Friday January 1 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Moody's downgrades Illinois debt ratings - (www.reuters.com) Moody's Investors Service on Tuesday downgraded Illinois' general obligation bond rating to A2 from A1, citing the state's financial woes stemming from the U.S. recession. Moody's cut other Illinois ratings, affecting about $24 billion of outstanding debt, including the state's Build Illinois sales tax revenue bonds, also cut to A2 from A1. The downgrade gave Illinois the second lowest U.S. state rating from Moody's, with California having the lowest at Baa1, a Moody's spokesman said. Moody's said Illinois has yet to take action to tackle a structural budget gap of more than $11 billion, equal to about 35 percent of its expenditures. "The downgrades are the result of high structural imbalances and little time to effect modifications to the budget in the current fiscal year, which ends June 30, 2010, as well as evidence of significant weakening in the state's 2009 results," Moody's said in a statement. With an 11 percent jobless rate in October, Illinois was among half a dozen U.S. states with double digit unemployment. Other states, such as California and Michigan have also suffered debt rating downgrades this year as the recession and unemployment punched holes in their budgets. Moody's revised the outlook for Illinois' GO and related ratings to negative, "reflecting the continuing likelihood of large structural budget deficits, growing negative year-end fund balances, strained operating fund liquidity and mounting pressure from pension and retiree health benefit obligations." Moody's put the state on review for a potential downgrade shortly after Illinois enacted its fiscal 2010 budget in July. UNPAID BILLS: Other rating agencies took action on Illinois' GO rating this summer. Standard & Poor's Ratings Services rates Illinois AA-minus with a negative outlook it gave the state in August. Fitch Ratings dropped Illinois' rating two notches to A in July, citing the state's "large structural budget deficit." With Illinois facing a growing backlog of unpaid bills, Governor Pat Quinn has proposed a $500 million cash-flow borrowing, which would add to the $2.25 billion in outstanding short-term borrowing the state must pay off in June. A spokesman for Quinn did not immediately respond to a request for comment on the downgrades. Illinois has slated a nearly $155 million Build Illinois competitive sale for Thursday, followed by a $375 million negotiated sale through Cabrera Capital Markets next week.

Dubai's stock market closes at 38-week low‎ - (www.arabianbusiness.com) Dubai's index tumbled to a 38-week low as widespread confusion about the emirate's debt problems spurred more panic selling. Most heavyweight stocks fell by almost 10 percent, the maximum allowed, and with no buyers coming in at these levels, trading was moribund for much of the session. Emaar Properties dropped 9.9 percent and Dubai Islamic Bank and Dubai Investment Co each lost 10 percent. The index fell 6.4 percent to 1,533 points, its lowest close since March 19. "All Dubai-related companies will find it hard to raise finance and I think it will be harder for the Gulf as a whole," said Keith Edwards, head of asset management at Doha-based investment company The First Investor. "(Dubai World's restructuring) will raise the cost of capital for Dubai property and investment companies." Abu Dhabi's index slumped to a 32-week low as stocks tumbled, led by banks and real estate. These were the two most liquid sectors and so are easiest for investors to offload. Sorouh Real Estate and Aldar Properties each dropped more than 9 percent, while Abu Dhabi Commercial Bank reversed early gains to end 8.2 percent lower. The index fell 2.8 percent to 2,467 points. The cost of insuring Dubai's debt against restructuring or default rose sharply as investors grew increasingly nervous about Dubai World's $26bn restructuring. Saudi Arabia's index suffered its largest 1-day loss since October 31, slumping to a 12-week low as Dubai's debt worries sent Middle East markets tumbling.

Britain Slaps Banks With 50% Tax on Bonuses - (www.cnbc.com) British finance minister Alistair Darling set the stage for the coming election, announcing on Wednesday a one-off super tax on bank bonuses and other higher taxes on the rich. His Labour Party is on course to lose an election that must take place in less than six months and desperately needs this pre-budget report to help close the opposition Conservative Party's commanding lead in opinion polls. But the recession has turned out to be much deeper than forecast in April and Darling had to revise up his borrowing forecast for this fiscal year to a record 177.6 billion pounds ($290 billion) or 12.6 percent of GDP, from 175 billion. Borrowing for 2010/11 was also revised up by 3 billion pounds to 176 billion pounds. Though Darling stuck to his economic growth forecast for next year of 1 to 1.5 percent he was forced to admit he expected the economy to shrink 4.75 percent in 2009, instead of the 3.25 to 3.75 percent decline originally predicted. "Because of the underlying strength of our economy, the pick-up in world demand, and the substantial spare capacity opened up by the recession, my Budget forecast ... of growth of 3.5 percent in 2011 and 2012 remains unchanged," Darling said. With little money to spend on giveaways when markets are very keen to see more measures to get the record budget deficit down Labour turned up the heat on bankers who many blame for Britain's worst recession since World War Two. Bank Bonus Hit: Darling said banks would be charged a 50 percent tax rate on bonuses they pay to their staff above 25,000 pounds starting today until April 5, 2010, a powerful disincentive for big payouts in this year's Christmas bonus round. The new tax would apply to all banks, building societies and branches of foreign banks operating in Britain. The government hopes the move will encourage banks to use additional cash to shore up their capital bases, rather than pay high salaries. But banking groups have warned that penalizing high earners in the financial sector will lead to an exodus of talent overseas. European Central Bank Governing Council member Axel Weber said late on Tuesday that a windfall tax on bankers' bonuses would not be effective in encouraging less risky behavior among banks in the long term.

