanding public work. In New York's Tompkins Square in 1874, police entered the crowd with clubs and beat up thousands of men and women. The most violent strikes in American history followed the panic, including by the secret labor group known as the Molly Maguires in Pennsylvania's coal fields in 1875, when masked workmen exchanged gunfire with the "Coal and Iron Police," a private force commissioned by the state. A nationwide railroad strike followed in 1877, in which mobs destroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md. In Central and Eastern Europe, times were even harder. Many political analysts blamed the crisis on a combination of foreign banks and Jews. Nationalistic political leaders (or agents of the Russian czar) embraced a new, sophisticated brand of anti-Semitism that proved appealing to thousands who had lost their livelihoods in the panic. Anti-Jewish pogroms followed in the 1880s, particularly in Russia and Ukraine. Heartland communities large and small had found a scapegoat: aliens in their own midst.

Foreclosure? Sue and delay. Live mortgage free! - (www.tbo.com) Ernie Harpster fell behind on his mortgage payments last year, so he tried to persuade his bank to give him time to sell his home and pay off what he could. Instead, the lender filed a foreclosure lawsuit. Harpster then did something troubled homeowners may never think of doing: He fought back. Harpster has been living payment-free for nearly a year in his Wesley Chapel home. His case is trickling through court, and there are no signs he will be kicked out anytime soon. "Not having a mortgage payment meant I didn't have to file for bankruptcy because I could pay other bills, like credit cards and the electric bill," said Harpster, whose income as a real estate agent dried up along with the market. "But I'm not trying to take advantage of the situation. I tried to do what I thought was right. To me, it's the bank's fault this has stalled."

Is It 1929 Again? - (www.washingtonpost.com) There are parallels between then and now, but there are also big differences. Now as then, Americans borrowed heavily before the crisis -- in the 1920s for cars, radios and appliances; in the past decade, for homes or against inflated home values. Now as then, the crisis caught people by surprise and is global in scope. But unlike then, the federal government is a huge part of the economy (20 percent vs. 3 percent in 1929), and its spending -- for Social Security, defense, roads -- provides greater stabilization. Unlike then, government officials have moved quickly, if clumsily, to contain the crisis. We need to remind ourselves that economic slumps -- though wrenching and disillusioning for millions -- rarely become national tragedies. Since the late 1940s, the United States has suffered 10 recessions. On average, they've lasted 10 months and involved peak monthly unemployment of 7.6 percent; the worst (those of 1973-75 and 1981-82) both lasted 16 months and had peak unemployment of 9 percent and 10.8 percent, respectively. We are almost certainly in a recession now, but joblessness, 6.1 percent in September, would have to rise spectacularly to match post-World War II highs.

Star hedge fund crashes to earth - (www.fortune.com) Tontine Associates, a $10 billion Greenwich, Conn.-based fund, told investors on Friday that it expected to show a 2008 loss through Sept. 30 of 65%, according to two people familiar with the fund's performance. Tontine builds large, concentrated positions in companies central to the big-picture investment thesis of the fund's general partner, former Smith Barney analyst Jeffrey Gendell. That kind of focused strategy can pay off big when a manager's vision is spot on. Earlier this decade, Gendell bet correctly on the explosion in home-building, driving the fund to 100% returns in 2003 and 2005. Gendell made the Forbes magazine list of richest Americans in 2008 with an estimated net worth of $1 billion.

Fed, Treasury, FDIC Take New Steps to Defrost Credit – (www.cnbc.com) Moves aimed at defrosting commercial paper markets. U.S. financial stocks rose in pre-open Tuesda trading after the Federal Reserve said it would begin buying commercial paper in an effort to free up short-term liquidity in the credit markets. Commercial paper is the shortest-term credit available and generally ranges in maturities from overnight to several months. The Treasury Department and the Federal Reserve took a major step Tuesday to support strained commercial paper markets. As speculated, the central bank said it was creating a special facility to help the $1.7 trillion commercial paper market. The Commercial Paper Funding Facility will buy unsecured and asset-backed commercial paper directly from eligible issuers.


OTHER STORIES:

Wachovia, Citi, Wells Fargo To Halt Litigation - (www.ml-implode.com) - "Wachovia and suitors Wells Fargo and Citigroup agreed on Monday to halt all litigation until noon Wednesday in hopes of decidin...
Ex-CEO of S&L bought by Wachovia defends record - (www.ml-implode.com) - Sandler contends the troubles cropping up in World's option-ARM, or "pick-a-pay," portfolio haven't been severe enough to drag ...
HANK WASTES NO TIME - (www.ml-implode.com) - ``Since it may be weeks before the bailout bill money is available, some on Wall Street think Paulson will use the $200 billion ...
Update: Carteret Files Ch. 7 BK - (www.ml-implode.com) - Carteret Mortgage Corporation filed a Chapter 7 Bankruptcy in the Eastern District of VA court on October 1st, 2008. The deadlin...
Update: BankUnited Wholesale Gone? - (www.ml-implode.com)
Countrywide to Set Aside $8.4 Billion in Loan Aid - (www.ml-implode.com)
Citigroup sues Wachovia, Wells Fargo for $60B - (www.ml-implode.com)
The Federal Reserve Slays the US Dollar! - (www.ml-implode.com)
Update: Wachovia May Be Split; Citi Sues Wachovia & Wells Fargo - (www.ml-implode.com)
French President Nicolas Sarkozy Calls For "New World" - (www.ml-implode.com)
Citigroup, Wells Fight May End by Splitting Wachovia - (www.ml-implode.com)
Press May Own a Share in Financial Mess - (www.ml-implode.com)

