KeNo's Housing and Economic Portal: Saturday July 4 Housing and Economic stories

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No recovery for US property markets until 2017 - (www.reuters.com) The U.S. urban commercial real estate markets probably will not recover until 2017, the head analyst of commercial mortgages for Deutsche Bank Securities said on Monday. "The froth is still working itself out," Richard Parkus, Deutsche Bank head of Commercial Mortgage-backed Securities and Asset-Backed Securities Synthetics Research said at the Reuters Global Real Estate Summit in New York. "We are currently in something which is comparable to what we saw in the 1990s and potentially worse." U.S. commercial real estate values could fall by more than 50 percent from the peak in 2007, he said. Although asking rents are down about 28 percent in New York, factoring in free rent and other perks by landlords, rents are down about 50 percent, Parkus said. "Rents will be back to where they were in 2017," Parkus said. Building prices also will take six to eight years to recover, he said. The U.S. commercial markets are deteriorating at an increasing pace as rent dries up and demand plummets. That is leaving borrowers struggling to make their monthly mortgage payments. "The number of new loans that are becoming delinquent each month are defaulting at rates between 5 percent and 8 percent per year, with the most loosely underwritten loans of 2007 defaults at 8 percent per year, Parkus said. That puts accumulated losses at about 4 percent this year, and 12 percent over the next four years. Loans loses ranged between 7 and 11 percent a year during the commercial real estate crash of the early 1990s. "We are not only not approaching stability, we are at a period of maximum deterioration," Parkus said.

Goldman Sachs to make record bonus payout - (www.guardian.co.uk) Staff at Goldman Sachs staff can look forward to the biggest bonus payouts in the firm's 140-year history after a spectacular first half of the year, sparking concern that the big investment banks which survived the credit crunch will derail financial regulation reforms. A lack of competition and a surge in revenues from trading foreign currency, bonds and fixed-income products has sent profits at Goldman Sachs soaring, according to insiders at the firm. Staff in London were briefed last week on the banking and securities company's prospects and told they could look forward to bumper bonuses if, as predicted, it completed its most profitable year ever. Figures next month detailing the firm's second-quarter earnings are expected to show a further jump in profits. Warren Buffett, who bought $5bn of the company's shares in January, has already made a $1bn gain on his investment. Goldman is expected to be the biggest winner in the race for revenues that, in 2006, reached £186bn across the entire industry. While this figure is expected to fall to £160bn in 2009, it will be split among a smaller number of firms. Barclays Capital, Credit Suisse and Deutsche Bank are among the European firms expected to register bumper profits, along with US banks JP Morgan and Morgan Stanley following the near collapse and government rescue of major trading houses including Citigroup, Merrill Lynch, UBS and Royal Bank of Scotland. In April, Goldman said it would set aside half of its £1.2bn first-quarter profit to reward staff, much of it in bonuses. It is believed to have paid 973 bankers $1m or more last year, while this year's payouts are on track to be the highest for most of the bank's 28,000 staff, including about 5,400 in London. Critics of the bonus culture in the City said the dominance of a few risk-taking investment banks is undermining the efforts of regulators to stabilise the financial system. Vince Cable, the Liberal Democrat treasury spokesman, said: "The investment banks more than any other institutions created the culture of excessive leverage, excessive risk and excessive bonuses that led to the downfall of the financial system. Now they are cashing in and the same bonus culture has returned. The result must be that we are being pushed to the edge of another crash." Goldman Sachs said it reviewed its bonus scheme last year and switched from a system of guaranteed rewards that were paid over three years to variable payments that tied staff to the firm. It told employees last year that profit-related bonuses would be delayed by 12 months. Until the release of its first quarter profits in April, it seemed inconceivable that a firm owing the US government $10bn would be looking to break all-time records in 2009. David Williams, an investment banking analyst at Fox Pitt Kelton, said: "This year is shaping up to be the best year ever for investment banks, or at least those that have emerged relatively unscathed from the credit crisis.

Why I want to buy a house in Flint, Mich. - (www.slate.com) I'm sleeping on the floor of a friend's vacant house in a neighborhood on the edge of downtown marked by Victorian-era homes in various stages of restoration, overgrown lots landscaped with "ghetto palms," and boarded-up fire traps. There's a drug house around the corner, and someone keeps depositing an empty pint bottle of Seagram's Wild Grape in the front yard. (For the uninitiated, it's "extra smooth premium grape flavored vodka.") Hardwood floors are as advertised, and my Therm-a-Rest and L.L. Bean sleeping bag aren't exactly doing the trick. A loud thud scared me sleepless at 2 a.m., and I finally drifted off snuggling a bat I bought at a thrift store my first day in town. A siren served as an alarm clock this morning. But before I try to pawn myself off as a minor league George Orwell writing a Rust Belt version of Down and Out in Paris and London, allow me this observation: The house where I'm "camping" is the fully restored former home of Charles W. Nash, the president of GM in 1912. Unlike many of Flint's empty houses, it has plumbing and electricity. Inexplicably, the house is painted pink, destroying any chance I had of establishing myself as some kind of Buick City Bukowski. It's been 20 years since Michael Moore established the birthplace of General Motors as a town where residents sell rabbits for "pets or meat" to survive. Roger & Me premiered around the time I left my hometown of Flint, and I eventually settled in San Francisco. Today, Flint has a double-digit unemployment rate, and local leaders are floating a plan to systematically shrink the city by bulldozing houses and "re-naturalizing" neighborhoods. I've returned on a quixotic mission. I'm here to buy a house. As the veteran of a brutal San Francisco home-buying odyssey, there's no denying the appeal of a place where desperate Realtors sometimes offer up houses by the dozen. But this is more than a quest for cheap housing. I have an almost unhealthy attachment to Flint. I want to do something—anything—to help my hometown. Maybe a "summer place" in what has been ranked one of America's most depressing cities can pump a little life into the local economy. And I fear that after 15 years in San Francisco—sometimes described as 49 square miles surrounded on all sides by reality—I'm losing touch with my roots, drifting uncomfortably far from the factory town my grandparents moved to at the turn of the 20th century.

Goldman Sachs Issues Non-Apology for Destroying World Economy - (www.alternet.org) Goldman Sachs chief Lloyd Blankfein says he's sorry, then proceeds to brag about screwing us all. Anyone else out there find himself doubled over laughing after reading Goldman, Sachs chief Lloyd Blankfein's "apology" for his bank's behavior leading up to the financial crisis? Has an act of contrition ever in history been more worthless and insincere? Even Gary Ridgway did a better job of sounding genuinely sorry at his sentencing hearing -- and he was a guy who had sex with dead prostitutes because it was cheaper than paying live ones. Looking at Blankfein's one-sentence apology, I'm struck in particular by a couple of phrases: While we regret that we participated in the market euphoria... Really, Lloyd? You "participated" in the market euphoria? You didn't, I don't know, cause the market euphoria? By almost any measurement, Goldman was a central, leading player in the subprime housing bubble story. Just yesterday I was talking to Guy Cecala at Inside Mortgage Finance, the trade publication that tracks statistics in the mortgage lending industry. He said that at the height of the boom, in 2006, Goldman Sachs underwrote $76.5 billion in mortgage-backed securities, or 7% of the entire market. Of that $76.5 billion, $29.3 billion was subprime, which is bad enough -- but another $29.8 billion was what's called "Alt-A" paper. Alt-A mortgages are characterized, mainly, by crappy documentation and lack of equity: no income verification, no asset verification, little-to-no cash down. So while "only" 38% of the mortgage-backed securities Goldman underwrote were subprime, more than three-fourths of their securities were what is called "non-prime," ie either subprime or Alt-A. "There's a lot of crap in there too," says Cecala. Let's be clear about what that meant. These crap/sham mortgages, a lot of them adjustable-rate deals with teaser rates that featured sudden rate hikes two or three years after closing, they would never have been possible had not someone devised a method for selling them off to secondary buyers. No local bank is going to keep millions of dollars worth of Alt-A mortgages on its books, because no sensible company lends out money to very risky customers and actually keeps those loans on its balance sheet.

Bankster Bailouts Exceed 200 Years Of Government Spending - (www.blacklistednews.com) The amount of US taxpayer money committed to bailouts over the last 12 months by far exceeds the combined cost of major historical events dating back over 200 years. The combined amount spent, lent, consumed, borrowed, printed, guaranteed, assumed or otherwise committed to bailouts by the government from March 2008 to March 2009 amounts to some $15 TRILLION. To emphasize how much money that is, the producers of the book Bailout Nation, put together the following graphic, which illustrates how almost every large one time expenditure of the US over the last 206 years is a drop in the ocean compared with the current level of spending. The cost of World War Two, the race to the moon, the New Deal, and the Iraq, Vietnam and Korean wars combined does not come close to the amount spent so far in just 12 months on the bailout of a handful of privately owned offshore corporations. That amounts to $11 TRILLION+ less than the cost of the financial crisis so far. The only event in US history that gets anyway near the current level of spending is World War Two, which originally cost $288 billion, $3.6 trillion according to Bianco’s inflation adjustment figures. That means that the most expansive and encompassing military venture in human history still cost the US taxpayer over four times less, during a six year period, than the “rescue” of a select number of banks and financial institutions did in just one year. If you still cannot imagine how much money we are talking about, watch the following clip which shows you what just $1 TRILLION looks like:

