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Friday, September 5, 2008

Housing/Subprime/Credit Roundup — September 5, 2008

Items of Interest:

Wall Street Journal:
Treasury Is Close to Finalizing Plan to Backstop Fannie, Freddie -- The Treasury Department is close to finalizing a plan to help shore up mortgage giants Fannie Mae and Freddie Mac, according to people familiar with the matter.

Precise details of Treasury's plan couldn't be learned. The plan is expected to involve a creative use of Treasury's new authority to make a capital injection into the beleaguered giants.

The plan includes changes to senior management at both companies, according to a person familiar with the plans.

An announcement could come as early as this weekend...

Obama, McCain, Fannie and Freddie: A Troubled Love Story -- In this year’s fraught political environment, rivals Barack Obama and John McCain can agree on few things, but this is one: that it is time to restructure Fannie Mae and Freddie Mac...
CNN Money:
Record 1.2 million homes hit by foreclosure -- Loans in foreclosure have doubled over the past year, while delinquency rates continue to soar.

A record 1.2 million homes were in foreclosure during the second quarter of 2008.

That represents 2.8% of all outstanding loans, up from 1.4% of all loans during the same period a year ago, according to a report released Friday by the Mortgage Bankers Association (MBA).

And 490,000 of the 45 million home mortgages serviced by MBA members began new foreclosure proceedings. That's up 9% from the 448,000 starts recorded in the previous quarter, and marked the seventh straight quarter that foreclosure starts increased...
Foreclosure Effect on Home Prices May Be Small -- Even though data Friday from the Mortgage Bankers Association indicated that U.S. foreclosures hit a record in the second quarter, that won’t necessarily translate into big declines in home prices...

We conclude that a reasonable estimate of the future path of U.S. housing market prices is that they will remain essentially flat, on average, for the next two years notwithstanding the large predicted increase in foreclosures.
Bill Gross: a campfire into a forest fire...destructive financial tsunamiBill Gross / Pimco.com:
There's a Bull Market Somewhere? -- This rarely observed systematic debt liquidation is what confronts the U.S. and perhaps even the global financial system at the current time. Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami. Central bankers, of course, adopting the cloak and demeanor of firefighters or perhaps lifeguards, have been hard at work over the past 12 months to contain the damage. And the private market, in its attempt to anticipate a bear market bottom and snap up “bargains,” has been constructive as well. Over $400 billion in bank- and finance-related capital has been raised during the past year, a decent amount of it, by the way, having been bought by yours truly and my associates at PIMCO. Too bad for us and for everyone else who bought too soon. There are few of these deals now priced at par or above, which is bondspeak for “they are all underwater.” We, as well as our SWF and central bank counterparts, are reluctant to make additional commitments...
Barry Ritholtz / The Big Picture:
What Up With Pimco? -- WTF is up with PIMCO ?

Strange things are afoot at the biggest bond fund in the world. A weird sense of panic seems to be emanating from the West Coast fixed income specialists.

I suspect it may have something to do with with the fact they are loaded to the gills with paper from Fannie & Freddie (FNM & FRE) -- a trade that has worked out exceedingly well. Despite this -- or perhaps because of it -- the latest noise from the boys from Newport Beach is increasingly odd, even desperate sounding...

Bill Gross joined the Million Man March to the TreasuryTodd Harrison / Minyanville:
Freaky Friday Potpourri: Help Wanted in Washington! -- Yesterday, one more man joined the Million Man March to the Treasury.

Not just any man, mind you, the man in the wonderful world of credit.

His name is Bill Gross and no, that’s not a metaphor for the disgusting dollar.

Bill runs PIMCO, the world’s largest bond fund and he’s made a pretty penny through the years. He played the game and made a name for himself as the most powerful man in fixed income.

And yes, there was a time when that was a good thing.

Yesterday, Bill stepped on to the world stage when he said "If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury." ... Unchecked it [debt liquidation] can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami.”...

Paul Kedrosky / Infectious Greed:
Bill Gross: Pick Me! Pick Me! -- Am I the only one irritated by the fawning treatment given Pimco's Bill Gross and his commentary today? His implicit threat of a bond buyer's strike -- he wants the Fed to get off its ass and backstop Freddie/Fannie -- is so deliriously self-serving...

Pimco's Gross Lets the Freak OutKevin Depew / Minyanville:
Pimco's Gross Lets the Freak Out -- The Freak is Out

There comes a point in every junkie's descent when the tentative restraint of self-consciousness and self-image loosens up just enough to let the freak out. For most of us, once that line is crossed there's no going back, ever. Naturally, no one knows when that moment will arrive. Indeed, the unpredictability of it is what lends the trip down the chute from recreational abuser to full-on foaming-at-the-mouth dope fiend its delusional aura of impossibility; the conviction that It Just Won't Happen to Me. For Bill Gross, that moment came today...

Bill Gross: Big Investors Avoiding Bank Debt for Now -- Pimco bond chief Bill Gross said he and other big investors are avoiding buying bank debt until the Treasury Department takes steps to shore up the financial system.

"We're sort of full," Gross said in a CNBC interview. "To be fair and not to talk out of school, we have clients, we have contacts around the world and basically they're sitting on their hands as well. They're full as well and we're waiting for something to happen. What that means basically is we need a balance sheet, we need somebody else's balance sheet. That means buying power."

Gross said Treasury Secretary Henry Paulson needs to inject $400 billion to $500 billion into the financial system. That would serve as a backstop for banks that are having capital problems due to the continuing collapse of the mortgage market and housing foreclosures....

U.S. Must Buy Assets to Prevent `Tsunami,' Gross Says

Seeking Alpha:
Bill Gross' Bailout Call: Wise Man or Fool?

Pimco’s Gross calls for broad housing rescue
loan defaultsNY Times:
Defaults Could Net Bigger Fish -- The weak go first, and people take comfort from the very weakness of the fallen. The fact it is only the weak who are suffering is taken as proof that there is no general problem.

That is how it was with the mortgage mess, which is still called the subprime crisis even though it has long since spread. Now there are more prime mortgages going into foreclosure than there are subprime ones.

The world of corporate loans now looks like mortgages, circa 2007. Defaults are on the rise, but they are concentrated among small companies in industries with big problems....

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