Monday November 24 Housing and Economic stories

TOP STORIES:

E-Trade client assets fall, stock trading under $1.00 at 94 cents - (biz.yahoo.com/ap) E-Trade Financial Corp. said Wednesday customers executed an increasing amount of trades in October, though their total assets declined amid tumbling markets. E-Trade customers completed an average of 248,817 trades per day in October, a 15 percent increase from both the same period last year and the prior month. But, as customers completed more trades, their assets shrank amid sharp downturns in the equity markets. The Dow Jones Industrials average fell 14 percent in October, while the Standard & Poor's 500 tumbled 17 percent.

FHA-Backed Loans: The New Subprime - (www.businessweek.com) The same people whose reckless practices triggered the global financial crisis are onto a similar scheme that could cost taxpayers tons more. As if they haven't done enough damage. Thousands of subprime mortgage lenders and brokers—many of them the very sorts of firms that helped create the current financial crisis—are going strong. Their new strategy: taking advantage of a long-standing federal program designed to encourage homeownership by insuring mortgages for buyers of modest means. You read that correctly. Some of the same people who propelled us toward the housing market calamity are now seeking to profit by exploiting billions in federally insured mortgages. Washington, meanwhile, has vastly expanded the availability of such taxpayer-backed loans as part of the emergency campaign to rescue the country's swooning economy. For generations, these loans, backed by the Federal Housing Administration, have offered working-class families a legitimate means to purchase their own homes. But now there's a severe danger that aggressive lenders and brokers schooled in the rash ways of the subprime industry will overwhelm the FHA with loans for people unlikely to make their payments. Exacerbating matters, FHA officials seem oblivious to what's happening—or incapable of stopping it. They're giving mortgage firms licenses to dole out 100%-insured loans despite lender records blotted by state sanctions, bankruptcy filings, civil lawsuits, and even criminal convictions.

Ontario Teachers Pension Files Lawsuit Against Washington Mutual - (www.blbglaw.com) Good luck Ontario! Have you ever heard the phrase “Past performance is no guarantee of future gain” or that investments involve some level of risk? The Consolidated Complaint alleges in detail that as Washington Mutual, Inc. ("WaMu") shifted its focus from traditional to higher-risk residential lending in recent years, WaMu also secretly abandoned the standards that WaMu claimed to follow for managing, conducting and accounting for its core home lending businesses.

Japan economists call for US Treasuries to be issued in yen - (www.atimes.com) Japanese economists, increasingly concerned that the United States might seek to pay its enormous and growing debt obligations in a weakened US dollar, are looking to the possibility of US Treasuries being issued in yen. The US government needs to borrow at least US$1 trillion in the coming year, excluding the US Treasury's $700 billion plan to bail out the financial and other industries, said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan's largest publicly traded lender by assets. That amount is likely to grow as the US government continues to rescue failed parts of the economy and has to raise more debt - that is, issue government bonds, or Treasuries - to fund such rescues. Since 2004, when the amount of the government bond issuance reached an annual average of $400 billion, 94% of new buyers of US government bonds have been foreigners, Mizuno told Asia Times Online.

Justice Department probing Golden West Financial - (news.moneycentral.msn.com) The Department of Justice is investigating the mortgage lending practices of Golden West Financial Corp., the savings and loan bought by Wachovia Corp. for $24 billion at the height of the housing boom in 2006. U.S. Attorney Joseph Russoniello told The Associated Press Thursday that for the past two months his department has been looking into whether the California lender engaged in predatory lending practices. Russoniello also said that the Justice Department, in conjunction with the Securities and Exchange Commission, is reviewing representations that were made to investors by Golden West during its sale to Wachovia. Herb Sandler, who ran Golden West with his wife Marion, said Thursday that the couple has not been contacted by authorities. "If there is an investigation, we would we would be delighted and happy to cooperate fully in every respect," he said. He called the news of the investigation "strange and anomalous" given Golden West's "40-year track record for ethics and integrity." Golden West, which owned World Savings, had been widely praised by analysts for its conservative lending policies until its option-adjustable rate mortgages started to blow up after the Wachovia acquisition.

Housing 'boom' gone after price drop - (www.heraldtribune.com) A curious thing happened in early September. After a long time in the darkness, the Southwest Florida real estate market finally began to show signs of life. But then came the collapse of Lehman Brothers, the salvaging of American International Group and the massive $700 billion financial bailout. The housing crisis triggered a financial crisis, a credit meltdown and an overall economic tailspin that transformed the playing field in a matter of days and weeks. For the Sarasota-Bradenton real estate market, the optimism evaporated. "We had people in here looking to buy. There had been a lot of activity. But as soon as the economy tanked, it was like somebody turned the water off," said Sherwin Taradash, a Michael Saunders & Co. agent based in Lakewood Ranch. With the economy now in dire straits, the rules of the game have changed, making it difficult to predict the market's trajectory, experts say. "Trend lines and rules of thumb do well under normal circumstances, but now we have so many complex variables at work in the marketplace," said Jack McCabe, a Fort Lauderdale-based real estate analyst who correctly predicted the housing downturn before it began. "No one really knows where this thing is going."