EU Ready to Bailout Greece; Debt Downgrades in Baltic States; Can Euroland Even Survive? - (Mish at globaleconomicanalysis.blogspot.com) Euro bulls need to consider the implications of an EU bailout of Greece or the implosion of Eastern European debt in Lithuania and Latvia. Some are even wondering about the prospects of Euroland itself. With that backdrop please consider Almunia Says EU Officials Ready to Assist Greece in Budget Plan. The European Commission “stands ready to assist the Greek government in setting out the comprehensive consolidation and reform program, in the framework of the treaty provisions for euro-area member states,” said Joaquin Almunia, who is in charge of economic and monetary affairs, in a statement late yesterday. He didn’t say what form any assistance could take. Almunia’s comments come as investors debate whether EU governments would bail out Greece if it was unable to pay its bills. Former German Finance Minister Peer Steinbrueck said in February that euro members would “in reality” rescue states in difficulty. Almunia said yesterday Greece “is a matter of common concern” for euro nations, echoing language he has used since November. He didn’t elaborate further. “The situation in Greece is very difficult,” European Central Bank President Jean-Claude Trichet said Dec. 7. “We all know the figures, and we all know the very important, courageous decisions that have to be taken to put the situation back on track.” Greece Government Bonds Tumble: Bloomberg is reporting Greece Government Bond Tumble Fails to Entice Pictet, Frankfurt. The biggest drop in Greece bonds in more than a decade isn’t enough to entice some of Europe’s biggest fixed-income investors amid deepening concern the nation won’t be able to fix its deteriorating finances. Frankfurt-Trust Investment GmbH, Smith & Williamson Investment Management and Pictet Asset Management, which manage a combined $100 billion, say they are not ready to buy even after the biggest tumble in two-year notes since 1998. Standard & Poor’s put the nation’s debt on watch for a downgrade two days ago, and Fitch Ratings followed yesterday by cutting Greece’s credit rating one level to BBB+ from A-. S&P said two days ago Greece’s debt burden may climb to 125 percent of gross domestic product in 2010, the largest among the 27 European Union nations, and stay at that level or higher in the “medium term.” Fitch cited “concerns over the medium-term outlook for public finances given the weak credibility of fiscal institutions and the policy framework.” Downward Pressure on Latvia and Lithuania: According to Fitch, Baltic Ratings Remain Under ‘Downward Pressure’: Fitch Ratings said Latvia and Lithuania’s sovereign ratings remain under “downward pressure” as the Baltic states’ economic plight sends their deficit and debt levels higher. Latvia’s BB+ rating, the highest non-investment grade, and Lithuania’s BBB rating, two levels above junk, are more at risk of a downgrade than Estonia’s BBB+ rating, Fitch said in a statement today. The Baltic states are suffering the deepest economic contractions in the European Union after their debt-fueled property bubbles burst and their governments forced through tough austerity measures. Can Euroland Survive?: The Levy Economics Institute of Bard College is asking Can Euroland Survive? Social unrest across Europe is growing as Euroland’s economy collapses faster than theUnited States’, the result of falling exports and a weaker fiscal response. The controversial title of this brief is based on a belief that the nature of the euro itself limits Euroland’s fiscal policy space. The nations that have adopted the euro face “market-imposed” fiscal constraints on borrowing because they are not sovereign countries. Research Associate Stephanie A. Kelton and Senior Scholar L. RandallWray foresee a real danger that these nations will be unable to prevent an accelerating slide toward depression that will threaten the existence of the European Union (EU).

Dubai utility faces $2bn debt demand - (www.ft.com) The credit downgrades of Dubai’s government-owned companies have triggered an accelerated payment clause on a $2bn debt issued by the emirate’s utilities provider. Dubai Electricity and Water Authority’s $2bn securitisation programme, Thor Asset Purchase Company, an instrument originally maturing in 2036, may have to be redeemed in full on December 14 – the day Dubai World’s property developer, Nakheel, is due to redeem a $4bn Islamic bond, or sukuk. The payment acceleration underlines how Dubai’s attempts to restructure $26bn of debts at the Dubai World conglomerate is spreading to other, healthier parts of the economy. The Dubai Financial Market fell a further 6.1 per cent and the cost of insuring Dubai debt against default rose sharply. Gains of 22 per cent this year have been wiped out in four brutal trading sessions. Government officials have been eager to distance themselves from the debts of Dubai World. But DEWA, the emirate’s only utility provider, enjoys explicit government backing and a sovereign guarantee. The utility is seen as one of the emirate’s more solid companies, with healthy cash flows, and analysts expect the repayment to be met or renegotiated. Dubai’s department of finance said: “DEWA is a government company. Its debt is sovereign and the government remains 100 per cent committed to meeting its sovereign debt obligations.” Fitch was the first to downgrade the Thor instrument on November 30 to below the single A grade, triggering the payment acceleration, but has kept it at BBB-, or investment grade. “The economic uncertainty in Dubai has soured our view of the sovereign capacity to meet its commitments,” said Jaime Sanz, Fitch’s head of emerging markets structured finance. “The creditors can agree to a waiver on the acceleration, but whether it constitutes a default depends on the terms.”

Former BOE Official Buiter Says Greece May Be First EU Default - (www.bloomberg.com) Former Bank of England policy maker Willem Buiter said Greece may be the first major country in the European Union to default on its debts since the aftermath of World War II. “It’s five minutes to midnight for Greece,” Buiter, who will join Citigroup Inc. as its chief economist next month, said in a Bloomberg Television interview today. “We could see our first EU 15 sovereign default since Germany had it in 1948.” The EU’s economic affairs commissioner said late yesterday that officials are ready to help Greece with its budget deficit after concerns about its public finances sparked a rout in Greek government bonds. Fitch Ratings cut its rating on the nation’s debt yesterday to BBB+ and two other major ratings companies are threatening to follow. “Default is not unavoidable,” Buiter said. “But unless there are radical fiscal actions, lasting cuts in spending and tax increases of at least 7 percent of GDP, the writing is on the wall” for Greece. There’s “absolutely” no risk Greece will default, Finance Minister George Papaconstantinou said in an interview today with Bloomberg Television. Greek banks are “fundamentally sound” and Greece will not seek an EU aid package, he said. Greece, the lowest-rated country in the euro region, is struggling to cut a budget deficit of 12.7 percent of gross domestic product.

Ireland to Appease ‘Vigilantes’ as Greece Punished - (www.bloomberg.com) Ireland is poised to show Greece a way to cut ballooning budget deficits. Finance Minister Brian Lenihan will today announce plans to cut spending by 6 percent in the face of the worst recession in Ireland’s modern history. On the other side of Europe, the yield on Greece’s two-year note yesterday rose the most since November 2008 as it struggles to convince investors it will be as bold. Lenihan is trying to shore up confidence in Ireland, once Europe’s most dynamic economy, a day after Fitch Ratings cut Greece by one step to the third-lowest investment grade. A successful strategy may lead investors to reward Ireland and add pressure on Greece to follow. “The bond vigilantes are back and watching,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. “Greece is a worst-case scenario, Ireland’s more solid.” Lenihan is scheduled to deliver the budget at 3:45 p.m. to the parliament in Dublin, his fifth attempt since July 2008 to fix the public finances. He’s seeking 4 billion euros ($6 billion) in savings to stop the shortfall climbing above 12 percent of gross domestic product. ‘Medicine’: “It is going to be a very difficult budget, but it’s the last of the very difficult budgets,” Lenihan said in an interview with Dublin-based broadcaster RTE late yesterday. “It’s important the public understand this. If we take the medicine now we will bring this economy out of its difficulties.” While Ireland has lost its top credit rating at Moody’s Investors Service and Standard & Poor’s, Greece is being pushed harder to act after Fitch yesterday cut it one step to BBB+, the third-lowest investment grade. The previous day S&P put the country’s A- rating on watch for a possible downgrade, signaling it may be reduced within two months.

OTHER STORIES:

Wholesale Inventories Rise Unexpectedly in October - (www.cnbc.com)

Mortgage Applications Rise to Two-Month High - (www.cnbc.com)

Fewer US Home Sellers Slicing Prices: Report - (www.cnbc.com)

Double-Digit Unemployment in California Until 2012 - (www.cnbc.com)

Jobs Bill in Congress Could Cost Up to $200 Billion - (www.cnbc.com)

Countries' Debt Woes Pose Risk to Upturn - (online.wsj.com)

Geithner Said to Be Seeking TARP Extension Until Next October - (www.bloomberg.com)

U.S. bailout fund left many problems unsolved: watchdog - (www.reuters.com)

Darling Imposes 50% Tax on Banks for U.K. Bonuses - (www.bloomberg.com)

Greece Downgrades May Hinder Banks Seeking ECB Loans - (www.bloomberg.com)

China Said to Plan 8 Trillion Yuan Loans Cap for 2010 - (www.bloomberg.com)

Darling May Tax Bonuses, Raise Debt as Election Nears - (www.bloomberg.com)

Japan Economy Grows 1.3%, Less Than Initial Estimate of 4.8% - (www.bloomberg.com)

China Had ‘Good Reason’ to Depreciate Yuan, Zhu Says - (www.bloomberg.com)

Action on job proposals may wait till next year - (www.washingtonpost.com)

Wells Fargo TARP Repayment May Be Hindered by Prudential Stake - (www.bloomberg.com)

Thursday December 31 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

Board to Propose More Flexible Accounting Rules for Banks (www.nytimes.com) Facing political pressure to abandon “fair value” accounting for banks, the chairman of the board that sets American accounting standards will call Tuesday for the “decoupling” of bank capital rules from normal accounting standards. His proposal would encourage bank regulators to make adjustments as they determine whether banks have adequate capital while still allowing investors to see the current fair value — often the market value — of bank loans and other assets. In the prepared text of a speech planned for a conference in Washington, Robert H. Herz, the chairman of the Financial Accounting Standards Board, called on bank regulators to use their own judgment in allowing banks to move away from Generally Accepted Accounting Principles, or GAAP, which his board sets. “Handcuffing regulators to GAAP or distorting GAAP to always fit the needs of regulators is inconsistent with the different purposes of financial reporting and prudential regulation,” Mr. Herz said in the prepared text. “Regulators should have the authority and appropriate flexibility they need to effectively regulate the banking system,” he added. “And, conversely, in instances in which the needs of regulators deviate from the informational requirements of investors, the reporting to investors should not be subordinated to the needs of regulators. To do so could degrade the financial information available to investors and reduce public trust and confidence in the capital markets.” Mr. Herz said that Congress, after the savings and loan crisis, had required bank regulators in 1991 to use GAAP as the basis for capital rules, but said the regulators could depart from such rules. Banks have argued that accounting rules should be changed, saying that current rules are “pro-cyclical” — making banks seem richer when times are good, and poorer when times are bad and bank loans may be most needed in the economy.

A lonely voice against the Fed now leads a chorus - (www.washingtonpost.com) Rep. Ron Paul's attempt to rein in central bank is finally close to passing -- just don't expect him to vote for it. Ron Paul is used to going it alone. During 20 years in Washington, the libertarian Republican congressman from Texas has proposed doing away with personal income taxes, federal antitrust laws and the minimum wage. He's advocated pulling the United States out of the United Nations, NATO and the International Monetary Fund. Those efforts have mostly been legislative non-starters. Many of his bills fail to attract a single co-sponsor. But one of his perennial causes is headed to the House floor Wednesday with widespread support: to audit the Federal Reserve. That measure, which he first introduced in 1983, has the backing of more than 300 legislators and last month won bipartisan approval in the House Financial Services Committee. The proposal would subject the Fed to unprecedented scrutiny by allowing the Government Accountability Office to audit all central bank operations, including its decisions on interest rates, lending to individual banks and transactions with foreign central banks. Fed officials and many private economists have argued strenuously against the measure, saying it would threaten economic stability by undermining the central bank's independence from political pressure. "I'd like to know who they bail out and why," said Paul, who brought together a small cult following across the political spectrum in the last presidential election. "I'd like to know how much they pay for securities that they buy. Did they overpay? Why did Goldman Sachs come out well and Lehman Brothers go bankrupt?" Author of 'End the Fed': That Paul's proposal has garnered so much support despite opposition from the Obama administration is not so much a testament to his political prowess. Rather, it reflects populist discontent over an institution increasingly blamed for its failure to head off the financial crisis and for its role in rescuing large financial firms that helped cause it. "He's been dogged about it and stayed with it," said Steve H. Hanke, an economics professor at Johns Hopkins University. "The lesson in salesmanship is illustrated by Paul's actions. However, the consuming public is obviously ready to buy now. . . . There's just a great deal of skepticism out there. And in that environment, a bill that would require more transparency and less secrecy gets some traction." But Paul's critique of the Fed goes well beyond the lessons of the financial bailout. He believes market forces alone, not the Fed, should set interest rates. His best-selling book is called "End the Fed." He has a separate bill to abolish the Fed altogether. (He is the lone sponsor.) Paul said in an interview that his measure is strictly about transparency at the "all-powerful" Federal Reserve. "What they're talking about when they say they want no political influence, what they're talking about is they just want secrecy," Paul said. "Why would they be so nervous about us finding this out? It tells you there's something big going on."

Job-hopping reined in for young Americans - (www.ft.com) The recession has made younger Americans more conservative in their attitudes towards debt and employment, aligning their views more closely with those of their parents’ generation, according to a study. The number of Americans aged between 23 and 33 who now plan to stay with the same employer for life has almost doubled since last year. In the survey by Fidelity Investments, the financial services group, one in four say they plan to stay with a single employer, compared with 14 per cent last year. “The change in young workers’ mindsets has been remarkable,” said Brad Kimler, executive vice-president of Fidelity’s Consulting Services. “Historically, this generation has been much more mobile and always looking for the next opportunity.” However, heavy debts combined with the threat of unemployment had made younger people more reluctant to job hop, he said. This generation holds on average more than three credit cards, with a fifth owing more than $10,000 (€6,650, £6,060), according to the study of 1,017 employed young people. The survey also showed that saving for retirement had become more important, with about 18 per cent of the group saying it was their top spending priority compared with 13 per cent last year. “Attitudes and views towards their employers and finances are now more conservative and reflective of their parents’ generation,” Mr Kimler said. “Yet this generation will be faced with different challenges, including higher debt, greater responsibility for costs associated with benefits and less access to traditional pensions.” Shifts in young people’s behaviour is also becoming evident in the way they spend their money. “Young adults are incredibly nervous as a result of the recession,” said Ellen Davis, vice-president of the National Retail Federation. “This is especially true among 18-24-year-olds ... They are graduating from college and unable to find jobs, finding it hard to get credit and realising their parents can’t support them as much as planned.” While retailers geared towards teenagers and young adults generally outperformed the rest of the sector at the outset of the recession, their fortunes may be changing. Data last week showed that shops selling clothes for children and young people missed November sales estimates by the widest margin in the sector.

