Monday, December 31, 2007

Auld Lang Subprime


Items of interest:

US Homeowners with no equity
Calculated Risk:
Housing Summary -- At the end of 2006, there were approximately 3.5 million U.S. homeowners with no or negative equity. (approximately 7% of the 51 million household with mortgages).

By the end of 2007, the number will have risen to about 5.6 million.

If prices decline an additional 10% in 2008, the number of homeowners with no equity will rise to 10.7 million. [...]
Existing-Home Sales Rise in November, Market Likely Stabilizing -- Existing-home sales rose slightly in November, indicating a stabilization in housing in the wake of mortgage disruptions earlier this year, according to the National Association of Realtors®.

Total existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 0.4 percent to a seasonally adjusted annual rate1 of 5.00 million units in November from an upwardly revised pace of 4.98 million in October, but are 20.0 percent below the 6.25 million-unit level in November 2006. [...]
Barry Ritholtz:
Existing Home Sales Drop 20% -- First, the bad news: Housing is still a mess, and is likely to be a drag on the consumer spending and the economy in 2008.

However, I am going to surprise a few people, and point out that this single month's report actually has some good housing news in it:
- Purchases rose 0.4%;

- October sales were revised upwards;

- Median home price fell 3.3 percent.

- Existing homes for sale fell 3.6% percent to 4.27 million. That's 10.3 months' supply versus 10.7 in October.
Paul Kedrosky / Infectious Greed blog:
Dave Barry on Subprime and the Dollar --

On the dollar:
  • On the economic front, the dollar continued to lose value against all major foreign currencies and most brands of bathroom tissue.
  • In economic news, the Federal Reserve Board, responding to recession fears and the continued weakening of the dollar, votes unanimously to be paid in euros.
On subprime:
  • There was a major collapse in the credit market, caused by the fact that for most of this decade, every other radio commercial has been some guy selling mortgages to people who clearly should not have mortgages. ("No credit? No job? On death row? No problem!") It got so bad that you couldn't let your dog run loose because it would come home with a mortgage. The subprime mortgage fiasco resulted in huge stock market losses, and the executives responsible, under the harsh rules of Wall Street justice, were forced to accept lucrative retirement packages.
  • In Washington, President Bush proposes to ease the subprime mortgage crisis via a two-pronged program consisting of interest rate freezes and water-boarding.
Barry Ritholtz / The Big Picture blog:
The Credit Crunch, as told by Dr. Suess -- The following has ben pinging round the inter-tubes for weeks . . . The author is Cameron Crise of Fortis Investments in London:
Broker Joe!

Show me some flow

I need the dough!

I’m Broker Joe!

That Broker Joe!

That Broker Joe!

I do not like

That Broker Joe!

Would you buy my CDO?

I do not like them, Broker Joe
I do not like your CDO!

Would you like it here or there?
I would not like it here or there
I would not like it anywhere
I do not like your CDO
I do not like it, Broker Joe ...
Wall Street & Technology:
Subprime Crisis Inspires Christmas Poems --
And just like the porridge from that childhood fable
The economy earned the "Goldilocks" label.
But lest we forget, Goldilocks was a mere thief
Whose breaking and entering brought her to grief.
S o tho' the economy seemed healthy and strong,
Behind all the numbers there was much that was wrong.
It was clear the housing slump wasn't over just yet.
Its problems compounded in the market for debt.
At the root of the credit market's deep trouble
Was the bursting of the big housing price-bubble.
The bubble had formed back just a few years in time
Inflated by loans that bankers dubbed as "sub-prime.' [...]
Real Estate: The best - and the worst - of 2007

5 most expensive real estate markets1. Most expensive market: Beverly Hills, Calif.

Key stat: An "executive-type" four-bedroom, 2,200-square-foot home in Beverly Hills costs $2.2 million.

Beverly Hills, the most expensive housing market in the nation, according to the Coldwell Banker Home Price Comparison Index, has been synonymous with wealth for decades. Film stars, software moguls and sportswear execs share its streets with millionaire merchants, oil sheiks and exclusive plastic surgeons [...]

5 fastest depreciating housing markets6. Biggest drop in home price: Palm Bay, Fla.

Key stat: From a year earlier, the median home price in the third quarter in Palm Bay dropped 12.4%.

Home prices in many once-thriving Sun-Belt housing markets have cratered, according to the National Association of Realtors.Home price depreciation struck many more markets this year than last and the losses were spread throughout the nation. Cities as far apart as Detroit, Hagerstown, Md., and Reno, Nev. all recorded substantial declines.

Friday, December 28, 2007

Housing Numbers Weak

Items of interest:

U.S. new-home sales fall 9% to 647,000
November decline is more than expected; sales are lowest since April 1995

Sales of new U.S. homes fell by a greater-than-expected 9% in November to a seasonally adjusted annual rate of 647,000, the Commerce Department reported Friday.
The pace, the lowest since April 1995, underscored the enduring crunch in the U.S. real-estate market.

On average, economists surveyed by MarketWatch were expecting new-home sales to drop to a seasonally adjusted annual rate of 710,000 in November.

At the same time, October's sales rate was revised downward, the data show.
Sales in October were revised to an increase by 711,000, or 1.7%. They'd previously been estimated to have risen to a seasonally adjusted annual rate of 728,000. [...]

The Big Picture:
Dollar Value Inventory of Unsold Homes -- Since we have New Home Sales at 10:00am this morning, let's take a look at U.S. House Inventory, Priced in Dollars:

Inventory of Unsold Homes-----
Subprime Losses Are Big, Exaggerated by Some: John M. Berry --As the U.S. savings and loan crisis worsened in the 1980s, analysts tried to top each other's estimates of the debacle's cost to the federal government.

Much the same thing is happening now with losses linked to subprime mortgages, with figures of $300 billion to $400 billion being bandied about.

A more realistic amount is probably half or less than those exaggerated projections -- say $150 billion. That's hardly chicken feed, though not nearly enough to sink the U.S. economy.

A loss of $150 billion would be less than 12 percent of the approximately $1.3 trillion in subprime mortgages outstanding. About $800 billion of those are adjustable-rate mortgages, the remainder fixed rate.

Subprime loans represent about an eighth of the value of all U.S. residential mortgages.
Felix Salmon / Seeking Alpha:
Are Subprime Losses Being Exaggerated?
Mortgage Fraud Blog:
New Jersey Loan Processory Pleads Guilty to Fraud Scheme -- Frank Corallo, charged December 21, 2007 in a criminal information, pled guilty to conspiracy for his involvement in a wide-ranging mortgage fraud scheme that involved the Mahwah, New Jersey real estate mogul Michael Eliasof.