Did the Fed, or Asian Saving, Cause the Housing Bubble? - (www.lewrockwell.com) Just about the only good thing to come out of the housing bubble is that many financial analysts are coming to see the virtue of the Austrian theory of the business cycle. Specifically, though Greenspan did his best to blame deregulation and foreigners who saved too much, many people now think that the Maestro's ultra-low interest rates in the wake of the dot-com crash may very well have sowed the seeds for our current crisis. Ironically, at the very moment of the free-market economists' intellectual victory, some in our camp want to take away the champagne. Specifically, Tyler Cowen has repeatedly argued on his very popular blog that it was not the Fed but rather an increase in foreigners' savings and appetite for risk, that caused the boom. And in a recent Cato paper, David Henderson and Jeffrey Rogers Hummel defend Greenspan's record, going so far as to say that "Alan Greenspan stands out as the most competent – and arguably the only competent – helmsman of United States monetary policy since the creation of the Federal Reserve System." Let me warn the reader that I am going to have nothing nice to say about this defense of Greenspan; I think his policies caused or at least made possible the housing boom. As I walk through the specifics of the Henderson and Hummel (H&H) defense, I conclude many of their statements are either misleading or outright falsehoods. Because my critique will be so harsh, I want to stress that I actually know H&H personally, and acknowledge that they are both intelligent and very courageous advocates of economic liberty. So all I can say regarding this particular Cato paper is that either they or I am suffering from a bout of temporary insanity – and the little green elf who hovers over my laptop assures me I'm not the one who's crazy.


OTHER STORIES:

San Francisco Bay Area house prices dive - (www.sfgate.com)
SF Bay Area's Contra Costa county 52.5% down from peak - (eastbayhousingbubble.blogspot.com)

S. FL has eight-month backlog of unsold houses - (www.bizjournals.com)
High-end house sellers turn to leasing - (www.denverpost.com)
Goldman Falls Below IPO Price, Erasing Almost 10 Years of Gains - (www.bloomberg.com)
What if there's no such thing as a risk-free asset? - (optionarmageddon.ml-implode.com)
Fannie, Freddie Suspend Foreclosures Through Jan. 9 - (www.bloomberg.com)
American Taxpayers Are Getting Played - (www.washingtonpost.com)

Citi shares in record slump - (www.marketwatch.com)
Laguna Beach can't avoid foreclosure bug - (www.ocregister.com)
Toronto house resales crash in November - (www.thestar.com)
Bring on the Real Estate Crash! - (www.thetyee.ca)
House Price Poll - (www.homepricetrend.com)
Bailout Explained - (www.youtube.com)

Gold Heads for Biggest Weekly Gain in 2 Months as Dollar Falls - (www.bloomberg.com)
Oil rises from 3-year low as stocks recover - (biz.yahoo.com/ap)
Wall Street Credit Risk Rises on Citigroup Breakup Speculation - (www.bloomberg.com)
Corporate Bond Risk Falls in Europe, Credit-Default Swaps Show - (www.bloomberg.com)

Stocks open higher after steep sell-off - (biz.yahoo.com/ap)
Crisis Hits Values of Commercial Mortgages - (www.washingtonpost.com)
Debt worries push bond insurance to peak - (www.ft.com)
California's median home price falls 34% - (www.latimes.com)
Harkin Sets Plan on Derivatives - (online.wsj.com)
Regulators to discuss short selling rules - (www.ft.com)
Last Month, $40 Billion Pulled From Hedge Funds - (online.wsj.com)
Bear market swipes at more than just stocks - (www.usatoday.com)
Treasury to Buy Reserve Government Fund's Holdings - (www.bloomberg.com)

Treasury Will Help Liquidate Fund - (online.wsj.com)
Emerging Market Debt Costs Jump in Week, Hastening IMF Bailouts - (www.bloomberg.com)
Financial Job Losses May Double to 350,000 by 2009 - (www.bloomberg.com)
Fields of Grain and Losses - (www.nytimes.com)
Goldman Slashes U.S. Growth Forecasts, Says Recession Deepens - (www.bloomberg.com)
Falling Prices Raise a New Fear: Deflation - (www.washingtonpost.com)
FDIC’s plan for home loans gains support - (www.ft.com)
Legislators seek solution for jobless benefits - (www.sfgate.com)
As jobless funds fall, states look to raise taxes - (www.usatoday.com)