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Monday, January 14, 2008

Growing Credit Issues

Items of interest:

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Wolfgang Munchau / FT.com:
This is not merely a subprime crisis -- If this had been a mere subprime crisis, it would now be over. But it is not, and nor will it be over soon. The reason is that several other pockets of the credit market are also vulnerable. Credit cards are one such segment, similar in size to the subprime market. Another is credit default swaps, relatively modern financial instruments that allow bondholders to insure against default. Those who such sell such protection receive a quarterly premium, based on a percentage of the amount insured.

The CDS market is worth about $45,000bn (£23,000bn). This is not an easy figure to imagine. It is more than three times the annual gross domestic product of the US. Economically, credit default swaps are insurance. But legally, they are not, which is why this market is largely unregulated. [...]
discussion:
Financial Armageddon Blog:
'Meltdown' Goes Mainstream

Seeking Alpha:
Will Credit Default Swaps Be the Next Shoe to Drop?
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YouTube: Money as DebtNY City Housing Bubble Blog:
Where Does Money & Debt Come From? -- Paul Grignon's 47-minute animated presentation of "Money as Debt" tells in very simple and effective graphic terms what money is and how it is being created. It is an entertaining way to get the message out. The Cowichan Citizens Coalition and its "Duncan Initiative" received high praise from those who previewed it. I recommend it as a painless but hard-hitting educational tool and encourage the widest distribution and use by all groups concerned with the present unsustainable monetary system in Canada and the United States. [...]
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Mortgage Fraud Blog:
Appraiser Sentenced To Prison For Mortgage Fraud -- Darryl L. Cooper, 27, Decatur, Georgia, was sentenced by United States District Judge Thomas W. Thrash, Jr., for a scheme to defraud mortgage lenders by creating fraudulent appraisals that reflected completed construction. The appraisals supported $4.7 million in fraudulent loans for purchases in the names of out-of state “investors” of incomplete homes from builder/coconspirator Jeffery Alan Teague.

Cooper was sentenced to 1 year, 6 months in federal prison to be followed by 3 years of supervised release, and was ordered to pay restitution of $4,720,500. His sentenced was reduced substantially due to his cooperation in the investigation.
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NY Times:
Clinton to Seek Package to Lift Confidence in Economy -- Adjusting her campaign to address increased fears of a recession, Senator Hillary Rodham Clinton said Thursday that she would call for quick enactment of a $70 billion emergency spending package and for a possible $40 billion tax rebate later if economic conditions worsen.

Mrs. Clinton said her proposal, to be announced on Friday in California, would aid lower-income families facing foreclosures of their mortgages, subsidize home heating assistance, extend jobless benefits and create jobs in the energy and environment sector.
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Housing Derivatives Blog:
Housing Prices A La Gartman -- Dennis Gartman, commodity trading supremo and author of The Gartman Letter, weighs in on the US housing market:

"Housing prices are falling all across the nation, and in some areas, are plunging. All of the data confirms that trend, and until something very material changes in the psychology of potential buyers, the trend shall continue .... perhaps quite a good while longer. We found the comments by Mr. Joseph Brusuelas of IDEAglobal to be quite prescient. We do not know Mr. Brusuelas, but we found his comments worthy of note here this morning:
It appears quite clear... that the consumer has reached a psychological point where expectations of future price declines have become entrenched. We consider this to be imminently rational behaviour on the part of potential homeowners and until the new homes market observes a decline in the median price of homes and falling rates, there will be little incentive to step up purchasing activity.
"When prices fall, rational investors stand down and await a bottom... or until more adventuresome investors chose to take speculative positions by trying to catch the large falling knife that is the real estate market at the moment. With the winter upon us, the propensity for buyers to step up to buy shall be limited at best, and diminishing materially at worst. Further, with the great weight of mortgage re-sets still a few months ahead, that too shall weigh upon prices. Rational expectations are properly directed to the downside in housing for the foreseeable future. This cannot bode well for home builders; for mortgage lenders; for raw materials prices et al. confusion still reigns."
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Calculated Risk

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