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Wednesday, October 22, 2008

Supersizing the Recession

Items of Interest:

You can’t have much of an economy if people are just flipping hamburgers, trading stocks, and suing each other . . . Are our grandchildren going to dive for coins from cruise ships in the East River? — Wilbur Ross, 2004 New York Magazine
CNN Money:
Wachovia Loses $27.51 Billion In 3Q On Charges, Loan Woes -- Wachovia Corp. (WB) on Wednesday reported a heavy net loss of $23.7 billion in the third quarter, driven by large one-time charges of $18.8 billion ahead of its planned fourth-quarter merger with Wells Fargo & Co. (WFC).

The troubled Charlotte, N.C., bank, whose fate was recently thrown into limbo as it courted two potential suitors, provided ample detail of the crumbling condition that finally pushed it to sell itself. Wachovia's loss of $11.18 a share marked a steep drop from prior-year net income of $1.62 billion, or 85 cents a share.

Wachovia reported outflows of deposits from both retail and commercial customers, as well as sharply rising losses from its $120 billion portfolio of so-called Pick-A-Pay mortgages. It said total losses from its Pick-A-Pay loans, which allow some borrowers to increase their loans' balances by paying less- than-full monthly interest payments, could now total 22% of the portfolio...
Daniel Gross / Slate:
Will Your Recession Be Tall, Grande or Venti? - The more Starbucks a country has, the bigger its financial problems...

I propose the Starbucks theory of international economics. The higher the concentration of expensive, nautically themed, faux-Italian-branded Frappuccino joints in a country's financial capital, the more likely the country is to have suffered catastrophic financial losses.

It may sound doppio, but work with me. This recent crisis has its roots in the unhappy coupling of a frenzied nationwide real-estate market centered in California, Las Vegas, and Florida, and a nationwide credit mania centered in New York. If you could pick one brand name that personified these twin bubbles, it was Starbucks. The Seattle-based coffee chain followed new housing developments into the suburbs and exurbs, where its outlets became pit stops for real-estate brokers and their clients. It also carpet-bombed the business districts of large cities, especially the financial centers, with nearly 200 in Manhattan alone. Starbucks' frothy treats provided the fuel for the boom, the caffeine that enabled deal jockeys to stay up all hours putting together offering papers for CDOs, and helped mortgage brokers work overtime processing dubious loan documents...
TimesOnline [UK]:
Mervyn King warns of Britain's 'long march' out of recession -- Britain is on the brink of recession and faces an extended and painful economic downturn, the Governor of the Bank of England said last night. Mervyn King admitted for the first time that “it now seems likely that the economy is entering a recession”. He told families and business to prepare for a prolonged period of hardship.

“We now face a long, slow haul to restore lending to the real economy, and hence growth of our economy, to more normal conditions,” he said.

A squeeze on take-home pay, soaring living costs and the decline in consumer credit increased the risk of “a sharp and prolonged slowdown”. He said: “Over the past month, the economic news has probably been the worst in such a short period for a very considerable time.” ...
Housing Wire:
MBA Forecasts Recession, 7.8 Percent Unemployment -- As mortgage banking leaders gather in San Francisco for the trade’s annual conference, it’s clear that the free-wheeling good times that characterized recent years are long gone. Than sentiment has been replaced by a sense of gloom over what lie ahead for much of the nation’s housing and mortgage markets. Such a sentiment clearly went into the group’s updated forecast for the mortgage industry in 2009 and beyond, as well, with MBA chief economist Jay Brinkmann suggesting Tuesday afternoon the nation would be in a recession through the middle of 2009...
Protest greets mortgage bankers meeting in S.F. -- A noisy but contained protest greeted delegates to the Mortgage Bankers Association's 95th annual convention, which began Monday at Moscone Center, as the real estate finance industry is tarred by association with a housing market that's collapsed like a deck of cards along with the financial strife that followed...
Wall Street Journal:
California Home Sales Revive, But Not Without Intense Pain -- In this California city, one of the hardest hit in the national housing crash, there's good news: Homes are starting to sell again.

Investors and first-time home buyers are snapping up foreclosed houses here, with the number of local sales up almost fivefold from this time last year. While the volume of existing-home sales across the U.S. fell 10.7% in August from the previous year, according to the National Association of Realtors, there are signs that the most damaged of markets are starting to heal themselves. Across hard-hit California, sales volumes rose 65% in September compared with a year ago, said MDA DataQuick, a San Diego-based real-estate information service.

The bad news is that the latest round of sales is unleashing another round of pain in cities such as Los Banos, a commuter community in California's Central Valley. With home prices already down 66% from their peak here, most homeowners owe more on their mortgages than their houses are worth. Successive deals bring new low prices, leaving remaining owners with little incentive to keep current on outsized mortgages...

California's crashing housing market----
NY Times:
Struggling to Keep Up as the Crisis Raced On --
“I feel like Butch Cassidy and the Sundance Kid. Who are these guys that just keep coming?” — Treasury Secretary Henry Paulson Jr.
It was the weekend of Sept. 13, and the moment Treasury Secretary Henry M. Paulson Jr. had feared for months was finally upon him: Lehman Brothers was hurtling toward bankruptcy — fast.

Knowing that Lehman had billions of dollars in bad investments on its books, Mr. Paulson had long urged Lehman’s chief executive, Richard S. Fuld Jr., to find a solution for his firm’s problems. “He was asked to aggressively look for a buyer,” Mr. Paulson recalled in an interview...
Jeff Matthews: Paulson Explains Himself: Calling Frank Drebin!
Anderson Cooper / CNN AC 360 blog:
Culprits of the Collapse -- So who is to blame for this financial fiasco? That’s the question we’ve begun investigating. We’ve put together a list of the Ten Most Wanted: Culprits of the Collapse.
#3 James Cayne
#4 Angelo Mozilo
#5 Beazer Homes
#6 Alan Greenspan
#7 Phil Gramm
#8 Chris Cox
#9 Richard Fuld
#10 AIG's Joe Cassano
Hilzoy / Washington Monthly:
More Trouble Ahead -- Americans owe about $950 billion worth of credit card debt, and, as with mortgages, credit card debt has been securitized. The second is that banks might hoard cash if they think they will have to write down bad debts, at a time when credit is already very tight...
Myglesias / Matthew Yglesias: The Bad Debt of Tomorrow
William Kern / The Moderate Voice:The Wall Street Crisis and the Coming Ecological Disaster: Nachrichten of Switzerland — Is the global economic disaster we are living through today just a harbinger of a much more dramatic global ecological collapse to come? ...
Washington Post:
On Al-Qaeda Web Sites, Joy Over U.S. Crisis, Support for McCain — Al-Qaeda is watching the U.S. stock market's downward slide with something akin to jubilation, with its leaders hailing the financial crisis as a vindication of its strategy of crippling America's economy through endless, costly foreign wars against Islamist insurgents...
Howie / The Jawa Report: al-Qaeda Supporting Troll Gets a Bite
Max Bergmann / democracyarsenal.org: Digging a Deeper Hole
Robert Dreyfuss / The Nation: Al Qaeda Endorses McCain

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