Friday March 6 Housing and Economic stories

KeNosHousingPortal.blogspot.com

TOP STORIES:

12-Year Low For S&P 500 - (www.sfgate.com) Wall Street has turned the clock back to 1997. Investors unable to extinguish their worries about a recession that has no end in sight dumped stocks again Monday. The Dow Jones industrial average tumbled 251 points to its lowest close since May 7, 1997, while the Standard & Poor's 500 index logged its lowest finish since April 11, 1997. It's as if the decade's dot-com surge, collapse and subsequent recovery never occurred. The Dow is just over 100 points from 7,000. Both indexes have lost about half their value since hitting record highs in October 2007. "People left and right are throwing in the towel," said Keith Springer, president of Capital Financial Advisory Services. Investors pounded most financial stocks even as government agencies led by the Treasury Department said they would launch a revamped bank rescue program this week. The plan includes the option of increasing government ownership in financial institutions without having to pour more taxpayer money into them. Although the government has said it doesn't want to nationalize banks, many investors are clearly still concerned that this could be a possibility as banks continue to suffer severe losses because of the recession. They're also worried that banks' losses will keep escalating as the recession sends more borrowers into default. "The biggest thing I see here is the incredible pessimism," Springer said. "The government is doing a lousy job of alleviating fears." The Treasury and other agencies issued a statement after The Wall Street Journal reported Citigroup is in talks for the government to boost its stake in the bank to as much as 40 percent. Analysts said the market, which initially rose on the statement, wanted more details of the government's plans. "It's only a very partial picture of what we may get," said Quincy Krosby, chief investment strategist at The Hartford. "This proverbial lack of clarity is damaging market psychology."

Japan Considers Stock Buying as Market Slides - (www.cnbc.com) Japan's government is looking at stock buying and other methods to support the share market, Finance Minister Kaoru Yosano said on Tuesday, as fears grow about the economic impact of a slide in stocks to two-decade lows. Yosano said falling shares were damaging the economy by cutting the capital base of Japanese banks, which are big holders of stocks, as well as hurting other investors. The Nikkei 225 Average fell 2.6 percent on Tuesday, nearing levels last seen in 1982, after Wall Street slumped to a 12-year low as investors lost faith that the U.S. government would be able to stabilise the financial system. Tokyo's broader Topix Index fell 1.8 percent after setting 25-year closing lows for two days in a row

AIG May Seek to Convert Preferred Shares to Common - (www.bloomberg.com) American International Group Inc., the insurer bailed out by the U.S., may restructure its rescue package for the second time in four months as the recession forces down the value of the firm’s assets. AIG may announce that it is converting the government’s preferred shares into common stock to relieve pressure on the New York-based firm’s liquidity, a person familiar with the situation said. AIG pays a 10 percent dividend on preferred stock, and none on common shares. “Paying a huge dividend on the preferred only makes you bleed slowly over time, so this would help,” said Robert Haines, an analyst at CreditSights Inc. AIG is facing a “huge potential loss on their investment portfolio” which could also lead to credit-rating downgrades, he said. AIG, once the largest insurer by assets, is expected by analysts to report a fifth-straight quarterly loss, which may cast doubt as to whether it can repay the U.S. Executives at Citigroup Inc., previously the largest bank, have also discussed a share conversion as a way to quell capital-adequacy concerns, the Wall Street Journal reported. Details of a new rescue package may be announced when AIG posts fourth-quarter results, said the person, who asked not to be identified because talks with the government are private.

NAMB Sues HUD Over Home Valuation Code of Conduct - (www.namb.org) - The National Association of Mortgage Brokers (NAMB), with the support of Baker & Hostetler LLP, filed a lawsuit today with the United States District Court for the District of Columbia against the Federal Housing Finance Agency (FHFA) Director James B. Lockhart over the controversial Home Valuation Code of Conduct (HVCC) included in the appraisal agreements between the FHFA, Fannie Mae and Freddie Mac (GSEs), and New York Attorney General Andrew Cuomo. “The HVCC does nothing but drive up costs for consumers and push small businesses out of the market,” said NAMB President, Marc Savitt. “The HVCC will drastically reduce the ability of mortgage brokers to provide consumers with an efficient and cost-effective means of obtaining a mortgage.”