Greek Bonds Slide for Second Day on Mounting Downgrade Concern - (www.bloomberg.com) Greek bonds tumbled, with the yield on the two-year note rising the most since November 2008, on mounting concern the nation’s deteriorating finances may prompt a debt downgrade. The decline sent the yield on the two-year security to the highest level since May. Standard & Poor’s put Greece’s A- rating, the lowest among the 16 nations in the euro region, on watch for a possible downgrade yesterday, signaling it may be lowered within two months. The premium investors demand to hold Greek 10-year government bonds over German bunds, Europe’s benchmark securities, reached the widest level since April 21. “The negative outlook for the rating was the trigger for the move,” said Marc Ostwald, a strategist in London at Monument Securities Ltd., a broker for banks and investors. “Everyone is getting very, very negative” on Greece, he said. The yield on the two-year Greek note jumped 45 basis points to 2.52 percent, the highest level since May 4, as of 1:08 p.m. in Athens. The yield on the 10-year security climbed 24 basis points to 5.38 percent, the most since March 12. Greece’s socialist government, elected in October, plans to cut its budget deficit to 9.1 percent of gross domestic product next year from 12.7 percent this year. The plans, including one- off measures and a partial freeze on public-sector pay, “are unlikely by themselves to alter Greece’s medium-term fiscal dynamics,” given the prospects of high deficits, debt and sluggish economic growth, S&P said yesterday. European Union officials are increasing pressure on the Greek government to take lasting measures to reduce the deficit, the highest level this year in the 27-nation European Union. Greece is facing a “very difficult” situation and needs to take “courageous” decisions to counter the budget deficit, European Central Bank President Jean-Claude Trichet told the European Parliament in Brussels yesterday.

Dubai Stocks Slump Most in World on Debt Restructuring Concern - (www.bloomberg.com) Dubai shares tumbled, erasing almost all of this year’s gains, on investor concern that Dubai World is struggling to restructure debt. Emaar Properties PJSC, the United Arab Emirates’ biggest real-estate developer, slumped 9.8 percent and Emirates NBD PJSC retreated to the lowest since Sept. 3. The DFM General Index plunged 6.1 percent to 1,638.05. The measure, which closed at the lowest since July 13, has tumbled 22 percent since Dubai said on Nov. 25 that it was seeking a “standstill” agreement on Dubai World’s debt. Dubai World last week began talks with banks to restructure $26 billion of debt, including a $3.52 billion Islamic bond of property unit Nakheel PJSC maturing on Dec. 14. Dubai World held talks with its six main creditors yesterday, a banker familiar with the negotiations said. Debt restructuring by Dubai state- run companies may almost double to $46.7 billion as more of the emirate’s businesses could need help making payments, Morgan Stanley said. “Until there is some clarity on debt restructure, there won’t be any serious buyers,” said Julian Bruce, director of institutional equity sales at EFG-Hermes Holding SAE in Dubai. “The closer we get to the Nakheel deadline with no news, the worse it will be.” More Time: Dubai World may need more than six months to complete its restructuring, Abdulrahman Al Saleh, director general of Dubai’s Department of Finance, told Al Arabiya TV channel today. “The six months period will be short for a complete restructuring,” he said. “The focus at this stage will be on the borrowers and contractors.”

Bankers warn of exodus on windfall tax - (www.ft.com) The banking industry rounded angrily on Monday on reports that the government plans to introduce a windfall tax on bonuses, describing the proposals as a punitive measure that would trigger an exodus of financial services companies from the City. Alistair Darling is expected to include some form of “supertax” on bankers’ bonuses in his pre-Budget report on Wednesday, as Labour attempts to mark clear dividing lines with the Tories ahead of a general election next year. While details of any such scheme remained unclear late on Monday, the chancellor is said to be keen to send a shot across the bows of banks that are intending to distribute hefty awards to staff in the aftermath of the global financial crisis, when they were propped up by billions in taxpayers’ funds. Sources familiar with the Treasury’s plan said that Mr Darling intends to propose a one-off levy that is likely to raise hundreds of millions of pounds, rather than the £6bn figure mooted over the weekend. Government officials were still deliberating over whether to target investment banks’ bonus pools or individual bankers, although the levy will capture all banks operating in the UK, sources said. Angela Knight, chief executive of the British Bankers’ Association, accused the government of playing politics with the City’s future, saying it would send a message that London was no longer a competitive place for financial services.

OTHER STORIES:

Debt worries stalk European equities - (www.ft.com)

Bernanke Low Rates ‘Poison’ to U.S. Economy, Xie Says - (www.bloomberg.com)

Moody’s Says U.K., U.S. Aaa Ratings Relatively Weaker - (www.bloomberg.com)

CMBS Loan Defaults Rose to Record in Third Quarter - (www.bloomberg.com)

House Flipping Makes a Comeback - (online.wsj.com)

Repo dealers fear legislation will drain liquidity - (www.ft.com)

Debt Raters Avoid Overhaul After Crisis - (www.nytimes.com)

Hedge Funds Win Profit on Chicago Sewer Debt at Public Expense - (www.bloomberg.com)

Fitch Downgrades Greece to BBB+; Outlook Negative - (www.bloomberg.com)

Nakheel Had First-Half Loss of $3.65 Billion, Document Shows - (www.bloomberg.com)

Dubai state-linked companies hit by new downgrades - (finance.yahoo.com)

Japan unveils $80.6bn stimulus plan - (www.ft.com)

Dubai World Is Pressured to Sell Assets - (www.nytimes.com)

German Industrial Production Unexpectedly Declines - (www.bloomberg.com)

India's vehicle sales surge 72 percent in Nov - (finance.yahoo.com)

Bernanke Sees ‘Formidable Headwinds’ for Economy, Tight Credit - (www.bloomberg.com)

Obama preparing new push to add jobs, tackle deficit - (www.washingtonpost.com)

Consumer Credit Fell in October for a Ninth Month (www.nytimes.com)

Citigroup Said to Push for Bailout-Payback Agreement This Week - (www.bloomberg.com)

Dark Side of a Natural Gas Boom (www.nytimes.com)

Congress Is the Drunk at the Fed’s Punch Bowl: Roger Lowenstein - (www.bloomberg.com)

Wednesday December 30 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

James Grant Suggests Life in Prison for Bernanke - WSJ.com - (online.wsj.com) Ben S. Bernanke doesn't know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? If the U.S. Senate so determines, it may send Mr. Bernanke back home to Princeton. But not even Ron Paul, the Texas Republican sponsor of a bill to subject the Fed to periodic congressional audits, is calling for the Federal Reserve chairman's head. I wonder, though, just how far we have really come in the past 200-odd years. To give modernity its due, the dollar has cut a swath in the world. There's no greater success story in the long history of money than the common greenback. Of no intrinsic value, collateralized by nothing, it passes from hand to trusting hand the world over. More than half of the $923 billion's worth of currency in circulation is in the possession of foreigners. In ancient times, the solidus circulated far and wide. But it was a tangible thing, a gold coin struck by the Byzantine Empire. Between Waterloo and the Great Depression, the pound sterling ruled the roost. But it was convertible into gold—slip your bank notes through a teller's window and the Bank of England would return the appropriate number of gold sovereigns. The dollar is faith-based. There's nothing behind it but Congress. But now the world is losing faith, as well it might. It's not that the dollar is overvalued—economists at Deutsche Bank estimate it's 20% too cheap against the euro. The problem lies with its management. The greenback is a glorious old brand that's looking more and more like General Motors. You get the strong impression that Mr. Bernanke fails to appreciate the tenuousness of the situation—fails to understand that the pure paper dollar is a contrivance only 38 years old, brand new, really, and that the experiment may yet come to naught. Indeed, history and mathematics agree that it will certainly come to naught. Paper currencies are wasting assets. In time, they lose all their value. Persistent inflation at even seemingly trifling amounts adds up over the course of half a century. Before you know it, that bill in your wallet won't buy a pack of gum. For most of this country's history, the dollar was exchangeable into gold or silver. "Sound" money was the kind that rang when you dropped it on a counter. For a long time, the rate of exchange was an ounce of gold for $20.67. Following the Roosevelt devaluation of 1933, the rate of exchange became an ounce of gold for $35. After 1933, only foreign governments and central banks were privileged to swap unwanted paper for gold, and most of these official institutions refrained from asking (after 1946, it seemed inadvisable to antagonize the very superpower that was standing between them and the Soviet Union). By the late 1960s, however, some of these overseas dollar holders, notably France, began to clamor for gold. They were well-advised to do so, dollars being in demonstrable surplus. President Richard Nixon solved that problem in August 1971 by suspending convertibility altogether. From that day to this, in the words of John Exter, Citibanker and monetary critic, a Federal Reserve "note" has been an "IOU nothing."

CIA Given Power to Search UK Bank Records - (www.timesonline.co.uk) THE CIA is to be given broad access to the bank records of millions of Britons under a European Union plan to fight terrorism. The Brussels agreement, which will come into force in two months’ time, requires the 27 EU member states to grant requests for banking information made by the United States under its terrorist finance tracking programme. In a little noticed information note released last week, the EU said it had agreed that Europeans would be compelled to release the information to the CIA “as a matter of urgency”. The records will be kept in a US database for five years before being deleted. Critics say the system is “lopsided” because there is no reciprocal arrangement under which the UK authorities can easily access the bank accounts of US citizens in America. They also say the plan to sift through cross-border and domestic EU bank accounts gives US intelligence more scope to consult our bank accounts than is granted to law enforcement agencies in the UK or the rest of Europe. In Britain and most of Europe a judge must authorise a specific search after receiving a sworn statement from a police officer. This weekend civil liberties groups and privacy campaigners said the surveillance programme, introduced as an emergency measure in 2001, was being imposed on Britain without a proper debate. Shami Chakrabarti, director of Liberty, said: “The massive scope for transferring personal information from Europe to the United States is extremely worrying, especially in the absence of public debate or parliamentary scrutiny either at EU or domestic level. “No one is saying that allies should not co-operate, but where is the privacy protection? Where are the judicial safeguards in such a sweeping scheme? “This looks like yet another example of lopsided post-9/11 compromise and of the ease with which temporary emergency measures are foisted on us permanently.”

SEC charges ex-N.Century execs in subprime case - (www.news.yahoo.com) Three former executives at now-bankrupt lender New Century Financial Corp were charged with fraud by U.S. securities regulators on Monday, the latest government effort to pursue wrongdoing in the subprime mortgage market. The U.S. Securities and Exchange Commission accused the three executives of trying to disguise New Century's rapidly deteriorating performance from investors while releasing weekly internal reports entitled "Storm Watch." The 2007 failure of New Century, one of the largest independent providers of home loans to people with poor credit, rippled across the U.S. mortgage lending industry. It was a forerunner of failures to come as lenders booked losses on billions of dollars of mortgages and mortgage-linked securities at the heart of the global financial crisis. The SEC is seeking civil penalties and disgorgement of funds from former New Century Chief Executive Brad Morrice, former Chief Financial Officer Patti Dodge, and former Controller David Kenneally. The action follows civil fraud and insider trading charges filed in June by the SEC against prominent banker Angelo Mozilo of Countrywide Financial, who built the largest U.S. mortgage lender. The SEC said New Century sought to assure investors that its business was not at risk and failed to disclose dramatic increases in early loan defaults, loan repurchases and pending loan repurchase requests. "New Century shareholders took a double-hit: The company's mortgage assets and business performance became increasingly impaired, and management manipulated its numbers and concealed its deteriorating performance," SEC enforcement director Robert Khuzami said in a statement. The agency charged that Dodge and Kenneally fraudulently accounted for expenses related to bad loans that New Century had to repurchase. The defendants' actions caused investors substantial losses, the SEC charged. After announcing in February 2007 that it would have to restate its 2006 financial statements, New Century's stock price fell 36 percent to about $19. The stock traded for less than $1 when New Century sought bankruptcy protection in April 2007. A spokesman for a law firm representing Morrice said the allegations against him are "flatly false" and will be proved as such at trial. He said Morrice lost millions of dollars in New Century stock and was "among the biggest victims of the company's collapse." An attorney for Kenneally said he was "a hardworking accountant who was still quite new at New Century and lost every penny he ever invested in the company he believed in."

