Americans split on homeowner bailout - poll

They are not bailing you out.

via Business and financial news - CNNMoney.com on 5/8/08

Americans remain split on whether homeowners about to default on their mortgages should receive special treatment to help them keep their houses, according to a new CNN/Opinion Research Poll.

Reblogged with MessageDance using Google Reader

Countrywide Takes Away Home-Equity Credit Lines in Las Vegas

http://www.bloomberg.com/apps/news?pid=20601109&sid=adSiHtVyQXmc&refer=home

U.S. lenders had $1.1 trillion in home equity loans outstanding as of last year, up 89 percent since 2003, based on the Federal Reserve's Flow of Funds data.

Amid flashing neon signs along the Vegas Strip, residents are losing access to credit that might have financed businesses or bought cars and other goods.

As many as 15,000 people in Las Vegas, or 5 percent of the total homeowner population, had credit lines suspended by Countrywide and other lenders, said Brad Henderson, president of Henderson, Nevada-based mortgage banker and broker Evofi One.

Jerry Tao, a part-time lawyer and spokesman for Evofi One's parent company, lost access to his $50,000 Countrywide line despite earning more than $500,000 last year and having a credit score he says was between 750 and 770.

Replacing Pathfinder

Though he never accessed the line, Tao, 40, said he'd hoped to redo his backyard and replace his 1995 Nissan Pathfinder.

Credit scores are a calculation of the likelihood a person will pay bills based on past history.

Countrywide, the biggest U.S. mortgage lender, stopped extending credit to 122,000 borrowers nationwide whose homes fell below appraised values, a practice permitted by bank regulations, the company said in a statement.

Pasadena, California-based IndyMac and Seattle-based Washington Mutual say they evaluate borrowers individually. Bank of America says it's reviewing all its home-equity credit lines and taking actions permitted by lending agreements.

The Las Vegas housing-market crash represents a turnaround since 2003, when the local economy and real estate were booming.

``If you had anything on the ball, you could make it happen in Vegas,'' said real estate agent Donna Marie Gold, 62, who built a $4.5 million fortune buying and selling properties over six years.

After failing to complete a single sale last year, Gold said she fell $22,000 short each month on payments needed to maintain 14 properties. Now two to four months behind on some mortgage payments, she's lost access to a $250,000 Wells Fargo & Co. equity credit line.

`New York Minute'

``The whole thing was upside down in a New York minute,'' Gold said. ``There needs to be some forgiveness in this climate with regards to credit and rebuilding one's credit.''

John Simon, 42, borrowed $35,000 on low-interest credit cards in 2007 to pay down his $63,000 credit line and save on the 11.75 percent interest he says Countrywide charged. He expected to be able to access the credit line later. When Countrywide froze the line, he wasn't able to get money needed to pay his bills.

``They took away the last amount of cash I had to make all the payments on my father's retirement home,'' Simon said. ``From a business standpoint, this was the stupidest thing I ever did. But it was so easy.''







Blogged with MessageDance using Facebook

The Fed is Getting Desperate

http://www.rgemonitor.com/blog/roubini/252573/

Financial markets – especially the equity markets – have somewhat recovered since the financial markets reached a point of near meltdown around the time of Bear Stearns collapse. But the strains in money markets and credit markets remain severe and show little sign of improvement.

In mid-March – at the peak of the crisis - the Fed did not just partially bail out the Bear Stearns shareholders who would have been totally wiped out in the case of a disorderly collapse of Bear Stearns; more importantly the Fed bailed out JP Morgan that had – like Bear – and still has a massive exposure to the CDS market; it bailed out the creditors of Bear Stearns who would have suffered massive losses if the Fed had not outright bought $29 billion of toxic securities held by Bear; and it bailed out Lehman, Merrill and a good chunk of the shadow financial system as the Bear Stearns bailout – together more importantly with the new TSLF and the PDCF – ensured – for the first time since the Great Depression - that systemically important broker dealers would have access to the lender of last resort support of the Fed.

While the extreme tail risk of a systemic financial meltdown – and we were in mid-March one epsilon away from such a generalized run on most of the shadow banking system – was avoided by the trifecta of the Bear Stearns bailout, the TSLF and the PDCF the stresses in the financial markets – liquidity and credit crunch - remain severe as even the FOMC had to admit in its latest statement.

The severity and persistence of the liquidity crunch is evident from the fact that in the interbank markets spreads relative to Libor remain extremely high and still close to their peaks since this crisis started last summer in spite of 325bps Fed Fund ease by the Fed, in spite of the creation and vast expansion of the TAF auctions (now up to $150 billion over a month), in spite of the creation and extension of the TSLF, in spite of the creation of the PDCF. So now after the Fed has already allowed banks and non banks primary dealers to swap hundreds of billions of dollars of illiquid MBS (and now even any “good quality” ABS), after it has allowed the non bank primary dealers to have access to the Fed discount window on same terms as the banks, it has now decided to allow even non-US banks outside of the US to have access to the liquidity support of the Fed: indeed given the stubborn recalcitrance of term Libor spreads to fall in the US, UK , Europe and around the wor!
ld the
Fed now claims that this stress in money markets is due to the fact that non-US banks are short of dollar liquidity and are thus putting pressure even on the borrowing rates of US banks.

So while foreign banks and foreign primary dealers already present in the US can have access to the Fed liquidity and Treasuries-swap-for-illiquid-assets facilities foreign banks without US operations now also need to be provided with the lender of last resort support of the Fed. How to do that? The Fed just announced a significant increase of its swap facilities with European central banks: the latter will be able to swap their euros, swiss francs, etc. for US dollars and then relend these dollars to their own banks that are structurally short of dollar liquidity. So, via foreign central banks now the Fed will also try to provide its safety net to non-US banks.

So as the stress in interbank markets is showing no sign of relenting the Fed has increasingly resorted to new operations that incrementally increase the number of institutions that have access to its safety net and the nature of its safety net: direct Fed Funds easing of 325bps and parallel sharp reduction of the discount rate; creation and now massive extension of the TAF that provided term liquidity to US banks; creation of the term facility (TSLF) that allowed both banks and non-bank primary dealers to swap illiquid MBS and now ABS for safe and liquid Treasuries; creation of the primary dealers credit facility (PDCF) that vastly extended the lender of last resort support to systemically important non banks (primary dealers); creation and now further extension of swap facilities with foreign central banks that will allow even non-US banks operating abroad to have access to the Fed’s dollar liquidity.

The Fed is getting most creative and desperate as all these facilities have done very little to reduce the liquidity crunch in spite of the fact that now $500 billion out of the $700 billion of safe Treasuries held by the Fed are now committed to be swapped for illiquid assets on the balance sheets of US and non-US banks and non-banks. That is why the Fed recently leaked even more non-orthodox ideas that are being discussed on how to buy even more illiquid assets once it runs out of safe Treasuries to swap: borrowing from the Treasury bonds to be swapped for illiquid MBS/ABS, issuing Fed debt notes (like the sterilization bonds used by some central banks to perform sterilized intervention, paying interest on reserves to potentially massively increase the liquidity available to banks without blowing the monetary base, etc.).

But in spite of all of these interbank spreads – both the Libor-OIS spread and the TED spread – remain stubbornly high and only modestly lower than their recent extreme peaks. Why? Banks and non bank primary having access to the Fed liquidity are hoarding such liquidity and not relending it to the other members of the shadow banking system for two reasons. First, they need that liquidity for themselves as the roll-off of SIV and conduits and concerns about future liquidity needs have led to a massive need for liquidity insurance; second, given the counterparty risk – who is holding the toxic waste and how much of it – that an opaque and non-transparent financial system has created no one trust its counterparties and is willing to lend them money on a term basis. Given this fundamental lack of confidence and trust in counterparties the money markets remain totally clogged and the massive orthodox and non-orthodox actions of the Fed have very little effects. Yes, now in
addition to banks, a dozen non bank primary dealers have access to the Fed liquidity. But thousands of other members of the shadow banking system – SIVs, conduits, money market funds, hedge funds, private equity funds, smaller broker dealers and investment banks – don’t have access to such liquidity. And most of these members of the shadow banking system borrow short and in liquid ways, are highly leveraged and lend or invest in longer terms and more illiquid ways. So they are all subject to liquidity or rollover risk.

So the liquidity crunch remains severe in spite of all of the extreme policy actions by the Fed and other central banks. In forthcoming note we will show why the recent stock market rally is just a bear market sucker’s rally; and why the credit crunch is getting worse rather than getting better. The worst is still ahead of us both for the real economy that is spinning into a more severe recession and for financial markets where unrecognized losses are much larger ahead than the losses that have been already recognized.





Blogged with MessageDance using Facebook

Will Fed Cut Rates Again?

Blogged with MessageDance

April Payrolls Down Less Than Expected: Is the U.S. Labor Market Showing Mixed Recessionary Trends?

Fact-check from http://www.rgemonitor.com/ Large birth/death adjustment (267k), seasonal factors may be inflating the no. of jobs added; unemployment rate down due to increase in household employment; BLS data subject to revisions

Website Snapshot RGE Monitor RGE Monitor -

Blogged with MessageDance using Facebook

Let Rome in Tiber melt

Rome did melt into the Tiber. The place was invaded by barbarians...the population sank from over a million to under 100,000. And when the city was “rediscovered” by tourists with a sense of history in the 17th century...there were goats grazing amid the ruins of the ancient city.