As previously reported by Mortgage Fraud Blog, Michael Eliasof, Mahwah, New Jersey, was charged with conspiracy to commit money laundering in a criminal information filed on November 14, 2007. According to the information, Eliasof assisted underqualified borrowers to obtain financing from several lenders including, GMAC, Argent, Long Beach, Finance America, LLC...

Thursday, December 27, 2007

Wall Street Wizardry = Junk

Items of interest:

Carrick Mollenkamp & Serena Ng / Wall Street Journal:
Wall Street Wizardry Amplified Credit Crisis -- A CDO Called Norma Left 'Hairball of Risk'; Tailored by Merrill Lynch

In recent years, as home prices and mortgage lending boomed, bankers found ever-more-clever ways to repackage trillions of dollars in loans, selling them off in slivers to investors around the world. Financiers and regulators figured all the activity would disperse risk, and maybe even make markets safer and stronger.

Then along came Norma.

Norma CDO I Ltd., as its full name goes, is one of a new breed of mortgage investments created in the waning days of the U.S. housing boom. Instead of spreading the risk of a global home-finance boom, the instruments have magnified and concentrated the effects of the subprime-mortgage bust. They are now behind tens of billions of dollars of write-downs at some of the world's largest banks, including the $9.4 billion announced last week by Morgan Stanley. [...]

WSJ: The Making of a Mortgage CDOFitch Ratings - Non-Investment Grade (also known as junk bonds) - BB and lower
Myron Shlapak / Seeking Alpha:
Subprime Root Cause Analysis

Washington Post:
It's Not 1929, but It's the Biggest Mess Since -- What we know now, of course, is that the investment banks and ratings agencies underestimated the risk that mortgage defaults would rise so dramatically that even AAA investments could lose their value. One analysis, by Eidesis Capital, a fund specializing in CDOs, estimates that, of the CDOs issued during the peak years of 2006 and 2007, investors in all but the AAA tranches will lose all their money, and even those will suffer losses of 6 to 31 percent. And looking across the sector, J.P. Morgan's CDO analysts estimate that there will be at least $300 billion in eventual credit losses, the bulk of which is still hidden from public view. That includes at least $30 billion in additional write-downs at major banks and investment houses, and much more at hedge funds that, for the most part, remain in a state of denial. [...]
Subprime Crisis: Many Unhappy Returns -- America's big financial firms will find no relief from the subprime crunch at the start of the new year.

Goldman Sachs analyst William Tanona predicted big write-downs for Citigroup, Merrill Lynch, and JPMorgan Chase. "Although we have seen many firms take the appropriate actions in recent weeks as they relate to write-downs and capital raises, we still believe it will be a couple of quarters before the current credit crisis is fully digested by the markets," he said. [...]

Wednesday, December 26, 2007

Subprime All The Time. . .

Items of interest:

Shiller: "Single-family housing market remains grim" -- S&P: US Home Prices Fall by a Record in October for 23rd Straight Month of Deceleration

U.S. home prices fell in October for the 10th consecutive month, posting their largest monthly drop since early 1991, a widely watched index showed on Wednesday.

The record 6.7 percent drop in the Standard & Poor's/Case-Shiller home price index also marked the 23rd consecutive month prices either grew more slowly or declined.

"No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," said Robert Shiller, who helped create the index, in a statement. [...]

Bloomberg: U.S. Home Prices Fell 6.1% in October, Index Shows
Realty Check blog:
Home Prices Plummet: No Pain, No Gain
Bill Donoghue / MarketWatch:
Subprime Overreaction? - The Federal Reserve's answer to subprime woes may not be the panacea that some would hope for. Remember when the Federal Reserve Board flooded the banking system with liquidity in the hope of assuaging Y2K fears?
That action ignited a bear market. Some banks receiving all this unanticipated liquidity chose to lend money to their best borrowers, who pursued "easy" profits in the high-tech, high-potential world of the Internet.

When Y2K became a non-crisis, the Fed decided not to roll over the repurchase agreements, banks called in the loans, and demand for and other technology stocks was undermined. A three-year bear market followed. [...]
Telegraph [UK]:
Inflation fears helped fuel the credit crisis -- In 2007 there was one economic event of such overwhelming significance that it dwarfed all the others - the credit crunch. I have already analysed its nature and its consequences. But as the year winds to its close, it is time to ask a different question - who was to blame?

In troubled times it is human nature for people to focus on a single individual who is supposedly responsible for all ills. In recent months the Governor of the Bank of England, Mervyn King, has become a bete noir for some, because of his behaviour during the Northern Rock affair. [...]
Telegraph [UK]:
Crisis may make 1929 look a 'walk in the park' -- As central banks continue to splash their cash over the system, so far to little effect, Ambrose Evans-Pritchard argues things are rapidly spiralling out of their control

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.

As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions. [...]
Paritosh Bansal / Reuters:
SEC probing three dozen subprime cases -- U.S. securities regulators have opened about three dozen investigations, including into such firms as UBS AG, related to the subprime market collapse, a person familiar with the matter said on Friday.

Among the issues the U.S. Securities and Exchange Commission is looking into is how financial firms priced mortgage-backed securities and whether they should have told investors earlier about the declining value of those securities, the source said.

Earlier, the Wall Street Journal, which first reported the news, said the SEC was also examining Morgan Stanley in addition to previously reported investigations of Merrill Lynch & Co Inc and Bear Stearns Co Inc.

Representatives for the SEC, UBS and Morgan Stanley declined to comment. [...]
Paper Economy blog:
The Arlington [Mass.] Artifice . . . -- This recurring monthly post tracks the latest results of the housing market seen in Arlington Massachusetts.

I choose Arlington as a result of the Boston Globe’s recently published and absurdly anecdotal and ludicrous farce about the town’s “hot” housing market. [...]
Merrill Insane?

Is Merrill Lynch 'Practically Giving It Away'? -- If you lived in the Northeast in the early 1980s, you may remember the commercials for electronics retailer Crazy Eddie, where the actor would say their prices are so insane that 'they're giving it away.' After reading the terms of Merrill Lynch's (MER) deal with Singapore's Sovereign Wealth Fund, Temasek, some investors think someone at MER is doing their own Crazy Eddie impersonation.

