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Wednesday, July 1, 2009

Great Recession Roundup — July 1, 2009

Items of Interest:

David Leonhardt / NY Times:
A Forecast With Hope Built In -- In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.

To make the case for a big stimulus package, they released their economic forecast for the next few years. Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.

We now know that this forecast was terribly optimistic. The jobless rate has already reached 9.4 percent. On Thursday, the Labor Department will announce the latest number, for June, and forecasters are expecting it to rise further...

Calculated Risk: Unemployment Forecast: Too Much "Hope"
Noam Scheiber / The Stash: How Did the White House Miss By 2.5 Million Jobs?
U.S. Auto Sales Slide as GM, Toyota Miss Estimates -- U.S. auto sales in June again failed to reach a 10 million annual pace as General Motors Corp. and Toyota Motor Corp. fell short of analyst estimates, suggesting that the industry hasn’t started to rebound yet.

The annual rate fell to 9.69 million cars and light trucks last month, from 9.9 million in May and 13.7 million in June 2008, Autodata Corp. said. Total sales fell 28 percent, to 859,847 vehicles, the 20th straight monthly decline, the Woodcliff Lake, New Jersey-based company said...
Barry Ritholtz / The Big Picture: Auto Sales Remain Ugly Are Fantastic!
Calculated Risk: Graphs: Auto Sales in June
Housing Wire:
HUD Allows 125% LTV in Home Affordable Refis -- The administration expanded its Home Affordable Refinance Program to include borrowers current on payments but whose mortgages are worth up to 125% of the house’s value.

US Department of Housing and Urban Development (HUD) secretary Shaun Donovan announced the LTV [Loan To Value] limit expansion today while touring a Las Vegas neighborhood–a befitting venue for the reveal, considering 67% of homeowners there are underwater on their mortgages...
Diana Olick / CNBC Realty Check:
A Bigger Housing Bailout for Obama -- Folks at the Department of Housing and Urban Development alerted me earlier today to an announcement by HUD Secretary Shaun Donovan that the Fannie and Freddie refi plan, you know the one that lets you refi even if you have negative 5 percent equity in your home, would now be expanded to negative 25 percent equity. That's right, your loan can be a full 25 percent more than the current value of your home, and Fannie and Freddie will gladly buy and/or back your new refi...

Mortgage Insider: 125% refinances allowed on troubled mortgages
Edmund / NY Times:
Banks Balk at Agency Meant to Aid Consumers -- The administration’s proposal for the new agency marks the first shot in a battle over how to regulate home mortgages, credit cards and other forms of lending...
Times Online:
Credit card companies face a ban on 'exploiting' debtors -- Credit card firms will be told today to stop luring customers into higher borrowing as part of an overhaul of consumer rights. Lenders will be banned from raising credit limits without asking the customer first and ordered to stop sending unsolicited credit card cheques through the post...
----Decline in Japanese housing prices has gone on for almost 25 years?
Barkley Rosser EconoSpeak:
Update on the Period of Financial Distress and a Bubble Mystery -- Whereas most such bubbles go down more rapidly than they went up, and some go down at about the same rate, there is one that has gone down at a much slower rate, indeed may still be in its decline. I am referring to housing in Japan...

this is the only major bubble in world history to exhibit such a pattern, and why it has done so remains a mystery...
Caroline Baum / Bloomberg
CondoFlip.com's 2004 Debut Spelled Trouble -- When CondoFlip.com debuted in 2004, you knew housing was headed for a tumble.

Here was a Web site where customers could buy and sell, sight unseen, condominiums that had yet to be built. It was confirmation of the degree to which home prices had come untethered from housing fundamentals.

If CondoFlip.com represented the peak of the home-buying frenzy, the proliferation of “home staging” businesses to gussy up houses for sale may turn out to be a sign of a bottom...
Beazer to Settle Fraud Case for Up to $53 Million -- Beazer Homes USA Inc. agreed to pay as much as $53 million to the government and homeowners to resolve allegations of mortgage fraud, the Justice Department said.

When Beazer’s mortgage unit made federally insured loans for the purchase of homes built by Beazer, they improperly required purchasers to pay discount points and failed to reduce interest rates, the department said in a statement today. Beazer also allegedly provided cash gifts to home purchasers through charities to help customers make down payments, and ignored income requirements in making loans...
FTC Cracks Down on Scammers Trying to Take Advantage of the Economic Downturn -- The Federal Trade Commission today announced a law enforcement crackdown on scammers trying to take advantage of the economic downturn to bilk vulnerable consumers through a variety of schemes, such as promising non-existent jobs; promoting overhyped get-rich-quick plans, bogus government grants, and phony debt-reduction services; or putting unauthorized charges on consumers’ credit or debit cards...
FTC: Bad economy brings out scammers — The Federal Trade Commission announced a major crackdown Wednesday on scammers trying to take advantage of people worried about the tough economy by promising jobs that don't exist, get-rich-quick schemes, debt-reduction scams and other phony services...
Ben Funnell / Financial Times:
Debt is capitalism's dirty little secret -- Just why is there so much debt in the Anglo-Saxon world? Bankers and regulators know well that it is in nobody’s long-term interests to have allowed borrowing to escalate to a position where the US now owes far more, as a multiple of the economy, than at the start of the Great Depression.

The answer is capitalism’s dirty little secret: excessive lending was the only way to maintain the living standards of the vast bulk of the population at a time when wealth was being concentrated in the hands of an elite...
Paul Kedrosky's Infectious Greed: Debt, Class Warfare and Entrepreneurship
Richard Florida / Atlantic Correspondents: Do You Want to Know a Secret?
Another View: In Praise of Law Firm Layoffs -- Last July, I received a call from a public relations executive at Cadwalader, Wickersham & Taft, one of the oldest law firms on Wall Street. The next morning, she said, the firm planned to cut 96 lawyers in real estate and structured finance, bringing its 2008 layoff total to 131. The move would make Cadwalader the first law firm since the recession began to order a huge reduction in staff, about 20 percent of the firm’s bench...
Ashby Jones / Law Blog: ‘In Praise of Law Firm Layoffs’
Unwinding at AIG Prompts Pasciucco to Ponder Systemic Failure -- The mission: unwind AIGFP’s portfolio of 44,000 often complex, long-dated derivatives with a notional value of $2 trillion, close the unit, then fire what remained of its 428 employees and resign...

By the end of 2008, more than $60 billion was paid to AIG counterparties that had bought CDSs from AIG. In a May 2009 filing to the Securities and Exchange Commission, AIG disclosed for the first time the full extent of those payments, including cash that had flowed to banks before AIG’s bailout.

Big Payout

Paris-based Societe Generale got $16.5 billion in collateral and other payments from late 2007 through 2008; New York-based Goldman Sachs Group Inc. received $14 billion; Frankfurt-based Deutsche Bank AG, $8.5 billion; and Merrill Lynch & Co., $6.2 billion...

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