There are people who believe that power, progress, and wealth are always on a rising slope. Let them come to Rome!



Roman property was a sell for a period of probably a thousand years...from the peak of Roman power, around 100 AD, down to its nadir, sometime after the Renaissance.



We have come to Rome on your behalf, dear reader. We poke through its dusty ruins looking for the future. There are more ruins to come, we think...



(Oh, the labors we undertake for your sake, dear reader. Last night, trying to get in the spirit of the place, we drank nearly a whole bottle of wine from Abruzzo. Today, we will go with a Tuscan variety...)



But let us first look at the news:



“Does the US matter any more?” The question comes to us from the head of research at Societe Generale . Looking at the data from the International Energy Agency in Paris, reported in this space yesterday, he noticed that now China, Russia, India and the Mideast use more oil than the USA. What’s more, energy use in America is going down...while it is skyrocketing in those other countries. Thanks largely to growing demand in the emerging markets...and the falling value of the U.S. currency...the price of oil hit a new record yesterday – at $118.



The United States matters less and less to the oil market – but is still very important, of course.



We have guessed that the United States of America is a sell. Its money, its paper, its property, its labor, its stocks, its industries, its debt – sell them all.



We don’t mind saying so...still, we don’t like to hear the foreigners say it. A man may have noticed the swelling with his own eyes; still he doesn’t like to hear a stranger say his wife is getting fat. So when the Financial Times comes out with an article saying the same thing, it sticks in our craw.



At least the FT is nice enough to use a euphemism. Instead of seeing the United States on its knees, it sees the “end of unipolarity.” As we all know, when the Soviet Union threw in the towel in 1989, the US was the world’s undisputed hegemon. America was on top of the world – with no real competition. It was a “unipolar” world, as the FT would put it. The stock market boomed. The dollar rose. America’s chest swelled with homegrown pride and the entire world’s credit. And by the late ’90s, President Clinton summed it up: “things couldn’t get better,” he said.









Blogged with MessageDance using Facebook

Bill Bonner from Italy. Air is going somewhere else

From the Financial Times comes the view from the sunny side of the street:



“The optimistic view is based on two distinct elements. First, that the deleveraging process is reaching its natural end as valuations stabilise and institutions come clean about their losses and raise capital; second, that a series of previously unthinkable policy responses have been effective in restoring liquidity to the financial system.



“Both views have merit. Financial institutions, particularly in the US, have recognised the scale of the problem and are taking remedial steps. Just witness the recent round of capital raising by Citigroup, Merrill Lynch, JPMorgan and Wachovia . At the same time central banks in Europe and the US have opened up their financing windows, expanding the size of the financing, the range of institutions that can access it and the list of eligible collateral.”



The report goes on to suggest the alternative...that policy reactions (by the Fed and other central banks) may be “too little, too late.”



And here, we think the writer is wrong on both scores. That is, the real problem is not one that can be fixed by putting more money into the banking system. It’s more basic than that. When a bubble pops, it’s almost impossible to pump it up again. You pump and pump...but the air goes somewhere else. The consequence of the dot.com bubble, for example, was that expectations for the new age of computerized communications were over-bought. New money could be put into the system. But the new money didn’t go into dot.coms. It went into housing and finance. Now, those bubbles have popped too. The authorities are pumping new money into the banking system...but where is it going? We already have plenty of houses in America – more than enough. Don’t expect a boom in the housing industry anytime soon. And take all those leveraged, sophisticated CDOs, MBSs, SIVs, and the rest – please! Who’s going to put more money into those?



No, dear reader, that’s not the way it works. New money looks for a new home...a new bubble to inflate...not one with a hole in it.



Our guess...and again, we warn readers that we are just guessing...is that this inflation is going into gold, commodities, oil...and, yes, emerging markets. Our guess is that the setback for emerging markets is just a correction, not a fundamental shift of direction.



Our guess is that the setback for gold – down below $900 – is also just a correction, not the end of the bull market. Indian stocks...the Vietnamese economy...commodities...gold – all still have a lot of room on the upside.



Our resident commodities guru, Kevin Kerr, couldn’t agree more. “A nasty rumor has been going around that the commodity markets are old hat and will soon go the way of the dinosaur,” says Kevin.



“‘They’ have been saying that since I started on the floor almost 20 years ago. I’m here to tell you that not only are these markets stronger and more modern than ever, but there’s never been a better time than right now for investors like you to make lifestyle-changing profits, and probably more quickly than you ever thought possible. I know, because I’ve done it myself!”









Blogged with MessageDance using Facebook