As news surfaced Monday morning that MER had closed on the $4.4 bln cash infusion, shares traded up over $2 to more than $58 per share. However, in the initial press release, MER never mentioned the terms of the deal, and now we know why. Under the disclosed terms, MER is selling the shares at a price of $48 per share, a full 17% below where the stock was trading earlier this morning. [...]
Merrill's Bargain Basement Deals
Daily Reckoning:
93 Banks Bid For $20bn in US Federal Reserve Loans -- Junk banks. Junk brokerages. Junk investment bankers. Call it what you will. But Wall Street has mis-managed its way into a situation where it must share ownership with foreign governments. Is this a bad thing? A good thing? Or are the real suckers the sovereign wealth funds, who have traded US dollar reserves for shares in an asset class headed for a long-term bear market? [...]

Monday, December 24, 2007

U.S. Real Estate Bubble Maps

Items of interest:

Stephen Heise /
U.S. Real Estate Market Cooling Down -- Inflation adjusted analysis of mainland U.S. same home sales shows a cooling across Michigan and Massachusetts. For your enjoyment I have generated an animated heat map indicating the states that are burning above (red) and below (blue) the historical price trend for that area. The chart runs from 1975 through September 2007. [...]

Paul Kedrosky -- Absolutely fantastic graphical animation of U.S. real estate price changes from 1975 through September 2007 . . .

Peter S. Goodman / NY Times:
This Is the Sound of a Bubble Bursting -- Cape Coral, Fla. - TWO years ago, when Eric Feichthaler was elected mayor of this palm-fringed, middle-class city, he figured on spending a lot of time at ribbon-cuttings. Tens of thousands of people had moved here in recent years, turning musty flatlands into a grid of ranch homes painted in vibrant Sun Belt hues: lime green, apricot and canary yellow.

Mr. Feichthaler was keen to build a new high school. He hoped to widen roads and extend the reach of the sewage system, limiting pollution from leaky septic tanks. He wanted to add parks.

Now, most of his visions have shrunk. The real estate frenzy that once filled public coffers with property taxes has over the last two years given way to a devastating bust. [...]

The Florida Real Estate Bubble

Mathew Padilla / Mortgage Insider:
Credit card delinquencies rise -- From the Associated Press…
Americans are falling behind on their credit card payments at an alarming rate, sending delinquencies and defaults surging by double-digit percentages in the last year and prompting warnings of worse to come.

An Associated Press analysis of financial data from the country’s largest card issuers also found that the greatest rise was among accounts more than 90 days in arrears.

Experts say these signs of the deterioration of finances of many households are partly a byproduct of the subprime mortgage crisis and could spell more trouble ahead for an already sputtering economy. [...]

Santa's House forclosed

Saturday, December 22, 2007

When Will Housing Bottom?

Cramer: When Housing Will BottomItems of interest:

Jim Cramer & Farnoosh Torabi /
Cramer: When Housing Will Bottom [video, 3:37] -- Jim Cramer says it will be time to buy again in the last three months of 2008.

David Enrich & Diya Gullapalli / Wall Street Journal:
Banks Abandon Effort to Set Up Big Rescue Fund -- Treasury Backed Idea As Response to Crisis; Boost From Foreigners

One of the federal government's signature efforts to ease financial instability caused by the subprime-mortgage crisis collapsed as the nation's three biggest banks gave up on a fund intended to rescue tens of billions of dollars in troubled investments.

The banks had been trying since September to set up a fund that would buy securities tied to mortgages and other assets that were controlled by banks in off-balance-sheet funds. But events overtook the effort. By the time it began to try to gather assets, banks were already handling the problem themselves. [...]

Subprime market crash ripples through Conn. -- In Connecticut, 15,773 foreclosures were added to court dockets between July 1, 2006, and June 30, 2007, a 45 percent increase since the July 2002-June 2003 period, according to the state Judicial Department. The number of foreclosures added to court dockets was nearly the same as the number of foreclosures that were disposed of in the same period, 15,917, which was up 55 percent from 2002-03. [...]
John Authers / Financial Times:
This was the year the coyote looked down -- For China, an ever more imposing presence in the world, 2007 was the Year of the Pig. For the markets, it was the Year of the Coyote.

Recall that Wile E. Coyote, in the old Roadrunner cartoons, can run off the edge of a cliff and keep going. It is only when he looks down that he stops defying gravity and falls to earth.

That is what happened to the credit markets this year. Market participants finally looked down, saw that many of the securities they had created with the aid of financial gimmickry were truly worthless, and fell back to earth. Nothing will ever return the credit market to the glories it had reached earlier this year.

But the coyote has another propensity. Dynamite could explode in his face, or a 10-ton rock could flatten him, but he would always live to brush himself off and walk away. The equity markets seem to have exhibited exactly that quality. In spite of the credit disaster, signs of economic slowdown and of a potential severe dip in corporate earnings across the developed world, this was still a perfectly respectable year for equities. [...]
Randy / Safe Haven:
Brains Filled with Mush while Nation Crumbles -- No longer do we have a Government of the people for the people. Our leaders have been and are continuing to neglect us to the benefit of corporate interests. Sure they make huge promises to get elected, but once in office, it's all about the high power lobbyists and corporate bottom lines. I can't tell you how disgusted I am with the current administration (who I helped to put in office) and the entire pack of leading presidential candidates -- they are all con men/women who are going to tell you what you want to hear, get into office then turn the other cheek. Don't believe for a minute that they care about you or your future -- they are interested in themselves, their futures, their wallets and once in office they will act just like everyone else -- bowing to corporate special interests. [...]
Paul Tustain / BullionVault:
Train Wreck Imminent? -- Next week may hold some unpleasant surprises for some, and I think you may profit from an early warning. We learned yesterday that the British government's guarantee to bail out the creditors of Northern Rock Bank is worth a staggering £100 billion. That's £5,000 [$10,000] per British household. This week the European Central Bank made $500 billion available through money market operations. And only last week $110bn of new money was created by central bank loans with artificially low rates and reduced-quality security. This is money creation on an epic scale. [...]

Friday, December 21, 2007

Bubble Politics

Items of interest:

Paul Krugman / NT Times:
Blindly Into the Bubble -- Conservative Ideology Led to Housing Problems . . .

When announcing Japan’s surrender in 1945, Emperor Hirohito famously explained his decision as follows: “The war situation has developed not necessarily to Japan’s advantage.”

