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Tuesday, March 4, 2008

Housing/Subprime Roundup — March 4, 2008

Items of interest:

US News Cover Story:
The Housing Nightmare Hits Main Street -- Will Uncle Sam come to the rescue of distressed homeowners—and a hard-hit economy?

One domino toppling the next. It's been a convenient metaphor for how troubles in the American subprime mortgage market have cascaded into a global financial mess. Rising interest rates collapsed the housing bubble, which caused a wave of subprime mortgage defaults and foreclosures. That, in turn, froze corporate credit markets as risk-averse investors stopped buying esoteric mortgage-backed securities and led to big losses at bond insurers. Auction-rate securities—an obscure corner of the credit market used by hospitals, museums, schools, and local governments—have been the most recent dominoes to tumble. "We've gotten to the point of almost paralysis in some segments of the market," says David Resler, chief economist at Nomura Securities.

A daisy chain of financial disaster, you might say. One crisis begetting another. Yet at least there's been a certain linear, if ruthless, logic to it all. But now there are signs that the housing recession is turning into a full-fledged economic meltdown in what the Federal Reserve recently called an "adverse feedback loop." [...]

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Other US News articles:
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CNBC:
Bankruptcy Filings Surge Among US Consumers -- American consumers' bankruptcy filings jumped 15 percent in February from the previous month and a steeper rise is looming because of the subprime mortgage crisis, the American Bankruptcy Institute said.

Consumer bankruptcy filings in February totaled 76,120, up from 66,050 recorded in January, the non-partisan bankruptcy research group said.

The February number was 37 percent higher than in the same month a year ago, according to the institute.

"February's bankruptcy spike -- the highest single month since the 2005 (bankruptcy) law changes -- forecasts the start of more to come for the balance of 2008," said Samuel Gerdano, ABI executive director. [...]
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Wall Street Journal:
Wall Street Gears for Its New Pain -- Commercial Real Estate To Yield Write-Downs; Defaults Slim So Far

After suffering a beating from their exposure to home loans, banks and securities firms are about to take their lumps from office towers, hotels and other commercial real estate. And the losses could last longer than those from the subprime shakeout.

As the economy wobbles and financing costs rise because of the credit crunch, commercial-real-estate values are starting to slide, with analysts at Goldman Sachs Group Inc. projecting a decline of 21% to 26% in the next two years. That means misery for securities firms with exposure to commercial-real-estate loans and commercial- mortgage-backed securities. [...]
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CNNMoney:
New recession worry: Bank failures -- Construction loan problems threaten spike in smaller bank failures and add to worry over credit crunch.

As if the economy wasn't already fighting enough strong headwinds, the risk of capital shortfalls and outright failure of the nation's banks is rising.

The Federal Deposit Insurance Corp., the federal agency that backs bank deposits, last week reported the biggest jump in "problem institutions" it has seen since the savings and loan crisis of the late 1980s. While the extent of the problem is still low by historic standards, it identified 76 banks as in trouble - a 52% increase from a year ago.

FDIC Commissioner Sheila Bair among regulators set to testify Tuesday at a Senate Banking Committee hearing on the state of the banking industry.

Experts say the 76 banks now under scrutiny are likely only a small part of the problems now looming over the banking sector. [...]
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zero hedge

Calculated Risk

Mish's Global Economic Trend Analysis

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia