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    Daily Digest – Apr 14

    by Davos

    Tuesday, April 14, 2009, 1:10 PM

  • Another House Price Round Trip to the 1990s
  • Uncle Jay Explains the News – Soclalism Video
  • Treasury Directs GM to Prepare for BK
  • Baltics: Fitch downgrade and more downgrades to come
  • Protest at the San Francisco Fed
  • California Budget and Economy Examined: 8th Largest Global Economy Still on the Brink.
  • Is TARP Investigator on Collision Course With Treasury on Bank Assets?
  • China Cuts Purchases of Treasuries and Foreign Bonds
  • They shoot real estate agents, don’t they? (H/T Zombie210)
  • Michigan Facing "Economic Katrina" If GM Files for Bankruptcy, Rep. McCotter Says (H/T Christopher Peters)
  • Bear Attack (Video H/T CM)
  • Phone Taxes are Cell He$&

Economy

Another House Price Round Trip to the 1990s

Here is the price history for the featured 3 bedroom, 2 bath, 2 car garage home:

May 1992: $115,500

April 2003: $275,000

April 2006: $440,000

March 2009: $135,000 (REO)

Uncle Jay Explains the News – Soclalism Video

Treasury Directs GM to Prepare for BK

From the NY Times: ‘Surgical’ Bankruptcy Possible for G.M.

The Treasury Department is directing General Motors to lay the groundwork for a bankruptcy filing by a June 1 deadline… The goal is to prepare for a fast "surgical" bankruptcy, the people who had been briefed on the plans said.

One plan under consideration would create a new company that would buy the "good" assets of G.M. almost immediately after the carmaker files for bankruptcy.

Treasury officials are examining one potential outcome in which the "good G.M." enters and exits bankruptcy protection in as little as two weeks.

Baltics: Fitch downgrade and more downgrades to come

The first time I wrote about the Baltics was back in August in a post entitled, "Are the Baltics the new Argentina?." Since then, things have gotten progressively worse and the Baltics are clearly in Depression with Latvia leading the way to the downside. The credit ratings agencies have caught on to this and Fitch is marking the countries down near and into junk territory with negative outlooks. Win Thin of Brown Brothers Harriman has a good read on what to make of this:

Fitch downgraded the Baltics and kept the outlooks at negative. Estonia was cut to BBB+ from A- Latvia was cut to BB+ from BBB-, and Lithuania was cut to BBB from BBB+. The only surprise to us was that the downgrades weren’t deeper, as we see eventual junk status (below BBB-) for all three. As we noted in our most recent FX quarterly, the ratings agencies have been overly generous with Eastern Europe, particularly the Baltics. Our sovereign rating model puts Estonia at a BB/Ba2/BB rating, way below actual ratings of A/A1/BBB+. For Lithuania, we rate it BB+ vs. actual BBB/A2/BBB. For Latvia, we rate it B+ vs. actual BB+/Baa1/BB+. Others that are overrated in the region include Bulgaria (we rate it BB- vs. actual BBB/Baa3/BBB-), Hungary (we rate it BB vs. actual BBB-/Baa1/BBB, and Romania (we rate it BB vs. actual BB+/Baa3/BB+).

Protest at the San Francisco Fed

A couple of photos from the "A New Way Forward" protest at the San Francisco Fed yesterday. Photo credit: Darin Greyerbiehl, 4/11/2009. More photos here.

California Budget and Economy Examined: 8th Largest Global Economy Still on the Brink

Now let us break down the numbers. Personal income tax makes up 49 percent of all incoming revenue. Sales tax makes up 34 percent of all incoming revenue. These two line items make up over 80 percent of a state budget that is well over $100 billion. And these are two line items that are receding like the tide. First, personal income tax is falling because a state with 2 million unemployed is not paying as much taxes. In addition, those who are still working, many on commission-based industries like real estate and finance are not pulling in salaries from boom time days. What happens? Less taxes are paid. And with less earnings people are spending less. What does this translate to in the economy?

Is TARP Investigator on Collision Course With Treasury on Bank Assets?

This could get interesting. The Financial Times tells us that Neil Barofsky, the special investigator general for the TARP, is looking whether banks cooked their books by overvaluing assets to qualify for TARP funding, Remember, bank had to fall into this funny construct of being sick enough to need help, but not so sick as to be terminal.

And since we are widely reading reports of banks carrying lots of mortgage paper at higher than 80 cents on the dollar (we’ve even seen reports of over 90 cents on the dollar being common) it would appear that Barofsky’s suspicions are well founded.

So play this out: we have the public private partnerships designed to hoover up assets at well above market levels. These programs are voluntary, so the banks most decidedly will not sell assets unless they get a price that is above the current carrying value on their books. And recent research suggests that, contrary to the Treasury’s claims otherwise, the current market values are likely to reflect accurately what this dreck is worth. So taxpayers are being asked to overpay substantially for junk in an opaque and unnecessarily costly subsidy (the need to bring in the private asset managers as a fig leaf only adds costs, since they need to somehow see decent odds of a positive return). And doing it this way, by making an indirect subsidy to the banks, excludes the overpayment from what the government calculates as its subsidy to each bank. The more the taxpayers perceive they have given to a Citi or a BofA, the more they are entitled to demand control, or at least more restraints (particularly on risk taking. Why should these banks be gambling with taxpayer funds to enrich shareholders?). So muffing the equation helps the plutocracy.

China Cuts Purchases of Treasuries and Foreign Bonds

There have also been some signs that Americans may consume less and save more money in response to hard economic times. This would further decrease the American dependence on Chinese savings.

Yves here. That is more than a tad misleading. All signs are that consumer savings are debt reduction (the official reports of "savings" merely measures income versus consumption and does not differentiate whether the difference is debt paydown or an increase in liquid assets that could be used for investments such as Treasuries). The picture is further muddied by the clampdown on consumer credit. Money mavens for the masses such as Suze Orman, who formerly advised paying down on credit card debt as quickly as possible, now are telling consumers to build up an 8 month cash reserve and make only minimum card payments, since card companies are often cutting credit lines and not extending new credit. Thus families can no longer rely on credit cards as a source of emergency money and need to look to their own resources.

They shoot real estate agents, don’t they? (H/T Zombie210)

April 11, 2009 | It’s a terrible thing to come to terms with, but I am the reason the world is in an economic tailspin. Me, alone. All those foreclosures, short sales, bank failures, job losses, bailouts, plummeting stocks, the ripple effect into Europe, China, even Madoff: all my fault. Moi. That last house I sold at 253 Carrington Way? That was the tipping point, I’m convinced. I sold it for $657,500 in August 2005, and now Zillow is damning it at $537,000. I would weep to call the owners now and say, hey, want a market analysis? Sound like fun? I know, you’d rather shove shards of glass under your fingernails, I hear you.

In any case, I’m your neighborhood real estate agent, and I’m really, really sorry.

Michigan Facing "Economic Katrina" If GM Files for Bankruptcy, Rep. McCotter Says (Video – H/T Christopher Peters)

Bear Attack (Video H/T CM)

Phone Taxes are Cell He$&

Eleven federal, state and city levies add as much as 33 percent to the cost of New Yorkers’ cellphones, a Post analysis found.

A typical cell plan costing $49.99 a month comes with a total tax bill of $10.59 — a 21.18 percent tax rate that helps give New York the fourth-highest cellphone taxes of any state.

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