There was a definite Hirohito feel to the explanation Ben Bernanke, the Federal Reserve chairman, gave this week for the Fed’s locking-the-barn-door-after-the-horse-is-gone decision to modestly strengthen regulation of the mortgage industry: “Market discipline has in some cases broken down, and the incentives to follow prudent lending procedures have, at times, eroded.” [...]

William Anderson:
Did Free Market Ideology Cause the Housing Bubble? -- The collapse of the housing bubble was inevitable, but it was not the result of free market ideology. Instead, the housing bubble was nurtured and pushed by those entities that Progressives have created for more than a century. From the Federal Reserve to Deposit Insurance to government-formed financial entities to expand individual home ownership to the vast sums of money taken in taxes – that will be spent to bail out those who engaged in bad lending practices, lenders and borrowers – we see the fingerprints of the hoary Progressive Agenda at every turn. [...]
Paul Jackson / Housing Wire:
The Changing Ethic of Homeownership? -- The Wall Street Journal has a thoughtful look at how the creative lending boom has perhaps fundamentally altered the way many Americans view homeownership.

It’s a change that has caught even Bank of America’s CEO Kenneth Lewis off-guard to some extent:
“There’s been a change in social attitudes toward default,” Mr. Lewis says. Bankers typically have believed that cash-strapped borrowers would fall behind on their credit cards, car payments and other debts — but would regard mortgage defaults as calamities to be avoided at all costs. That isn’t always so anymore, he says.

“We’re seeing people who are current on their credit cards but are defaulting on their mortgages,” Mr. Lewis says. “I’m astonished that people would walk away from their homes.” The clear implication: At least a few cash-strapped borrowers now believe bailing out on a house is one of the easier ways to get their finances back under control.
Not every upside down homeowner will use jingle mail, but if prices drop 30%, the losses for the lenders and investors might well be over $1 trillion (far in excess of the $70 to $80 billion in losses reported so far).
Caroline Baum / Bloomberg:
A Complete Subprime User's Guide, 2007 -- Anyone looking to reflect on the high points of the year in business and finance can pretty much do it in one, maybe two, words: subprime mess.

How the non-payment of mortgage interest by a homeowner in Ft. Myers, Florida -- and others like him -- morphed into an international credit crisis, heaping such huge losses on Wall Street that its biggest banks had to look overseas for a capital infusion, is a story that will be told for years to come. Maybe Wall Street memories will be longer than the crisis this time around. [...]
K. Kelly & J. Horowitz / Wall Street Journal:
Bear's Woes Extend Beyond Mortgages
-- Bear Stearns Cos.' loss in the fourth quarter, the first in its 84-year history, is stoking concerns that the Wall Street firm's troubles extend beyond the mortgage market and into once-steady money makers like the firm's stock and asset-management divisions [...]
John Berlau / National Review:
Follies of the Federal Housing Authority -- How could they have been so stupid?” That’s the million-dollar question being asked as mortgage defaults have increased on loans that carried much more risk then lenders, borrowers, and investors anticipated.

But this question may be overtaken by one with a multibillion -dollar price tag years from now. That may be, “How could our elected representatives have been so stupid?” Despite the valiant efforts of fiscal hawks such as Sen. Tom Coburn (R., Okla.), and several House members in the conservative Republican Study Committee, both bodies of Congress have passed bills to put taxpayers on the hook for more risky loans from the Federal Housing Administration (FHA). And the Bush administration is supporting these bills, despite the fact that this government agency already has a subprime record of subsidizing loans. [...]
Juicy Gossip: Maybe Putin can bail out Wall Street firms with subprime problems?

Putin: Kleptocrat of the Year?Luke Harding / Guardian:
Putin ‘has secret $40bn fortune’ — An unprecedented battle is taking place inside the Kremlin in advance of Vladimir Putin's departure from office, the Guardian has learned, with claims that the president presides over a secret multibillion-dollar fortune. [....]

Thursday, December 20, 2007

Subprime Contagion: The Bear Flu

Items of interest:

David Henry & Matthew Goldstein / BusinessWeek:
The Bear Flu: How It Spread -- A novel financing scheme used by Bear Stearns' hedge funds became a template for subprime disaster.

When the subprime mortgage market began to unravel late in 2006, global bond markets barely flinched. But when two Bear Stearns (BSC) hedge funds collapsed in June, the event sparked a global credit crisis that has yet to ease. New evidence sheds light on how those hedge funds—and their managers—became star players in the subprime bust, the biggest financial disaster in decades. The revelations also show how other players in the mortgage market adopted the Bear funds' tactics, collectively building a financing structure with many of the hallmarks of a pyramid scheme.

The legal consequences are still unfolding. In recent weeks securities regulators and federal prosecutors have stepped up their investigations into the two funds, probing the fuzzy math used to value the underlying assets, the aggressive sales pitches that portrayed the funds as safe, and frequent trades with other Bear-managed portfolios. On Dec. 19, Barclays (BCS), which lent one Bear fund hundreds of millions, filed a lawsuit alleging fraud over misleading statements about the portfolio's health. Says a Bear spokesman: "We believe that any such lawsuit is unjustified and without merit." [...]

The tab from the mortgage mess could run up to $500 billion, and central bankers are struggling to stave off recession. As investigators sort through the wreckage, the records of Bear Stearns' doomed hedge funds are turning out to be some of the most revealing in an era of financial folly.

comment: So, it all boils down to a sophisticated pyramid scheme that toppled?

Rating Subprime Investment Grade Made `Joke' of Credit Experts -- `I'd like to understand why now, when you could have made this move many, many months ago,'' said Steven Eisman, 45, who manages the $1.5 billion FrontPoint Financial Services hedge fund for Morgan Stanley in Greenwich, Connecticut. ``The paper just deteriorates every single month.'' Warrack and Managing Director Susan Barnes, 42, explained S&P's view of the time needed to accurately judge the performance of securities. Eisman cut them off. ``You need to have a better answer,'' he said. [...]

S&P Cuts Alt-A Mortgage Bonds; Analysts Warn on Prime
China Extends Lifeline to Morgan Stanley -- China Investment Corp. will help the Wall Street firm weather its losses with a $5 billion capital infusion as CEO John Mack agrees to forgo his 2007 bonus.

Morgan Stanley has declared a $9.4 billion fourth-quarter mortgage-related write down and has said China Investment Corporation will invest $5 billion to buy up to 9.9% of the US bank.

