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Monday, April 21, 2008

Housing/Subprime Roundup — April 21, 2008

Items of Interest:

Bank of America Net Income Falls 77% on Writedowns -- Bank of America Corp., the second- largest U.S. bank, said profit dropped for a third straight quarter as the company set aside $6.01 billion for bad loans.

First-quarter net income declined 77 percent to $1.21 billion from $5.26 billion a year earlier, the Charlotte, North Carolina-based bank said today in a statement. Results included $1.31 billion in trading losses and $2.72 billion in costs for uncollectible loans...

Bennet Sedacca / Minyanville:
The Moral Hazard Club -- The Federal Reserve, clearly in panic mode, began changing the rules under which financial markets has operated for many decades...

When you add up all the Level II assets by just the eight largest holders in the U.S: JP Morgan, Citibank, Bank of America, Merrill Lynch, Goldman Sachs, Bear, Morgan Stanley and Lehman Brothers, it comes to a staggering $5 trillion - nearly half the size of the economy. Level III assets are nearly $600 billion...Is the Fed big enough to bail out all these assets? My best guess is probably not...

What strikes me as particularly odd is that there seems to be some favoritism displayed here by the Fed. Millions of people have lost their homes or will likely soon lose their homes, the economy is sinking into recession, companies are going bankrupt and what do we do? We allow brokerage firms and banks to shamelessly exchange their ‘supposedly AAA rated Mortgage Backed Securities’ for Treasury securities of the Federal Reserve.

I use the word ‘supposedly’ because if they were really AAA and had a market, why wouldn’t these firms just sell them in the open market? Because there is no market...
Bank of England Takes on Mortgage Debt -- Mimicking recent moves by the Federal Reserve, the Bank of England announced today a plan to trade $100 billion in government Treasury bills for mortgage-backed securities.

The Wall Street Journal reports the lending facility will allow British banks to swap AAA-rated assets backed by U.K. and European mortgages for government bonds. Although it will also accept highly rated credit card debt, the central bank said specifically it won't take securities backed by U.S. mortgages...
USA Today:
Teens turn to thrift as jobs vanish and prices rise -- The souring job market and rising costs of the usual teenage indulgences — a slice of pizza, a drive to the mall, the hottest new jeans — are causing teens to do something they rarely do: be thrifty...

It's even becoming cool to be frugal...

Bernanke Grapples With Greenspan as Volcker Scorns Fed Bailouts -- The event was a 2002 conference at the University of Chicago to celebrate the Nobel laureate Milton Friedman's 90th birthday. When Ben S. Bernanke rose to speak, he said that the Federal Reserve, of which he was then a governor, had come around to Friedman's view that the central bank's blunders were to blame for the Great Depression. ``We're very sorry,'' Bernanke said, prompting laughter. ``But thanks to you, we won't do it again.''

Bernanke, a longtime scholar of the 1929-to-1933 panic, now has the unwelcome task of trying to keep a new financial calamity from turning into a full-blown depression. What started as a meltdown in the market for subprime mortgages has turned into a worldwide credit and economic crisis.

Bernanke, now the Fed chairman, has responded with the most-aggressive expansion of the Fed's power in its 95-year history....
Stocks `Fire Sale' Burns Investors as Debt Costs Rise -- A stock market fire sale at the cheapest prices in 13 years is burning investors as companies turn away from the highest credit costs in more than a decade.

Corporations in the U.S. and Europe must repay $1 trillion in debt maturing this year, the most since 2000, data compiled by New York-based Citigroup Inc. show. As the cost of borrowing for investment-grade companies climbed to 2.35 percentage points above government debt in the past year...
UBS Says It Didn't Recognize Subprime Risk Until July -- UBS AG, Switzerland's biggest bank, said senior management of its investment bank only recognized the severity of its subprime problem in late July, when holdings could no longer be reduced or hedged at ``acceptable'' prices.

``It appears that the investment bank management did at no stage conduct a robust independent assessment of its overall subprime exposures,'' the Zurich-based company said in a report on its Web site today...
UBS Issues Shareholder Report on Write-downs
RealScoop utilizes leading voice analysis technology to analyze statements made by public figures. The BELIEVABILITY METER™ analyzes each celebrity video second by second, displaying the real-time results in a color-coded manner from left to right. The most believable statements are green, gradually turning red as they become more questionable. (via TBP)

The CEO of Bear Stearns, Alan Schwartz, is interviewed by David Faber days before the firm collapsed.

Calculated Risk

MishTalk - Mike Shedlock

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