Detroit-Area Real Estate Ponzi Scheme - (www.dsnews.com) Early Friday morning, Rita Gosselin of Grosse Ile, Michigan was arrested after being accused of defrauding dozens of people in a massive real estate ponzi scheme, Attorney General Mike Cox announced. Gosselin is charged with racketeering, multiple counts of obtaining money under false pretenses for orchestrating numerous fraudulent real estate investments, and stealing hundreds of thousands of dollars from Michigan families. Gosseline allegedly orchestrated this real-estate investment ponzi scheme between April 2007 and September 2008 in metro-Detroit. She is accused of enticing investors with claims that she was able to purchase foreclosed and distressed properties in bulk and said she was able to renovate the homes to sell at a profit. Gosselin guaranteed regular monthly payments and allegedly provided investors with promissory notes as a security for these investments. According to reports, few investors received any of the promised payments, and all of the investors lost some, if not all of the money they invested. It is estimated that Gosselin’s scam may have taken in nearly $500,000 from as many as 20 victims. “Taking advantage of Michigan families, especially in today’s economy, will not be tolerated,” said Cox, who has made prosecuting mortgage and real estate fraud a priority for his office. In 2008, he created a mortgage fraud unit and joined forces with Michigan state police and other law enforcement agencies to tackle this problem. After her arrest Friday morning, Gosselin was arraigned in the 33rd District Court in Woodhaven before Judge Michael McNally. The court imposed a $300,000 cash bond and scheduled a preliminary examination of this case for December 15. Gosselin is charged with one count of continuing criminal enterprise, otherwise known as racketeering, a felony punishable up to 20 years in prison and three counts of false pretenses over $20,000, each a 10-year felony.

Houseowners are getting hit a second time - (www.silive.com) A new foreclosure tactic, whereby lenders or debt collectors holding second mortgages freeze bank accounts or garnish pay checks of already struggling homeowners, is emerging and making it even more difficult for people to hold onto their homes. Lawyers for troubled Staten Island homeowners say they are beginning to see examples of clients who go to the bank to take out money and find that their accounts have been frozen or wiped out by other banks or debt collectors -- the entities holding second mortgages on houses already in default on the first and primary mortgage. Some are learning the lender or debt collector has already gone to court and secured a judgment to garnish paychecks. It's a move more in line with the traditional debt collection industry, which typically targets credit card debt, and it's dragging the house and what little cash reserves people often have into the foreclosure battleground. Experts say it's an end-run by second lien holders around the traditional foreclosure process, which involves only the first mortgage holder and provides important legal protections for the homeowner. "It's a fast and dirty process," Margaret Becker, lead attorney with the Homeowner Defense Project of Staten Island Legal Services in St. George, said of the new trend. So far, she said, she's taken on two cases and she's heard similar stories from other attorneys. In several emerging tales, homeowners say they learned about the garnishments only after their bank accounts dropped into the negative or paychecks diminished. And that is making it even more difficult for people to pay bills and modify the terms of the first mortgage to save homes from foreclosure. Homeowners being targeted often include the most troubled, or people who are behind on payments and whose homes are worth less than what is owed on the house. "It just takes their money away so they don't have any money to afford a (loan) modification," Ms. Becker said of those who have been hit with judgments from second lien holders. She is representing an Arden Heights woman who was talking to her bank about modifying the loan on her first mortgage. Then a debt collector, which bought the second mortgage on the house, won a judgment to garnish 10 percent of the woman's paycheck. That has jeopardized a good shot at a loan modification, said Ms. Becker.

Kaufman warns of commodities bubble - (www.reuters.com) A bubble has formed in commodities as "speculative fervor" returns to markets after the global financial crisis, veteran Wall Street economist Henry Kaufman said on Monday. "There are bubbles in commodities," and probably in the gold market as well, Kaufman, president of financial consulting firm Henry Kaufman & Co Inc in New York, told the Reuters Investment Outlook Summit in New York. He cited the return of leveraged bets as one driver. Because commodity markets are small compared with some other financial markets, comparatively modest shifts out of other assets could increase the risks in commodity markets, he said. Kaufman also cited some risks to the U.S. dollar and said it is debatable whether the dollar is bottoming, though he added that the currency's retreat has so far been orderly, and that inflation is not likely to be a problem for the foreseeable future. However, the "speculative fervor" where participants are borrowing heavily in short-dated markets "might be a risk for the dollar," Kaufman said. Investors, spurred by near-zero U.S. interest rates and easy availability of funds, have borrowed huge sums of money in dollars in recent months to purchase higher-yielding assets in so-called "carry trades." Kaufman said he did not expect the U.S. government to take any action to stabilize the dollar. Longer term, if the U.S. economic recovery is more anemic than that in some other major economies, that will weigh more on the dollar, he added, citing the area between 80 yen and 85 yen per dollar as a "testing point." Despite some analysts' concerns that the huge amount of U.S. government debt issuance will ultimately pummel the dollar and push U.S. government bond yields steeply higher, Kaufman expects the 30-year Treasury bond's yield will rise only moderately to about 5.5 percent by early 2011, from about 4.4 percent now.

U.S. Scientific Community Circa 1975: 'The Coming Ice Age!' - (www.forbes.com) Many of you are too young to remember, but in 1975 our government pushed "the coming ice age." Random House dutifully printed "THE WEATHER CONSPIRACY … coming of the New Ice Age." This may be the only book ever written by 18 authors. All 18 lived just a short sled ride from Washington, D.C. Newsweek fell in line and did a cover issue warning us of global cooling on April 28, 1975. And The New York Times, Aug. 14, 1976, reported "many signs that Earth may be headed for another ice age." OK, you say, that's media. But what did our rational scientists say? In 1974, the National Science Board announced: "During the last 20 to 30 years, world temperature has fallen, irregularly at first but more sharply over the last decade. Judging from the record of the past interglacial ages, the present time of high temperatures should be drawing to an end…leading into the next ice age." You can't blame these scientists for sucking up to the fed's mantra du jour. Scientists live off grants. Remember how Galileo recanted his preaching about the earth revolving around the sun? He, of course, was about to be barbecued by his leaders. Today's scientists merely lose their cash flow. Threats work. In 2002 I stood in a room of the Smithsonian. One entire wall charted the cooling of our globe over the last 60 million years. This was no straight line. The curve had two steep dips followed by leveling. There were no significant warming periods. Smithsonian scientists inscribed it across some 20 feet of plaster, with timelines. Last year, I went back. That fresco is painted over. The same curve hides behind smoked glass, shrunk to three feet but showing the same cooling trend. Hey, why should the Smithsonian put its tax-free status at risk? If the politicians decide to whip up public fear in a different direction, get with it, oh ye subsidized servants. Downplay that embarrassing old chart and maybe nobody will notice. Sorry, I noticed. It's the job of elected officials to whip up panic. They then get re-elected. Their supporters fall in line.