Six weeks ago, on November 7, Morgan Stanley indicated it was taking a write down of $3.7 billion of subprime assets based on valuations as of October 31. It has now taken another $4.1 billion of write downs based on subprime trading positions on November 30, taking the total to $7.8 billion. It has attributed the situation to the "deterioration and lack of liquidity in the market for subprime and other mortgage-related securities since August 2007". [...]
Tim Iacono / Seeking Alpha:
Foreclosures Have Peaked and It's Time To Buy? Not So Fast -- There were some confusing headlines about foreclosures yesterday. This AP report shows foreclosure filings in the U.S. up 68 percent last month, while BusinessWeek says they're down 10 percent. Rick Sharga of RealityTrac explains that both are correct. [...]

Rick Sharga of RealityTrac discusses foreclosuresclick picture to play video
Felix Salmon / Seeking Alpha:
Morgan Stanley's Horrendous Earnings -- Morgan Stanley's Q3 earnings back in September were bad. "Mack Smacked" was the Portfolio headline, reacting to a lower profit (just $1.54 billion, John Mack's first quarterly earnings decline) and a nasty $940 million write-down on bad loans.

Ah, those were the days. Just look at the Q4 results: an eye-popping $3.56 billion loss, and an even more enormous $9.4 billion write-down on bad mortgages. Many on Wall Street suspected Morgan Stanley's earnings might be bad, but this is literally an order of magnitude worse than expectations:
The loss of $3.61 a share in the three months ended Nov. 30 compares with net income of $1.98 billion, or $1.87 a year earlier. Analysts were estimating a loss of 39 cents, according to a survey by Bloomberg.
I have to say I'm quite flabbergasted at the size of the write-down. Morgan Stanley's meant to be an investment bank, ferchrissakes, not a lender or a bond investor. It has no business holding that sort of quantity of mortgage-backed bonds on its books. And indeed its pure investment-banking business seems to be doing rather well [...]
Seeking Alpha:
Housing Market Tracker - Subprime Review --

Quotes of the Day
“We need a government loan. This country is falling apart. We need customers. We need some help. So many ‘For Sale’ signs in this neighborhood. People just have to leave their homes and run.” - Marcus St. Marie, owner of the Boston Road Furniture store in the Bronx, on the effects of the subprime crisis in his neighborhood. (NY Times, Dec. 17th)

“Financial innovation is great, but you have to have some basic rules. One of the most basic rules is that a borrower should have the ability to repay.” – Sheila Bair, chairman of the Federal Deposit Insurance Corporation. (NY Times, Dec. 18th)
Mortgage applications tumble, MBA says -- Industry trade group's weekly survey says refinance and purchase volumes also declined sharply. [...]
Hovnanian sees rebound, but Street worries -- New Jersey-based luxury builder says it believes profitability will return, but only with a healthy housing market. [...]
Mortgage Fraud blog:
31 Defendants Charged in Massive Mortgage Fraud Scheme -- This scheme involved fraudulent mortgage loans obtained for the purchase of 27 properties located in Miami-Dade and Broward Counties, and in the City of Marco Island, Florida. [...]

Wednesday, December 19, 2007

Person of the Year: The American Homeowner?

CNBC: Homeowner is Person of Year
CNBC Names the American Homeowner as its Person of the Year -- ENGLEWOOD CLIFFS, N.J., Dec. 19, 2007---CNBC, First in Business Worldwide, today named the American Homeowner as Person of the Year in contrast to the announcement this morning that Time magazine named Russian President Vladimir Putin as its Person of the Year.

"There is no question that the subprime mortgage crisis has had a major impact on the U.S. and world economy," said Jonathan Wald, Senior Vice President, Business News, CNBC. "With foreclosures rising sharply and housing prices dropping in virtually all regions of the country, the plight of the American Homeowner is a story whose scope reaches far beyond the U.S. It has also become a critical topic in the 2008 Presidential campaign." [...]

Michelle Kung / Huffington Post:
Putin? Please. CNBC Names The American Homeowner Person Of The Year -- With all respect to Time magazine and their choice of Russian Prez Vladimir Putin as Person Of The Year, CNBC has a different suggestion for the yearly slot: the American Homeowner.

According to CNBC Senior VP Jonathan Wald: "There is no question that the subprime mortgage crisis has had a major impact on the U.S. and world economy. With foreclosures rising sharply and housing prices dropping in virtually all regions of the country, the plight of the American Homeowner is a story whose scope reaches far beyond the U.S. It has also become a critical topic in the 2008 Presidential campaign."

CNBC's readers, however, don't seem to agree with either institution's choice. According to a live poll running on the site, the vast majority of voters seem to be equally cool to both Putin and the American Homeowner, instead wishing Time had picked someone else.

Dicey Home Prices/Mortgages

Items of interest:

credit crunchJames R. Hagerty & Michael Corkery / Wall Street Journal:
How Hidden Incentives Distort Home Prices -- As the housing market slump deepens, disguised discounts are making it harder to tell exactly how much people are paying for homes.

Buyers, sellers and other market participants typically monitor fluctuating home values through sale records that legally have to be listed with county clerks. But incentives offered to buyers -- ranging from free cars or furniture to cash rebates -- are making those prices less reliable as a sign of what buyers actually paid, netting out the giveaways. And that may be misleading lenders and people shopping for homes, some real-estate lawyers and appraisers warn.

KB Home in January sold a new townhome with green siding in the Denver suburb of Parker for $196,000, according to the deed recorded with the Douglas County clerk. But a disclosure form provided to the buyer and seller of a particular property, which isn't part of the public record, shows that home builder KB paid $27,600 to another company, which made a cash payment to the buyer. Netting out that effective discount, the price was $168,400. [...]

discussion: The Big Picture
Fed Plans to Tighten U.S. Mortgage Rules After Crisis -- The Federal Reserve proposed new rules for subprime mortgages, including a ban on low- documentation loans and limits on penalties for borrowers who prepay their debts.

The plans, the Fed's biggest regulatory initiative since Chairman Ben S. Bernanke took office in February 2006, are aimed at curbing lending practices that contributed to record foreclosures. Board members unanimously voted in a hearing today to make lenders responsible for determining whether borrowers can afford their mortgages even after low starter rates expire.

``Mortgage-market discipline has in some cases broken down and the incentives to follow prudent lending procedures have, at times, eroded,'' Bernanke said at the meeting. The proposed new rules ``were carefully crafted'' to deter ``improper lending'' without ``unduly restricting mortgage credit availability,'' he said. [...]
discussion: The Big Picture -- The Fed slams the barn door shut [...]

USA Today: Fed plan reins in dicey mortgage policies
Housing Bubble blog:
It’s A Strange Christmas In California -- Sales of Southern California houses in November fell by 43% from the year before, while median prices fell 10%. [...]
Mortgage Fraud Blog: Florida Straw Buyer Pleads Guilty

Marginal Revolution: The scope of mortgage fraud

Paul Kedrosky / Infectious Greed:
Is Zillow in Freefall? -- Much heralded real estate search and valuation service Zillow seemed perfectly timed for the last two years, and now it seems, well .... vaguely embarrassing. [...]
D. Paletta & J. Hagerty / Wall Street Journal: Fed's Mortgage Proposals Draw Hostility
Editorial / New York Times: Fed Inaction Led to Present Problems
Brian Wingfield & Liz Moyer / Forbes: The Fed's Difficult Choices
William Buiter / VoxEU: Lessons from the Recent Credit Crisis

Going After Countrywide Financial

A company named Enron also went down a path similar to this.

Paul Jackson / Housingwire:
Countrywide Financial Under Investigation for Possible Fraudulent Lending -- Courtesy of Bloomberg, a very in-depth take on the AG investigations at Countrywide Financial.

It’s a headline from last week at this point, which means most probably have heard of this by now — but the interesting part here is that Illinois AG Lisa Madigan goes on camera and discusses her office’s investigation into the lender, saying that she’s focusing on pay-option ARMs in particular.

Which leads to the million dollar question: is it actionable to have qualified a borrower based upon a teaser rate that was in effect only for one month?

Andrew Malcolm blog / LA Times:
Countrywide's political donations examined -- Not long ago, Chief Executive Angelo Mozilo and his Countrywide Finance Corp. were riding high and friends of many politicians. That was before serious problems in the nation's home mortgage industry and the new investigation by securities regulators into the timing of Mozilo’s sale of $145 million in Countrywide stock in the months before those shares went into a nosedive.

Before all this unpleasantness, Mozilo and his company were good for almost $2 million in federal and California campaign donations dating back to 2000, according to research by Dan Morain, The Times' resident expert in campaign finances.

Countrywide’s biggest spending has not been countrywide; it's been concentrated in California, where contribution caps are much less strict: they spent $450,000 for a failed measure to create open primaries and $250,000 on efforts to limit shareholder lawsuits; and gave $150,000 to the California Republican Party and $83,000 to Gov. Arnold Schwarzenegger. [...]
Zac Bissonnette / Blogging Stocks:
Countrywide critics launch website -- Countrywide Financial (NYSE: CFC) has joined an elite class of companies headed by Wal-Mart (NYSE: WMT) -- corporations whose behavior has rendered them the target of so much controversy that their critics have launche websites for the express purpose of trashing them. is, as the name suggests, calling on people not to deposit money with the company until "until it ensures that all subprime borrowers with interest rates that have reset in 2006 or 2007 can keep their homes!" [...]

Tuesday, December 18, 2007

Durham/Duke Lacrosse Rape Hoax Conspiracy Lawsuit

"This case is a reckoning; it is an accounting of those who were willing to obstruct and pervert justice to serve their own selfish aims, those who had the power to intervene and did not, and the damage they have done" -- Archer, Wilson, McFadyen lawsuit
A legal lump of coal has been dropped in the Christmas stockings of Duke University, the City of Durham, Mike Nifong, the DNA Lab and all who conspired to railroad members of the Duke lacrosse team. This is a compelling and powerful lawsuit that reads like a sequel to the book Until Proven Innocent.

Breck Archer, Ryan McFadyen and Matt Wilson file lawsuit against Duke, Durham, Nifong and DNA LabTamara Gibbs / ABC11-TV:
Unindicted Duke LAX players sue Duke University -- In a filing Tuesday in Federal Court, unindicted Duke Lacrosse players are suing Duke University, the City of Durham, Duke University professors, Mike Nifong and the DNA lab involved in the case.

The suit also names doctors and nurses who treated the alleged victim the night she claimed she'd been raped at a party. The players are also suing City Manager Patrick Baker and former Durham Police Chief Stephen Chalmers. As part of the investigation, the unindicted players had to give up DNA samples and were named in the school paper.

In the 404-page lawsuit, the players say that Duke University, the City of Durham and the other defendants were part of a "conspiracy to railroad 47 Duke University students" based on "the transparently false claim of rape, sexual offense, and kidnapping made by a clinically unreliable accuser." Also in the lawsuit, the players say that the accuser's claim was "taken virtually from her lips and fashioned into a weapon in the hands of those who would leverage outrage." [...]
Anne Blythe / News & Observer:
Three more lacrosse players file suits -- Three players not charged in the infamous Duke lacrosse case filed a lawsuit against Duke University, top administrators, fallen prosecutor Mike Nifong, the city and a long list of others.

The suit, filed by Breck Archer, Ryan McFadyen and Matt Wilson, is the latest in a string stemming from the university's handling of an escort service dancer's unfounded allegations that she was gang-raped at a lacrosse team party in March 2006.

In the 400-page complaint, Robert Ekstrand, the Durham lawyer representing the players, lists 35 causes of action that range from negligent infliction of emotional distress to fraud.

The players have listed dozens -- from such high-ranking Duke officials as President Richard Brodhead down to a public spokeswoman for the Durham police department -- as defendants in the suit. [...]
Herald-Sun: More lacrosse players file lawsuit

Duke Chronicle:
Three unindicted laxers sue Duke, Nifong, Durham
LieStoppers blog:
Summary of the Action in the new Civil Lawsuit
New civil lawsuit filed in Duke Lacrosse Frame
LieStoppers forum: Unindicted players filed today
FreeRepublic: Unindicted Duke LAX players sue Duke University

Some of the more interesting revelations:
  1. SANE Nurse Levicy Produced Falsified Medical Records to Support Her Fabrications.
  2. The false accuser, Crystal Mangum, was coached and provided Durham PD photos in order to help in her false indentification of suspects.
  3. Mangum was motivated to lie in order to keep the Dept. of Social Services from taking her children into custody.
  4. The Duke Police Department had primary police jurisdiction over the Duke owned lacrosse house and they failed to investigate, do their required job, and protect their students.
TJN: Lacrosse timeline/archive

"I never made a loan that Wall Street wouldn't buy"

Items of interest:

Fast times at California boiler room lender

Daniel Sadek carries actress Nadia Bjorlin on the red carpet at premier of movie Redline, in LA on April 12, 2007Bob Ivry / Bloomberg:
`Deal With Devil' Funded Carrera Crash Before Subprime Shakeout -- One week in 2002, Daniel Sadek was $6,000 short of covering the payroll for his new subprime mortgage company, Quick Loan Funding Corp. So he flew to Las Vegas and put a $5,000 chip on the blackjack table.