Can the US pay it back? - (www.macleans.ca) The U.S. is about to go broke and they’ll take us down with them. When Peter Schiff was making the rounds on U.S. cable news shows in 2007, warning about the collapse of the housing market, anchors and fellow guests literally laughed in his face when he launched into his gloomy predictions. That kind of meltdown could never happen, they said. The economy was on rock-solid ground. In those rosier economic days, Schiff, the president of Darien, Conn.’s Euro Pacific Capital, was repeatedly cast as a successful broker who’d gone off the deep end. These days, a vindicated Schiff is back on the talk show circuit with an even darker message. The current recession, he argues, is only the beginning of a larger economic restructuring. The American economy has been destroyed by years of reckless spending and borrowing. And now, the U.S. government is so deeply in debt that at some point in the very near future, he says, its lenders—namely China—are going to come to their senses and cut America off. “We can’t have one country that just borrows and one country that just consumes that’s supported by the rest of the world. It doesn’t work.” When this system collapses—and it inevitably must, he insists—inflation will run wild as the U.S. prints money to support its spending habit. Interest rates will jump and everyone will suffer. The real day of reckoning is still to come. This time around, nobody is laughing at Schiff. Anyone who has taken so much as a cursory glance at America’s financial books and seen the masses of red ink has come to a grim conclusion: not only is the situation no longer sustainable, it’s rapidly getting worse. The Congressional Budget Office estimates that the U.S. deficit this year will amount to $1.8 trillion (all figures in US$) and it sees the government spending about $1.2 trillion more than it brings in for each of the next several years. That’s one of the more optimistic forecasts. Others say that over the next few decades, revenues will remain relatively flat while spending soars as demand grows for benefits such as health care for an aging population. The U.S. debt now stands at over $10 trillion and will hit $17 trillion within the decade, according to the Congressional Budget Office—a number so large that it will nearly match the entire yearly output of the world’s most powerful country. In short, America is about to go broke and every Western country, including Canada, will pay the price. What’s alarming about the situation in the U.S. is just how quickly and easily the country found itself buried under a mountain of debt. Back in 2001, the Congressional Budget Office was estimating that by now, the U.S. should be running a healthy annual surplus—in fact it figured that when added together, the surpluses between 2001 and 2011 would total $5.6 trillion. At the time, it seemed like a reasonable projection. After all, in 2001 the government recorded a surplus amounting to $128 billion. But two important things happened since then that launched the U.S. into a very different future: the dot-com bust and George W. Bush. The recession that followed in 2001 caused tax revenues to fall and spending on social services to rise, taking a good bite out of those estimated budget surpluses. At the same time, newly elected president George W. Bush—emboldened by the surplus he’d inherited when he came to office—proceeded to dole out steep and widespread tax cuts, which cut revenue by about five per cent. That was followed by a new $530-billion drug benefit program in 2003. To top it all off, the wars in Iraq and Afghanistan caused defence spending to explode. (The bill for those wars so far: $830 billion.) In just four years, America’s massive budget surplus was decimated and turned into a $400-billion annual deficit. Since then, it briefly showed signs of recovery, but when the recession hit in 2008, the deficit quickly plummeted back down to around $400 billion.

OTHER STORIES:

Economic fears slam stocks - (money.cnn.com)

Will Madoff ever leave prison alive? - (money.cnn.com)

Thirtysomethings poised to give housing a pop - (money.cnn.com)

Obama's banking end around - (money.cnn.com)

Refis: Slow out of the gate - (money.cnn.com)

Steve Jobs spotted leaving Apple campus - (money.cnn.com)

Here come the real estate vultures - (money.cnn.com)

Cash for clunkers - minus the clunkers - (money.cnn.com)

Cracks seen in foundation of US housing recovery - (www.theglobeandmail.com)

Economist: bigger crash is coming - (www.abc.net.au)

Paul Krugman's fear for lost decade - (www.guardian.co.uk)