Buffett: Fannie had a blank check from the government - (blog.heritage.org)
Fannie, Freddie to Sell Bad Assets To Duped Taxpayers - (www.housingwire.com)
Why the Bailout Solves Nothing, Wastes Money - (www.fool.com)
7 reasons why bailout will damage the economy - (news.cincinnati.com)
Worst-case scenario is approaching rapidly - (business.timesonline.co.uk)
European, Asian markets plunge on crisis fears - (news.yahoo.com)
Europe's banks melting down, too! - (ocbiz.freedomblogging.com)
Global Carnage In Pictures - (Mish at globaleconomicanalysis.blogspot.com)
U.S. bank failures almost certain to increase in next year - (www.cnn.com)

Similarities and Differences from Great Depression - (www.signonsandiego.com)
Richard Fuld: My Dinner With Henry Paulson - (www.usnews.com)
Lehman Brothers Boss Fuld Defends $484 Million in Pay - (abcnews.go.com)
Aid for reckless borrowers, but not for those who avoid debt - (biz.yahoo.com)
Feels good to be a banksta! - (www.sinfest.net)
US as debtaholic - (www.sinfest.net)
$700 billion is nothing - (www.youtube.com)

Stock futures drop after Fed auction statement - (www.reuters.com)
Gold Advances in London on Rising Demand for Haven Investment - (www.bloomberg.com)
Money-Market Rates Climb to All-Time Highs as Freeze Deepens - (www.bloomberg.com)
Dollar down, gold up in early European trading - (www.ap.com)
Oil rises to $90 after steep slide - (www.reuters.com)
Treasuries Fall on Speculation U.K. Preparing to Bail Out Banks - (www.bloomberg.com)
Lehman exposes credit default swap faults - (www.ft.com)
Banks prepare for CDS pay-outs - (www.ft.com)

Hedge Fund Finds Itself on Defense - (www.nytimes.com)

Lancelot Lent About $1 Billion to Petters Affiliates - (www.bloomberg.com)
Barclays, RBS in Talks on U.K. Government Funding - (www.bloomberg.com)
Russia Lends Iceland 4 Billion Euros to Save Banks - (www.bloomberg.com)
Banks ask chancellor for capital - (www.bbc.co.uk)
Europeans handle crisis together and separately - (www.iht.com)
Australia Cuts Rate by Most Since 1992; Stocks Rise - (www.bloomberg.com)

Iceland nationalises Landsbanki - (www.ft.com)
Pressure mounts in UK to guarantee savings - (www.ft.com)
New Zealand Cuts Growth Forecast - (online.wsj.com)
Credit crunch hitting Saudi Arabia - (www.ap.com)
Fed Considers Plan to Buy Companies’ Unsecured Debt - (www.nytimes.com)
September consumer sales drop sharply: MasterCard - (www.reuters.com)
Global Fears of a Recession Grow Stronger - (www.nytimes.com)
Fed eyes plan to fund short-term business loans - (www.ap.com)
Lenders Squeeze Corporate Borrowers Amid $112 Billion of Losses - (www.bloomberg.com)
Fed Sets Floor Below Rate Target, Engineering `Stealth' Cut - (www.bloomberg.com)
Massachusetts Leads States, Cities Looking to Revive Debt Sales - (www.bloomberg.com)
Fed's first foray into unsecured loans - (www.ft.com)
Unfolding Worldwide Turmoil Could Reverse Years of Prosperity - (www.washingtonpost.com)
As economy slowed, states' Q2 revenues from sales, fuel and property taxes dropped - (www.chicagotribune.com)
Falling behind: More Americans see utilities cut off - (www.latimes.com)
Bank of America Posts Lower Profit, Cuts Dividend - (www.bloomberg.com)
General Motors' Europe Unit to Suspend Work at All Factories - (www.bloomberg.com)
Wyndham cuts back to weather storm - (www.ft.com)
September retail sales expected to be dismal - (www.dallasnews.com)
Bleak outlook for global manufacturing - (www.ft.com)
S(www.ap.com) Tempers Revenue Outlook - (online.wsj.com)
Steelmaker Warns of Overcapacity - (online.wsj.com)
Banks' Pain Spreads to Their Suppliers - (online.wsj.com)
EBay cuts 10% of workforce - (www.ft.com)
Sun Country Files for Ch. 11 - (online.wsj.com)
Financial crisis: the latest blow to free-market 'dogma' - (www.csmonitor.com)
With Bubbles Popping Worldwide, No Wonder the Economy's Gone Flat - (www.washingtonpost.com)