Phil Gramm Strikes Back! - (www.ml-implode.com) GLB repealed part of the Great Depression era Glass-Steagall Act, and allowed banks, securities companies and insurance companies to affiliate under a Financial Services Holding Company. It seems clear that if GLB was the problem, the crisis would have been expected to have originated in Europe where they never had Glass-Steagall requirements to begin with. Also, the financial firms that failed in this crisis, like Lehman, were the least diversified and the ones that survived, like J.P. Morgan, were the most diversified. Gramm has some valid points in the above, and in general. Why didn't Europe originate the crisis? And indeed, the major difference seems to be the semi-official "right to homeownership" policy that has prevailed in the US since the Great Depression. No such presumed right exists in Europe. France recently even rejected a mortgage interest deduction, rightfully calling it biased against renters. On housing, we've out-socialisted France! However, Gramm conveniently ignores the fact that banks are perhaps even more leveraged in Europe (and the UK) than the US, and they are still reckoning with the horrible results of that. One would think he would bring this obvious point up as a key contributor to the mess. Of course, Glass-Steagall didn't say anything about leverage, so it is invisible to Gramm! This brings us back to our argument we've been pushing as long as this web site has existed: the biggest problem was the gradual erosion of reserve requirements in the banking system, allowing more and more gross leverage, and hence systemic risk. Who regulates these capital requirements? That would be the Fed. Indeed, Gramm comes back to the Fed in his next paragraph: Moreover, GLB didn't deregulate anything. It established the Federal Reserve as a superregulator, overseeing all Financial Services Holding Companies. All activities of financial institutions continued to be regulated on a functional basis by the regulators that had regulated those activities prior to GLB. But Gramm doesn't finish connecting the dots -- one of the key fouls of the Greenspan Fed was vocally advocating ARMs in 2004, at the (then) historical interest rate low. Greenspan all but jeered at holders of traditional 30-year-fixed mortgages. At the same time, Fannie and Freddie were (rightfully) being restricted due to their accounting scandals. Combine the two factors, and it is easy to see why the private sector took off with all manner of unsound "affordability loans" -- subprime and otherwise.

Deregulation and the Financial Panic: Loose money and politicized mortgages are the real villains - (online.wsj.com) By PHIL GRAMM. The debate about the cause of the current crisis in our financial markets is important because the reforms implemented by Congress will be profoundly affected by what people believe caused the crisis. If the cause was an unsustainable boom in house prices and irresponsible mortgage lending that corrupted the balance sheets of the world's financial institutions, reforming the housing credit system and correcting attendant problems in the financial system are called for. But if the fundamental structure of the financial system is flawed, a more profound restructuring is required. I believe that a strong case can be made that the financial crisis stemmed from a confluence of two factors. The first was the unintended consequences of a monetary policy, developed to combat inventory cycle recessions in the last half of the 20th century, that was not well suited to the speculative bubble recession of 2001. The second was the politicization of mortgage lending.

The Government Panic of September 2008 - (www.ml-implode.com) - Since the Congressman Kanjorski comments about the panic withdrawals, the Fed has obviously decided, given that we live in the the age of the internet, to simply go with the flow and act as though it was a known fact about heavy mutual fund withdrawals across the board. It wasn't. I was looking for such stories back in September because of the problems at Primary Reserve. They weren't there. But more important than acknowledgements of the withdrawals, is the panic it caused. It completely reversed Fed policy. The problems at Bears Stearns didn't do this. The problems at Lehman didn't do this. Not even the sub-prime mortgage crisis caused such panic. Congressman Kanjorski is right. It was an electronic run on the banks. If it had been allowed to continue, it would have resulted in trillions in withdrawals, the system would have collapsed. That's what caused Bernanke to within a matter of a couple of days completely change Fed money growth policy. The problem now is that he can't stop printing or the same threat comes back. He's trapped in a major monetary inflation spiral that will ultimately lead to a huge price inflation spiral. Gold has been going up for a reason. My guess is the players, the Paulson's and Rubin's know what is coming and while they have "The Kid" Geithner run distraction plays, they are loading up on the yellow metal. It's the one thing that will survive the financial panic ahead. Gold won't melt in an overall financial meltdown. I hope you own some. Scary stuff. Wenzel has done good work on noting the run and noting the censorship of articles reporting it back in September. We've noticed similar censorship of articles referring to the delicacy of the US Treasury funding situation. This does all lend credence to the thesis that the Fed and US government are operating in full-on panic mode. We suspect he is also right about the inflation implications. That is why it is so important for the Fed to silence news and concerns about bank runs and problems with Treasury funding. If confidence were suddenly lost in the dollar, its strength would turn to perhaps hyperinflationary weakness, as all that would be left would be the printing side of the equation.