``I could have borrowed the money, I suppose,'' Sadek says.

That wouldn't have been his style. With his shoulder-length hair and beard, torn jeans and T-shirts with slogans such as ``Where is God?'' Sadek looked more like a guitarist for Guns N' Roses than a mortgage banker.

Sadek says he was dealt a jack, then an ace. Blackjack. He would make payroll. Quick Loan Funding, based in Costa Mesa, California, would survive and, for a while, prosper as one of 1,300 mortgage lenders in the state vying to satisfy Wall Street's thirst for subprime debt.

As home prices rose and hunger for high-yield investments grew, Sadek found his niche pushing mortgages to borrowers with poor credit. Such subprime home loans grew to $600 billion, or 21 percent, of all U.S. mortages last year from $160 billion, or 7 percent, in 2001, according to Inside Mortgage Finance, an industry newsletter. [...]

``I never made a loan that Wall Street wouldn't buy,'' Sadek says. [...]
San Francisco Chronicle:
Guilty plea in subprime mortgage scam -- An Alameda County man pleaded guilty Monday to lying to a federal grand jury that is investigating subprime mortgage fraud in San Joaquin County, prosecutors said.

John Ngo, 27, of Dublin, a former senior loan coordinator for Long Beach Mortgage Co., admitted receiving payments from the company's sales representatives to get loan applications approved despite knowing that many of the applications were fraudulent, said the office of U.S. Attorney McGregor Scott in Sacramento. [...]
The Maestro at work, sweeping subprime mortgage dirt under the carpet.

Greenspan did not want to investigage deceptive lendingNY Times:
Fed Shrugged as Subprime Crisis Spread -- Until the boom in subprime mortgages turned into a national nightmare this summer, the few people who tried to warn federal banking officials might as well have been talking to themselves.

Edward M. Gramlich, a Federal Reserve governor who died in September, warned nearly seven years ago that a fast-growing new breed of lenders was luring many people into risky mortgages they could not afford.

But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman. [...]

“Hindsight is always 20-20, but it’s clear the Fed should have acted earlier,” said Ms. Bair, who became chairman of the Federal Deposit Insurance Corporation in 2006. “Financial innovation is great, but you have to have some basic rules. One of the most basic rules is that a borrower should have the ability to repay.” [...]
Bill Fleckenstein / MSN Money:
Another Fed gift to Wall Street -- The bulls thought last week's quarter-point interest-rate cut wasn't enough. So the central bank found another way to lift the spirits of our bailout nation.

Hours before the Federal Reserve announced its liquidity plan Wednesday, I wrote in my daily column on my Web site: "I suppose now the bulls will start chanting 'inter-meeting rate cut' or some other battle cry."

Little did I know how swiftly and dramatically their prayers would be answered. [...]

The Fed tends its flock

Then, shortly before the market's opening, the Fed announced its new term-auction-facility plan, whereby banks can borrow (pledging collateral to be determined) and receive funds at the prevailing rate that day. Thus, those who believe that markets should go up 1% or more a day -- but that the risks should be borne by the government -- won another round. [...]
IowaHawk: Please Don't Destroy My American DreamPaul Kedrosky / Infectious Greed:
The Real Subprime Backstory -- I really don't know how best to summarize IowaHawk's you-are-there white-trash treatise on the origins of the subprime crisis other than to say, read it. If you crossed Hunter Thompson and Michael Lewis, you might get something this angry and bizarre. [...]
IowaHawk: one afternoon while parked outside QuikTrip, Kyle, Chuck and I heard an advertisement on Q-103 for no-money-down, interest-only discount home loans at First Coralville Mortgage. Best yet, the ad promised a free First Coralville Igloo mini-kooler for all applicants regardless of approval! I decided to call for an appointment on the QT pay phone, before Ramesh chased us out.

The whole home buying process can be confusing and intimidating, especially for first time buyers. Luckily, First Coralville mortgage broker Linda Mustaine was there to help guide me through all the steps. Linda explained that the first step to home ownership was getting pre-qualified for a loan. I was surprised to learn that my lack of a full-time "paying job" was no barrier, thanks to FCM's exciting RapidNow Subprime HomeCash program. [...]

Monday, December 17, 2007

O Maestro! O Confidence Man!

Items of interest - updated:

Greenspan: Throw Cash At Mortgage CrisisTim Iacono / Seeking Alpha:
Greenspan: Throw Cash At Mortgage Crisis -- Wow! Talk about moral hazards. Is it possible there could be a bigger moral hazard than Alan Greenspan's proposed solution to the housing crisis?

"Cash from the government", presumably deposited directly into the bank accounts of homeowners who are about to lose their homes, is the former Fed Chairman's solution to the current foreclosure crisis. He added, "Cash is available and we should use that in as large amounts as is necessary to solve the problems".

[You might think I'm starting to just make this stuff up but I'm not.]

The Maestro was on ABC's This Week with George Stephanopolus yesterday and weighed in a variety of subjects, none of which involved any culpability on his part for the mess that is the current U.S. economy and global financial system. [...]

Lawrence Kudlow / Real Clear Politics:
Bernanke Blows Smoke -- Ben Bernanke's Federal Reserve blew smoke at the markets last week, and markets blew smoke right back. Nothing was solved in terms of the growing global credit crisis, the result of a sub-prime virus that continues to infect money and capital markets everywhere.

Instead of taking aggressive action with a half-point shock-and-awe rate cut, the Fed opted for a timid quarter-point cut. The result was a sharp drop in stocks around the world. It then announced a more generous discount-window lending facility in coordination with global central banks. But that didn't work either. [...]
Michael Watkins / Business Week:
Subprime: A Predictable Surprise -- Michael Watkins on how the subprime crisis provides another textbook example of the theory of predictable surprises and how to prevent the disasters they bring [...]

