Items of interest:
Paulson Sees `No Evidence' Housing Decline Is Ending -- reasury Secretary Henry Paulson said the housing decline will continue, and a program aimed at heading off a wave of foreclosures may need to be expanded beyond subprime borrowers.
``There is no evidence it is bottoming,'' Paulson today said of the housing decline on CNBC television during a trip to New York. ``The evidence would be that it has further to run.''
The Treasury chief indicated the outlook may prompt an expansion of the plan Bush administration officials brokered with mortgage lenders last month. The initiative is aimed at helping as many as 1.2 million Americans keep their homes by making it easier to negotiate affordable loans and freezing some adjustable-rate mortgages at current rates.
``We have this wave of resets coming,'' Paulson said, referring to the almost 2 million of adjustable-rate loans forecast to jump to higher rates in the coming two years. ``One thing we will consider is maybe expanding this beyond subprime borrowers to other borrowers.''
The number of Americans signing contracts to buy previously owned homes fell more than forecast in November, signaling further deterioration in housing, an industry report showed today. Sales of new homes fell to the lowest level in 12 years in November. [...]
Pimco’s Gross Warns on ‘Shadow Banking System’ -- Investment grade and junk bond defaults may hit $500 billion of credit default swaps, triggering losses of $250 billion, Pacific Investment Management Co.’s Bill Gross said in commentary posted on the company’s Web site today.
Gross characterized much of modern finance as “shadow banking system” that “dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever.” [...]
The unfairly "Ben Stein pilloried" Jan Hatzius of Goldman Sachs estimates that mortgage related losses of $200-400 billion alone might lead to a pullback of $2 trillion of aggregate lending. Even if this occurs gradually, he writes, "The drag on economic activity could be substantial." Add to that my $250 billion loss estimate from CDS, as well as prospective losses in commercial real estate and credit cards in 2008 and you have a recipe for a contraction in credit leading to a recession. [...]
"Frosty the Goldman" and Other Odes to Subprime Profiteers -- As ballooning monthly payments on subprime mortgages threaten to tip struggling homeowners into foreclosure, brokers at the Wall Street investment banks that fueled the subprime crisis took home eye popping bonuses this Christmas, up 14 percent from last year.
The Associated Press reports the four biggest U.S. investment banks—Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc. and Bear Stearns Cos.—will award an estimated $30 billion in bonuses this year. The bankers at Goldman Sachs will have particularly heavy Christmas stockings. Compensation at the nation’s largest investment bank jumped 20 percent in 2007, which the AP estimated will mean $12 billion in bonuses, or an average of $600,000 per employee.
Unlike most of its Wall Street brethren, Goldman Sachs sidestepped the credit crisis buy betting against subprime mortgages after investing heavily in them—and pushing their lender bank partners to make the risky loans—in previous years, according to "Wall Street and the Making of the Subprime Disaster," an investigative report written by Kevin Connor for the National Training and Information Center, a coalition of community organizations focusing on economic issues.
“I liken it to selling poison and then betting people will get sick,” said Connor, a former union researcher. [...]