Tuesday December 23 Housing and Economic stories

TOP STORIES:

Mortgage Debt Not Big Burden, Said Greenspan in 2004 - (query.nytimes.com) Published: October 20, 2004. Alan Greenspan on Tuesday defended one of the most tangible results of his tenure as chairman of the Federal Reserve Board: the big increase in homeowner debt. In his most detailed discussion yet on the subject, Mr. Greenspan disputed analysts who worry that home buyers have become swept up in a speculative housing bubble that the Fed is partly responsible for creating. While he acknowledged that consumer debt has risen ''especially steeply'' in the last five years, he said family finances were still in ''reasonably good shape.'' Mortgage debt and housing prices have both soared since 2001, in part because the Federal Reserve pushed borrowing costs to their lowest levels since the 1950's. With interest rates now rising, a growing number of economists worry that many home buyers will face higher monthly debt payments in an economic environment that could cause house prices to fall. In a speech here to a convention of community bankers, Mr. Greenspan said fears of a speculative bubble in housing prices were exaggerated, because people cannot buy and sell their own homes as easily as stock market speculators can buy and sell stock. The biggest risk of a housing bubble, he said, would be among people who buy second homes and vacation homes. But those kinds of purchases accounted for only 11 percent of new mortgages in 2003.

Bernanke was also full of it in 2005. Eliminate the Fed! - (www.washingtonpost.com) Thursday, October 27, 2005; Page D01. Ben S. Bernanke does not think the national housing boom is a bubble that is about to burst, he indicated to Congress last week, just a few days before President Bush nominated him to become the next chairman of the Federal Reserve. U.S. house prices have risen by nearly 25 percent over the past two years, noted Bernanke, currently chairman of the president's Council of Economic Advisers, in testimony to Congress's Joint Economic Committee. But these increases, he said, "largely reflect strong economic fundamentals," such as strong growth in jobs, incomes and the number of new household

Russia Devalues 2nd Time in Week, Lets Ruble Fall Total 8.6% - (www.bloomberg.com) Russia’s central bank devalued the ruble for the second time in a week after policy makers spent $161 billion of reserves trying to defend the currency and oil revenue slumped. The ruble fell as much as 1.3 percent to a four-year low of 37.5015 per euro after Bank Rossii widened the trading band against a basket of dollars and euros, the mechanism by which it manages the exchange rate. Russia has drained 27 percent of its reserves, the world’s third-largest, trying to stem a 16 percent decline in the currency since August as the price of oil fell 69 percent, constricting economic growth. Standard & Poor’s cut its credit rating on Russia for the first time in nine years last week. “It is possible we will see two to three more devaluations this week,” said Martin Blum, head of emerging-market currencies and fixed income strategy at UniCredit SpA in Vienna. “Russian policy makers are serious about continuing the one percent devaluations.”

Fed Refuses to Disclose Recipients of $2 Trillion - (www.bloomberg.com) The Federal Reserve refused a request by Bloomberg News to disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral. Bloomberg filed suit Nov. 7 under the U.S.Freedom of Information Act requesting details about the terms of 11 Fed lending programs, most created during the deepest financial crisis since the Great Depression. The Fed responded Dec. 8, saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information. The institution confirmed that a records search found 231 pages of documents pertaining to some of the requests. “If they told us what they held, we would know the potential losses that the government may take and that’s what they don’t want us to know,” said Carlos Mendez, a senior managing director at New York-based ICP Capital LLC, which oversees $22 billion in assets.

Just a sign of troubled times, or has the Fed lost it? - (www.idahostatesman.com) Something funny is going on with the Fed funds rate, but everyone is so engrossed with the auto industry and other dramas that few have noticed. This long-obscure interest rate historically has been an important financial-market barometer, but its readings over the past two months are erratic, to say the least. Either the Fed has abandoned what it says is its principal policy tool, or that tool has become impotent. Let's start with some background. Commercial banks are financial intermediaries, accepting deposits and making loans. To protect depositors against loss, banks are not allowed to lend out all the money they get as deposits. Legally, a fraction must be held in reserve. And banks may choose to hold more money in reserve than the legal minimums. These reserves may be held in the form of "vault cash" in the bank itself. But most are held in the bank's account at its Federal Reserve District Bank. (These reserve accounts at the Fed also are used in check clearing, but that is another column.) Historically, the Fed did not pay any interest on banks' reserve accounts. Money not loaned out earns no interest. So banks normally keep their reserve accounts at or just above required minimums. But their deposits vary and so do their Fed reserve accounts, often depending on how many checks are presented for payment. On any given day, a bank may be short of "Fed funds" or have extra.

Jim Rogers calls most big U.S. banks bankrupt - (www.reuters.com) Jim Rogers, one of the world's most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded. Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital. Dozens of banks have won infusions from the Troubled Asset Relief Program created in early October, just after the Sept 15 bankruptcy filing by Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research,Stock Buzz). Some of the funds are being used for acquisitions. "Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor. "What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

Goldman Sachs Sued Over MBS Deals - (www.housingwire.com) The mortgage litigation machine is now turning its attention towards RMBS issuers as investors allege fraud and misrepresentation by firms that sold off loans into securitization trusts, with a new putative class-action suit filed Thursday in New York against Goldman Sachs Group Inc. (GS: 67.74 0.00%) and some of the firm’s individual directors. The case, filed in Southern District Court in New York on Dec. 11 by the San Diego-based law firm of Coughlin Stoia Geller Rudman & Robbins LLP, a well-known securities litigation firm, argues that Goldman made false statements or omitted key information regarding the nature of the mortgages it sold into 17 different trusts during 2007. The lead plaintiff in the case is a pension fund administered by NECA-IBEW, an electrician’s labor union that purchased securities in the deals in question, and has since seen

Lawyer Dreier Seen as Bold Enough to Cheat the Best - (www.nytimes.com) Since that opening tip, federal authorities have been tracking what they describe as a brazen swindle of some of New York’s savviest investors by one of New York’s more accomplished lawyers. Mr. Dreier has been charged with multiple frauds in the United States and a related crime in Canada, and is being held without bail in Manhattan. In court last week, prosecutors said their count so far put the money missing at $380 million, most of it lost by hedge funds and other investors who had bought promissory notes that were flat-out fictions. In recent days, Dreier L.L.P., the Park Avenue law firm that Mr. Dreier founded, has been plunged into chaos. At least $35 million in escrow that was to have been held by the firm seems to be missing, the authorities say, and nearly all of its 250 lawyers are now looking for work. The amounts pale next to the $50 billion fraud that another high-profile New York figure,Bernard L. Madoff, was accused last week of orchestrating, but they have unnerved lawyers and their clients in the broader legal community. As the Dreier firm’s lawyers rummage through the law firm’s books, which had been until recently Mr. Dreier’s exclusive preserve, they are finding that bills have not been paid in months. Their health insurance is in default and the firm will not be able to make its $2.6 million payroll on Monday, lawyers there say. “No one is in charge,” Vincent F. Pitta, a lawyer at the firm, complained last week in an affidavit in support of a government request to freeze assets. “The news of Mr. Dreier’s arrest has had a neutron-bomb-like effect on Dreier L.L.P.”




OTHER STORIES:

Treasury bonds have reached bubble stage - (www.dallasnews.com)
Deflation has become inevitable - (www.nakedcapitalism.com)
FDIC says not to worry about FDIC - (www.fdic.gov)

U.S. Stock Futures Decline on Economic Concern; Apple, IBM Drop - (www.bloomberg.com)
Dollar Falls to 8-Week Low on Outlook for Fed Interest-Rate Cut - (www.bloomberg.com)
Crude Oil Rises as OPEC’s El-Badri Says Sizeable Cut Is Needed - (www.bloomberg.com)
Madoff Said to Use Unregistered Side-Unit for Clients - (www.bloomberg.com)
Gold Climbs to Near Eight-Week High as Dollar Drop Spurs Demand - (www.bloomberg.com)
Fleeing Investors Put a Strain on Funds - (www.nytimes.com)
More banks reveal Madoff exposure - (www.reuters.com)
A Palm Beach Enclave, Stunned by an Inside Job - (www.nytimes.com)

Household Net Worth in U.S. Declines Most on Record - (www.bloomberg.com)
SF feels pain of real estate meltdown - much more to come - (www.sfgate.com)
Why house prices might not ever recover - (PDF - i.usatoday.net)
Houseowners less happy than renters - (PDF - real.wharton.upenn.edu)

Fed mulls interest rate cut, maybe to all-time low - (www.signonsandiego.com)
Job cuts adding to growing number of housing defaults - (www.usatoday.com)
Home values to lose well over $2 trillion during 2008: Zillow - (www.reuters.com)
Goldman Sachs Shares Morgan Stanley’s Pain as Prospects Darken - (www.bloomberg.com)
Annus Horribilis Peaks in Anxiety for Global Economy - (www.bloomberg.com)
Do You Know Where Your Money is? - (optionarmageddon.ml-implode.com)
Ponzi Nation - (www.businessweek.com)
Visual guide to the bailout - (blog.mint.com)