In a July 7, 2007, interview with the Financial Times, former Citigroup CEO Charles Prince III unknowingly uttered his epitaph: "When the music stops, in terms of liquidity, things will get complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing." [...]
The Group of '5'

Mark Pittman / Bloomberg:
Subprime Securities Market Began as `Group of 5' Over Chinese -- Representatives of five of Wall Street's dominant investment banks gathered around a blonde wood conference table on a February night almost three years ago. Their talks over take-out Chinese food led to the perfect formula for a U.S. housing collapse. [...]
S. California counties most affected by credit crisisWall Street Journal:
Mortgage-Relief Plan Divides Neighbors -- A mortgage-relief plan being pushed by the government is supposed to help debt-laden homeowners across America. But it's creating dashed hopes and fresh tensions in this city that mushroomed during the subprime-lending boom. [...]

The state's highest number of foreclosures is in the Inland Empire, a region of 4.1 million people. The area might seem ripe for the mortgage-rescue plan, which would freeze interest rates for certain borrowers who have kept current on their loan payments but can't afford scheduled interest-rate increases over the next two years. The Inland Empire was a builder's delight in recent years as middle-class families increasingly were priced out of Los Angeles and Orange County. Giants such as Lennar Corp., KB Home and Beazer Homes USA Inc. uprooted citrus groves and paved over dairy farms to blanket the area with tract housing and upscale developments. [...]

Sunday, December 16, 2007

Wrapped in the coils of debt

US economy wrapped in the coils of debt
James Grant / Op-Ed Contributor / NY Times:
Nobody Knows -- ECONOMISTS cannot reliably forecast recessions. Nor can they detect for certain when a recession is in progress. Only after the fact do the official cyclical timekeepers identify the beginning and ending dates of a slump.

Though deficient in the powers of foresight and observation, economists do believe they know how to treat an economy on the brink of recession, as this one seems to be. They administer what non-economists know as the “hair of the dog that bit you.”

But booms not only precede busts, they also cause them. Bargain-basement interest rates are a potent stimulant. Borrowing more than they might at higher rates, people stretch. Businesses stock up on labor, machinery and buildings. Consumers buy cars and houses — houses, especially, these past five years. The G.D.P. takes flight.

Then unwelcome facts intrude. Easy money, it seems, was an illusion. Society was not so rich as it seemed. The prosperous future for which people had collectively prepared is slow to arrive. The inflation rate picks up. Supposedly creditworthy consumers and businesses turn out to be risky. [...]

The world’s top economy seems curiously sluggish. And the economists and politicians ask, “What happened to America’s dynamic economy?” The answer: It’s wrapped in the coils of debt.

comment: Reading James Grant is like taking a cold shower. When Greenspan retired in October 2005 Grant bid him farewell with a biting O Sage! O Confidence Man! article in Forbes that presaged the current credit crisis.
Paul Kedrosky / Seeking Alpha:
Subprime Crisis Claims California: Arnold to Declare Fiscal Emergency

Saturday, December 15, 2007

The timeless subprime mortgage narrative — Busting many budding Bailey's of billions (say that 10x)

Lionel Barrymore as the banker Henry F. Potter and Jimmy Stewart as the idealistic George BaileyLionel Barrymore as the banker Henry F. Potter and Jimmy Stewart as the idealistic George Bailey in It's a Wonderful Life.

Paul Kedrosky / Infectious Greed:
George "It's a Wonderful Life" Bailey on Subprime -- If you think about it, the classic Christmas film It's a Wonderful Life is really about subprime mortgages. An example: George Bailey's emotionally manipulative speech directed at bank manager Mr. Potter in support of a $5,000 home loan given to someone with dodgy finances, a loan with which Potter disagreed:
George Bailey: What'd you say just a minute ago? . . . They had to wait and save their money before they even ought to think of a decent home. Wait! Wait for what? Until their children grow up and leave them? Until they're so old and broken-down that they . . . Do you know how long it takes a working man to save five thousand dollars? Just remember this, Mr. Potter, that this rabble you're talking about . . . they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?
Here is some of the handiwork that contemporary George Bailey's have wrought. Where was Potter? The rabble cleaned out billions.

Top Subprime Lenders before the bust

Friday, December 14, 2007

Bad Mortgages Coming Home to Roost

Items of interest - updated:

structured investment vehiclesWiping away the sins.

Shannon D. Harrington & Elizabeth Hester / Bloomber:
Citigroup Rescues SIVs With $58 Billion Debt Bailout -- Citigroup Inc. will take over seven troubled investment funds and assume $58 billion of debt to avoid forced asset sales that would further erode confidence in capital markets. Moody's Investors Service lowered the bank's credit ratings.

The biggest U.S. bank by assets will rescue the so-called structured investment vehicles, or SIVs, taking responsibility for their $49 billion of assets, the New York-based company said in a statement late yesterday. [...]

``It speaks to a change in leadership,'' Joshua Rosner, managing director at Graham Fisher & Co., whose New York-based firm analyzes structured finance and real estate investments. ``It speaks to a new management who can wipe away the sins, call them someone else's and start to heal.'' [...]

Ben Jones / Housing Bubble blog:
The Ballooning Of Easy Credit Has Come Back To Roost -- [reports from Illinois, Michigan, and Wisconsin ... "times are less than good in real estate these days.”]
via Infectious Greed / Wall Street Journal:
How Goldman Won Big on the Mortgage Meltdown -- A Team's Bearish Bets
Netted Firm Billions; A Nudge From the CFO

...The group's big bet that securities backed by risky home loans would fall in value generated nearly $4 billion of profits during the year ended Nov. 30, according to people familiar with the firm's finances. Those gains erased $1.5 billion to $2 billion of mortgage-related losses elsewhere in the firm. On Tuesday, despite a terrible November and some of the worst market conditions in decades, Goldman is expected to report record net annual income of more than $11 billion. . .
BInTrade: Recession 2008eSpoke:
Recession Odds Stable at 45% --

Even though many have said that the 25 basis point cut by the Fed this week increased the odds of a recession because it was not enough, prediction markets have indicated that odds remain the same. Currently, the Intrade contract is putting the odds of a recession (2 consecutive quarters of negative GDP growth) in 2008 at 45.5%. As shown in the historical chart below, the odds have actually been trending slightly lower since mid-November.
Housing Doom blog:
Phoenix Home Sales: Lowest Median Price Since May 2005 -- many of the vacant homes are in submarkets that current buyers do not want, due to travel congestion, higher energy costs, lack of area amenities and uncertainty about the future appreciation in the area,” said Butler. “Thus, the 2007 resale housing market continues to show signs of increasing weaknesses that are well below the expectations of even a few months ago.” [...]

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