Daily Digest - March 5
- Hanging On, or How to Get Through a Depression and Enjoy Life
- FDIC's Bair Says Insurance Fund Could Be Insolvent This Year
- Hidden Pension Fiasco May Foment Another $1 Trillion Bailout
- Government Bailing Out Foreign Interests With Your Tax Dollars (AIG, C)
- (Former AIG CEO) Greenberg Sues AIG for Securities Fraud (Sachs CEO at 7:30+/-, Goldman Got 100% Coverage, Governments Can't Run Companies10:50, They Have Trouble Running Themselves)
- Auto "Sales"
- More Than 8.3 Million U.S. Mortgages Are Under Water
- Obama's mortgage relief and housing plan
- Second Liens Forgiven: Are You Kidding Me? (Hat Tip Lisa G)
- 2nd Liens Forgiven: The institution I work for has already said they will not be apart of this plan.
- Hedgies Placing Strong Bets on Private-Party MBS
- Is This The Bottom? (Humor H/T CM)
- Former Countrywide Officers Seek to Profit From Mortgage Mess They Helped Create
- As projects grind to a halt, home sites turn to wasteland
- Rhode Island Battles High Unemployment (H/T Zombie210)
- U.S. Oil Demand Hit Lowest Point in Decade (H/T/ Zombie210)
- ISM Service (February)
One of the undercurrents of this book, in my view, was how long it took the author and many others to realize just how drastically their circumstances had changed and that the depression was not going away anytime soon. Though Love notes that some historians later would divide the depression into different phases (depression, recovery), for him there was little to distinguish these years and when the depression finally did end, it did so fairly suddenly.
As the author explains, the depression, at least at its worst, did not happen overnight and the author was not greatly impacted in the early stages. For instance, in September 1929 between graduating high school and starting college the author attended a military school in Missouri for a year. He notes that between semesters some classmates could not afford to return. His father lost most of his money in the Oct 1929 crash, ended up in debt, had to mortgage the lumberyard and came close to bankruptcy (46). However, the author, away at military school was largely unaware of this. Several of the authors' friends fathers also had lost big in the stock market and many people were worried about slow 1930 model car sales.
His family and others families started to cut spending (47). Still, though people were careful, they were still largely optimistic at that time hoping "[t]hings would be better in the spring when people started building houses again. The situation was only temporary" (48).
March 4 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said the deposit insurance fund could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.
"Without these assessments, the deposit insurance fund could become insolvent this year," Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group.
"A large number" of bank failures may occur through 2010 because of "rapidly deteriorating economic conditions," Bair said in the letter. "Without substantial amounts of additional assessment revenue in the near future, current projections indicate that the fund balance will approach zero or even become negative."
The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.
With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.
That lack of funds explains why dozens of retirement plans in the U.S. have issued more than $50 billion in pension obligation bonds during the past 25 years -- more than half of them since 1997 -- public records show.
The quick fix for pension funds becomes a future albatross for taxpayers.
In the CTA deal, the fund borrowed $1.9 billion by promising to pay bondholders a 6.8 percent return. The proceeds of the bond sale, held in a money market fund, earned 2 percent -- 70 percent less than what the fund was paying for the loan.
The public gets nothing from pension bonds -- other than a chance to at least temporarily avoid paying for higher pension fund contributions. Pension bonds portend the possibility of steep tax increases.
Hillary Clinton traipsed around China with one message: Keep buying our debt. We need your money to stimulate our economy.
That might start to look risky to the Chinese, who can't really believe that the US' AAA-rating is all it's cracked up to be. But in order to keep them on board, we've already started promising our foreign financiers that we'll bail them out if their US investments go sour.
The bailout of AIG was really just a bailout of the company's counterparties, many of which were based in Europe.
And when we bailed out Citigroup (C) we ensured that the foreign holders of preferred shares would get a nice premium, so that they didn't have to get a massive dilution like everyone else.
But we can't complain, because we depend so much on their money. How could we not bail them out?
March 4 (Bloomberg) -- More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said.
An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today. Households with negative equity or near it account for a quarter of all mortgage holders.
Amid the dozens of pages of details of the Obama mortgage modification plan, one new element will likely not make it into the headlines because it's something of an afterthought.
It has to do with second liens, that is piggy back loans or home equity lines of credit.
Deep deep in the pages of the plan, is paragraph vi. Second Liens: While eligibly loan modifications will not require any participation by second lien holders, the program will include additional incentives to extinguish second liens on loans modified under the program in order to reduce the overall indebtedness of the borrower and improve loan performance. Servicers will be eligible to receive compensation when they contact second lien holders and extinguish valid junior liens. Servicers will be reimbursed for the release according to the specified schedule, and will also receive an extra $250 for obtaining a release of a valid second lien.
The institution I work for has already said they will not be apart of this plan. They will only assist with the first mortgage. The bank will make more than 250 dollars if they continue to collect or charge off the home equity line. They can also foreclose on the second mortgage. (Lundsta)
Top bond traders are not as worried about pending cramdown legislation as some might think - and some are now loading up on Alt-A MBS after what they see as a fear-based sell-off. According to top traders in asset-backed hedge funds who spoke with HousingWire, they're now loading up on certain subprime and Alt-A products while telling investors to expect big returns this year from distressed asset bets in the residential mortgage sector.
"Sure it's spotty, not everything is moving, but we are definitely trading MBS and making a market," a trader with New York-based Guggenheim Partners, LLC said Friday on condition of anonymity. "What's moving now is the last cash-flow senior tranche subprime bonds. At prices in the low 20s, it's hit bottom and the top ABS traders in hedge funds are gobbling it up."
"It is sort of like the arsonist who sets fire to the house and then buys up the charred remains and resells it," said Margot Saunders, a lawyer with the National Consumer Law Center, which for years has sought to place limits on what it calls abusive lending practices by Countrywide and other companies....
By day, it's far too quiet at the site of a planned housing and retail development on a former Navy base in Oakland.
At night, neighbors can hear the thieves come out.
They rip out copper wire, haul away pipes and take anything else they can steal from dozens of buildings on the site, abandoned after Irvine developer SunCal Cos. fell victim to the economy.
It's a scene not uncommon throughout California, as residential construction grinds to a halt under the dual weight of the credit crunch and the housing crisis: a rusty chain the only barrier between the community and a half-built structure in Hollywood; a bare dirt lot in Pasadena; old stoves amid the trash at the site in Oakland.
"I hear hacking and see scary bonfires in the middle of the night," said Don Johnson, a retired Coast Guard employee who lives near the defunct Oak Knoll Naval Medical Center in Oakland.
Nearly 250 residential developments with a combined total of 9,389 houses and condominiums have been halted in California, according to research firm Hanley Wood Market Intelligence. The units, worth close to $3.5 billion, were in various stages of development.
U.S. oil demand in December was revised down by 4.0 percent
from an early estimate to a final number of 19.199 million barrels per
day, bringing consumption for the year to its lowest level since 1998,
the Energy Information Administration said Friday.
U.S. oil demand in December was 794,000 bpd lower than the
previous estimate of 19.993 million bpd and down 1.520 million bpd, or
7.3 percent, from oil demand of 20.719 million bpd a year earlier, the
U.S. oil demand for 2008 was down 6.1 percent, or 1.261 million
bpd lower, to 19.419 million bpd, compared with 2007, the lowest yearly
demand level since 1998, the EIA said.