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    Daily Digest – August 22

    by Davos

    Saturday, August 22, 2009, 2:37 PM

  • Ouch. Colonial Left a Mark! (on Loans)
  • Commercial Real Estate: There Goes the (Entire) Bubble (Chart on page)
  • Peter Schiff on AIG (H/T iDoctor)
  • 1 in 10 1 in 8 US Mortgages Falling Behind (CHART)
  • Seriously Delinquent and in Foreclosure by Type of Loan From Calculated Risk Blog (Chart)
  • Andy Xie: New Bubble Threatens a V-Shaped Rebound
  • King Report: Phony Philly Forecast
  • Guaranty Bank: OTS Closes the Barn Door
  • Film Feedback
  • Oh Oh…. Trouble Dead Ahead

Economy

Ouch. Colonial Left a Mark! (on Loans)

Yes, Colonial had some really bad loans. Peter Eavis quoted Daryl Bible, BB&T’s chief financial officer: “When we looked at Colonial’s portfolio versus ours, we saw a lot of borrowers we turned away.”

Still it appears the BB&T / Colonial marks are the lowest yet.

Commercial Real Estate: There Goes the (Entire) Bubble (Chart on page)

Peter Schiff on AIG (H/T iDoctor)

[video:http://www.youtube.com/watch?v=X95u0TFbfQA]

1 in 10 1 in 8 US Mortgages Falling Behind

This is an astonishing number:

“A survey found that one in eight U.S. households with mortgages was in foreclosure or behind on its mortgage payments during the second quarter, putting added pressure on programs aimed at preventing foreclosures.”

As previously discussed, subprime is no longer the main offender — Prime mortgages are becoming delinquent at an accelerating pace:

1 in 10 1 in 8 US Mortgages Falling Behind (CHART)

Seriously Delinquent and in Foreclosure by type of loan from Calculated Risk Blog (Chart)

Andy Xie: New Bubble Threatens a V-Shaped Rebound

The process is called Schumpeterian creative destruction. Keynesian thinking ignores structural imbalance and focuses only on aggregate demand. In normal situations, Keynesian thinking is fine. However, when a recession is caused by the bursting of a big bubble, Keynesian thinking no longer works.

King Report: Phony Philly Forecast

Is Bernanke purposely aiding & abetting the usual market manipulation that occurs during expiration

week? In July, Ben poured $80.2B into the system, mostly by monetizing MBS, during expiration week, igniting a huge rally. The Fed balance sheet contracted for most of June and July before Ben’s gambit.

For the week ended Wednesday, Ben increased the Fed balance sheet $46.157B. Ben monetized

$66.646B MBS this time.

Guaranty Bank: OTS Closes the Barn Door

It has been widely reported that the assets of Guaranty Bank (Texas) will be seized Friday by the FDIC and sold to Banco Bilbao Vizcaya Argentaria SA of Spain.

Meanwhile the OTS issued a Prompt Corrective Action (PCA) to Guaranty yesterday. Maybe they didn’t get the memo …

Film Feedback

Mike: I have now had the pleasure of watching “Broke” three times. I seem to gain more understanding of its message each time. I believe the video could have been shot at anytime in human history, had the technology been available. This is because the film is about human behavior and the lies humans tell themselves (and others) to justify their responses to stress. What you have generously allowed your “actors” to reveal to viewers are the attempts by them to handle a more and more complicated life. When applied to the markets, through the film, one can begin to understand how participant behavior shapes price discovery and movement. In fact I have been able to broadly apply what I have learned from “Broke” to my own trading (and my own behavior). Indeed the film has served as reinforcement to some theories I have long held – which are not very popular with my friends. It’s all there to be seen in “Broke” – greed, hypocrisy, blame, insight, sloth, vengeance, fear, ignorance, enlightenment (stop me now), but by far my favorite is the interplay between the Shepard (big brother, government, religion?) and his sheep (investors, traders, everyone?). The unpredictable herd changes play like the trend reversals in trading and serve to inform and profit those who can be taught how to approach making money. What a gift is “Broke.” Thanks, Jack

Oh Oh…. Trouble Dead Ahead

You can read the original article at the above link, or I’ll just point out the important parts: foreigners are rejecting virtually all forms of US debt, most specifically corporate and agency (mortgages.)

The only place foreigners are “still buying” is in the Treasury market, and one wonders: for how much longer, and how much of that is really foreign buying?

Not that it matters. This debt is being rejected because foreigners have no faith in the future of its value. It is not just the risk of default any more – it is also the risk of currency translation going “the wrong way” to an extreme degree, potentially destroying the buyer’s purchasing power even if a formal default does not occur.

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