OTHER STORIES:

Sharp Reversal in Gold - (www.marketwatch.com)

Reuters: The Great American Credit Contraction Rolls On - (www.reuters.com)

UK Economy to Drop from World's Top 10(China, Italy & France Ahead) - (www.independent.co.uk)

Review - For Liberty: How the Ron Paul Revolution Watered the Whithered Tree of Liberty - (www.dailypaul.com)

Housing Market's Still In Trouble - (www.noozhawk.com)

Homeowner bailout plan may not stop US housing market crash - (www.timesonline.co.uk)

How Has Reform Affected Bankruptcy During Recession? - (www.miller-mccune.com)

Loan Defaults Could Top 5% in 2010 - (www.globest.com)

Foreclosures Can Offer Deals, but Buyer Beware - (www.nytimes.com)

Banks Take Losses on Short Sales as Foreclosures Soar - (www.bloomberg.com)

Here's how foreclosure sales really work - (www.heraldnet.com)

Who Holds the Elusive Option ARMs? - (www.financemymoney.com)

Could a more affordable life, away from Bay Area, be better? - (www.sfgate.com)

Non Performing Loans: Lessons from Japan - (www.seekingalpha.com)

Wall Street's losses were businessman's gain - (www.miamiherald.com)

Shaving real estate commissions can save sellers thousands - (www.latimes.com)

Commercial Real Estate at the end of 2009 - (www.axisoflogic.com)

How Markets Fail: the Logic of Economic Calamities - (www.telegraph.co.uk)

Health reform from surgeon's point of view - (www.starnewsonline.com)

Tuesday December 29 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

California's Debt May be a half a trillion dollars - (www.sacbee.com) Just days before Gov. Arnold Schwarzeneggerand legislators finalized a water package, including an $11.1 billion bond issue, state Treasurer Bill Lockyer warned them not to do it. California is already deeply in debt, Lockyer warned, has huge budget deficits and can't afford another big bond issue. "The days of blithely heaping more and more debt burden on the general fund are over – at least they should be," Lockyer said. The earmark-laden bond issue, the package's single most controversial element, raises an interesting question: Just how deeply in debt are our state and local governments? The answer: No one knows for certain, since debt is scattered through myriad agencies in many forms, but well over a half-trillion dollars is a fair estimate. Lockyer's warning pertained to the state's "general obligation debt," which currently stands at $59 billion, and there are an additional $50-plus billion in general obligation bonds that have not yet been sold. The biggest chunks of debt, however, are the unfunded obligations for pensions and health care of retired public employees. The latest annual pension report from the state controller covers 2006, when the unfunded liability was $64 billion. But since then, state and local pension funds have lost at least $150 billion on investments, so a reasonable estimate of today's unfunded liability is $200-plus billion. A state commission, meanwhile, says the state-local liability for retiree health care is about $100 billion. No one keeps complete data on local government general obligation debt, but it appears to be roughly the same as the state's, perhaps $50 billion, plus several billion dollars in debt incurred by local redevelopment agencies. There are tens of billions in specialized state debt, such as veteran home loan bonds, "securitization" of tobacco lawsuit proceeds, and budget deficit bonds. The interest that must be paid on all that state and local debt is probably an additional $100 billion, so we're already talking about well over $500 billion. Then there are the off-the-books debts incurred to paper over years of state budget deficits, such as speeding up tax collections that will have to be refunded later, postponing periodic payments to schools, making promises to schools about levels of future financing, borrowing money from special funds and taking local government funds that must be repaid later. The state's unemployment insurance fund, meanwhile, is about $7 billion in the red, and that deficit is expected to more than double in the next year and quadruple by the end of 2011. The state has been borrowing from the federal government, but sooner or later it will have to repay the feds, probably by taxing employers. Conservatively, then, California is probably more than $600 billion in debt. Perhaps we shouldn't sweat another $11.1 billion. Or perhaps it will be the straw that breaks our back.

If You Thought the Housing Meltdown Was Bad - (www.escapefromamerica.com) …wait until you see what’s in the cards for commercial real estate. That’s right, the next train wreck will be in commercial real estate. Couldn’t be worse than last year’s residential market crash? That remains to be seen. But it’s coming soon, probably as early as the second quarter of next year, and there’s nothing that can prevent it. The government will intervene, trying desperately to delay the day of reckoning, and may even succeed. For a while. But make no mistake about it, that train is going off the tracks no matter what. Every part of the sector – from multifamily apartment buildings to retail shopping centers, suburban office buildings, industrial facilities, and hotels – has accumulated a huge amount of defaulted or nonperforming paper. It’s an impossible, swaying structure that cannot long stand. Just ask Andy Miller. Andy is one of the most knowledgeable people around when it comes to commercial real estate. Co-founder of the Miller Fishman Group of Denver, he has spent twenty years buying and developing apartment communities, shopping centers, office buildings, and warehouses throughout the country. He’s also worked extensively – especially lately – with asset managers and special servicers (those who handle commercial mortgage-backed securities, or CMBS) from insurance companies, conduits, and the biggest banks in the U.S., advising them on default scenarios, helping them develop realistic pricing structures, and making hold or sell recommendations. It isn’t easy. Commercial real estate sales are off a staggering 82% in 2009, compared with 2008, and last year was worse than ’07. No one is selling at depressed prices, but it hardly matters as there are no buyers, either because they’re afraid of the market or can’t meet more stringent loan requirements. Two years ago, the value of all commercial real estate in the U.S. was about $6.5 trillion. Against that was laid $3-3.5 trillion in loans. The latter figure hasn’t changed much. But the former has sunk like a bar of lead in the lake, so that now between half and two-thirds of those loans will have to be written down, Andy estimates. “If the banks had to take that hit all at once, there wouldn’t be any banks,” he says. And it’s actually worse than that. As even average citizens became aware during the subprime meltdown, loans in recent years were bundled into exotic financial vehicles that could be sold and resold, a class generically known as conduits. These commercial mortgage-backed securities, while less well known than their cousins built upon home loans, are nonetheless ubiquitous.

Geithner: "none ... would have survived" - (www.blogs.reuters.com) Secretary Geithner acknowledges what most doomsdayers were saying last fall, that without the government’s extraordinary rescue measures, the entire financial system was on the verge of collapse. (Miller/Harper, Bloomberg) “None of [the big Wall Street insitutions] would have survived” had the government stood aside and let the crisis run its course, he said. “The entire U.S. financial system and all the major firms in the country, and even small banks across the country, were at that moment at the middle of a classic run, a classic bank run.” Some have said this recent financial crisis wasn’t as bad as the 1930s’. I disagree, and have posted the following chart to make the point. If you add JP Morgan and Wells Fargo to the chart, it looks much worse. Goldman and Morgan Stanley don’t have deposits, but did have $2 trillion in liabilities between them as of August 31, ‘08. Geithner made his point when asked about Blankfein and Gary Cohn’s comments to Bethany McLean that Goldman would have survived without government help. They need to tell themselves that to justify the stupendous compensation accruals they’ve put aside. It’s helpful that Geithner calls bull. But the right way to fix this isn’t to erect some clumsy compensation apparatus to control pay on Wall Street (which won’t affect Goldman anyway because they don’t qualify as having received extraordinary assistance). The right way is to let them fail, as messy as that would be. Additional resolution authority as envisioned in House/Senate legislation is helpful, but won’t do much good unless the size/complexity of these banks can be reduced dramatically before they’re on the verge of collapse…