OTHER STORIES:

Geithner Bad Bank Alternative May Rely on Loans to Hedge Funds - (www.ml-implode.com) - This is just another attempt to "leverage up" the government money being put in to arrest the crisis. The problem is, why should...
Homeowners' rallying cry: Produce the note - (www.ml-implode.com) - ``First Kathy Lovelace, shown looking over mortgage documents at her home Thursday Jan. 12, 2009 in Zephyrhills, Fla., lost her ...
2009 Conforming Loan Limits Jump - (www.ml-implode.com)
AIG Seeks More US Funds As Firm Faces Record Loss - (www.cnbc.com) American Insurance Group, already 80-percent owned by the US, is in discussions to secure additional government funds so it can keep operating after next Monday, when it will report the largest loss in U.S. corporate history, CNBC has learned.
Thain Is Ordered to Testify On Merrill Lynch's Bonuses - (www.cnbc.com)
JPMorgan Chase Slashes Dividend 87 percent - (www.cnbc.com)
Citigroup May Agree Soon To Give US Bigger Stake - (www.cnbc.com)

U.S. Stocks Fall, Sending Market to Its Lowest Close Since 1997 - (www.bloomberg.com)
Oil Falls on Signs Demand May Drop Faster Than OPEC Cuts Supply - (www.bloomberg.com)
Gold Falls After Reaching 11-Month High in N.Y.; Silver Drops - (www.bloomberg.com)
U.S. Notes Little Changed as U.S. Pledges Bank Aid, Sales Loom - (www.bloomberg.com)
In Latest Plan for Banks, U.S. Could Demand Voting Stake - (www.nytimes.com)
Obama Bank Nationalization Is Focus of Speculation - (www.bloomberg.com)

Dividends Falling Most Since ’55 Means S&P 500 Still Expensive - (www.bloomberg.com)
Regulator Faces Fresh Scrutiny Over Trading Inquiry at Lehman - (www.nytimes.com)
S.E.C. Chief Pursues Reversal of Years of Lax Enforcement - (www.nytimes.com)
Regulators: Commodity market Ponzi schemes on the rise - (www.chicagotribune.com)
Japan lender SFCG fails as credit problems spread - (www.reuters.com)
Europe Challenges G-20 to Back More Global Regulation - (www.bloomberg.com)
Baltic Currency-Peg Defense Cuts Reserves Amid Slump - (www.bloomberg.com)
EU leaders push sweeping regulations - (www.ft.com)

China Bought Almost Half Australia’s Mineral Exports - (www.bloomberg.com)
Forecasters see higher unemployment in 2009 - (www.signonsandiego.com)
Economic Outlook: Bernanke faces battle to restore confidence - (www.ft.com)
JPMorgan Chase Cutting Quarterly Dividend to 5c-Shr From 38c - (www.bloomberg.com)
U.S. Pledges Capital for Banks as Stress Tests Begin - (www.bloomberg.com)
As Doubts Grow, U.S. Will Judge Banks’ Stability - (www.nytimes.com)

Treasury considers GM and Chrysler funding options - (www.reuters.com)
Report: Government considers bigger stake in Citi - (www.marketwatch.com)
For some, dropping a landline is the way to save - (www.boston.com)
Keynote address by Jean-Claude Trichet, President of the ECB - ECB
Bringing Down House With Credit Default Swaps May Hit Yen Too - (www.bloomberg.com)