Banks Take Losses on Short Sales as Foreclosures Soar - (www.bloomberg.com) Drew Schlosser tried for two years to sell his three-bedroom Punta Gorda, Florida, waterfront condominium for less than he owed on its two mortgages. The deal only went through last month when Wells Fargo & Co. agreed to take a $165,000 loss on the loans. Even after he had an offer of $155,000 for the property, it took five months for the San Francisco-based lender to approve the purchase, a so-called short sale, in which the bank accepts less than the balance owed on a property. Schlosser said earlier offers had fallen through as bidders lost faith the bank would take less than the $320,000 in two mortgages. “It was just kind of a mess,” said Schlosser, 31, a market research company director living in Estero, Florida. “You really have to get buyers who are patient.” Banks are beginning to go along with short sales in increasing numbers, three years into a U.S. housing slump that pushed the economy into a recession and cut resale values by 30 percent from the peak in July 2006. Short sales almost tripled to 40,000 in the first six months of 2009 from the same period a year earlier. Yet for each short sale, there were 25 foreclosures started or completed in the first half of this year, according to data from the Office of Thrift Supervision and the Office of the Comptroller of the Currency. “It’s really finally dawning on banks that they’re better off with a short sale,” said Richard Green, director of the Lusk Center for Real Estate at the University of Southern California in Los Angeles. “I think banks were in denial.” Obama Pressure: Wells Fargo, Bank of America Corp. and JPMorgan Chase & Co. this year have hired and trained more staff, developed software systems for expediting short sales, and increased marketing of short sales to delinquent borrowers. Banks are increasing such sales under pressure from the Obama administration and lawmakers who criticized them for favoring foreclosures and delaying short sales, Green said. Lenders and loan servicers also stand to receive up to $2,000 in incentives to close short sales under a Treasury Department plan unveiled Nov. 30.

Why Didn't Canada's Housing Market Go Bust? - (www.clevelandfed.org) Housing markets in the United States and Canada are similar in many respects, but each has fared quite differently since the onset of the financial crisis. A comparison of the two markets suggests that relaxed lending standards likely played a critical role in the U.S. housing bust. Despite their many points of similarity, housing markets in the United States and Canada have fared quite differently since the onset of the financial crisis. Unlike the U.S., Canada has not experienced a dramatic increase in mortgage defaults, nor has any Canadian bank required a government bailout. As a result, observers such as The Economist have pointed to Canada as “a country that got things right.” The different housing market outcomes in Canada and the U.S. can tell us something about the underlying causes of the housing boom and subsequent bust. In particular, they can be used to evaluate the roles that low interest rates and relaxed lending standards played in the boom and bust. Some observers blame monetary policy for lowering interest rates over 2002–2005, pushing up housing demand, increasing residential investment, and raising housing prices. In this view, the monetary-policy-induced housing boom thus set the stage for an inevitable housing bust.

Others contend that relaxed lending standards, highlighted by the rise in subprime lending, played a critical role. This loosening of standards led to an increase in housing demand, as mortgages were issued to households that were likely to have trouble making the mortgage payments. This extension of credit to risky borrowers helped fuel a housing boom and set the stage for the resulting surge in defaults, which were a big factor in the housing “bust.” The Canada and U.S. housing market comparison suggests that relaxed lending standards likely played a critical role in the U.S. housing bust. Monetary policy was very similar in both countries from 2000 to 2008, but housing prices rose much faster in the U.S. than in Canada. This suggests that some other factor both drove the more rapid appreciation in U.S. prices and set the stage for the housing bust. A likely candidate is cross-country differences in the structure and regulation of subprime lending markets. That mortgage delinquencies began to climb before the recession in the U.S. but only began to rise recently in Canada (after the economic slowdown began), points to the significance of those structural and regulatory differences in explaining the U.S. housing crash.

Canada has no mortgage interest deduction - (www.theglobeandmail.com) Canada is doing much better than the United States today on many fronts. The latest indicator came today in the form of unemployment data. U.S. payrolls shrank, albeit by significantly less than expected, while Canadian employers added 79,000 positions. Some of the differences between the two countries may be attributable to plain good luck, but without question policy makers here have made some better calls than those in the U.S. in recent years. U.S. experts are now asking 'why?' In the matter of real estate, we know that the Canadian financial system has proved superior. The Federal Reserve Bank of Cleveland has just published a paper trying to pinpoint the key differences. The report is an interesting read on what was done differently in the two countries. Thanks to David Rosenberg at Gluskin Sheff + Associates for drawing attention to it. “Monetary policy was very similar in both countries from 2000 to 2008, but housing prices rose much faster in the U.S. than in Canada. This suggests that some other factor both drove the more rapid appreciation in U.S. prices and set the stage for the housing bust. A likely candidate is cross-country differences in the structure and regulation of subprime lending markets. That mortgage delinquencies began to climb before the recession in the U.S. but only began to rise recently in Canada (after the economic slowdown began), points to the significance of those structural and regulatory differences in explaining the U.S. housing crash.”

OTHER STORIES:

Raw Story: Senators Team Up to Block Bernanke (Where are the Democrats?) - (www.rawstory.com)

US Retail Sales off to Slow Start - (finance.yahoo.com)

Bernanke's statement on Social Security: "It's only mandatory until Congress says it's not mandatory." Also applies to the Fed. 'Doh! - (www.huffingtonpost.com)

Don't Buy a House Yet - (www.realestate.yahoo.com)

Foreclosures: Filings up 50 percent in Fort Morgan, CO - (www.fortmorgantimes.com)

Uptick In Suburban Chicago Foreclosure Filings - (www.journal-topics.com)

Walking away makes sense - (www.sfgate.com)

Quarter of borrowers in anti-foreclosure plan are behind - (www.washingtonpost.com)

Nothing Down Flamed the California Real Estate Bonfire - (www.doctorhousingbubble.com)

FDIC Fire Sale! 11 Houses For Under $10,000 - (www.huffingtonpost.com)

Why Treasury Needs a Plan B for Mortgages - (www.nytimes.com)

Foreclosure still looms for Grand Wailea resort in Maui - (www.mauinews.com)

Worrisome Thoughts on the Way to the Jobs Summit - (www.robertreich.blogspot.com)

Bernanke: What Makes You Think the Recovery Is Sustainable? - (www.seekingalpha.com)

Gold is a Double-Edged Sword - (www.theautomaticearth.blogspot.com)

Americans are Addicted to Nonsense - (www.truthdig.com)

And for another $100... - (www.zillow.com)