Wednesday, September 30, 2009

CIT's shaky future hurts small biz

From NPR Marketplace

CIT is this country's biggest lender to small and medium-sized businesses. Chances are though, you'd never heard of it 'til this summer when it ran into some trouble over how much money it owed. It tiptoed away from Chapter 11 back then, thanks in part to a $2 billion donation from the TARP. . .

There are reports today CIT is once again scrambling to work out a deal with its bondholders. If that deal does not work out, CIT may become one of the biggest bankruptcies in this country ever.

link here

FDIC Discloses Deposit Insurance Fund Is Now Negative

from zerohedge.com

"In an unprecedented disclosure, the FDIC has highlighted that it expects the DIF reserve ratio to be negative as of September 30. As there are a whopping 48 hours before that deadline, one can safely assume that the DIF is now well into negative territory: as of today depositors have no insurance courtesy of a banking system that has leeched out all the capital of the Federal Deposit Insurance Corporation. Let's pray there is no run on the bank soon."

Link here

Monday, September 28, 2009

Dollar carry trade

Voltron says: Low US interest rates mean FX traders can borrow dollars cheap and invest them in high interest rate currencies like the australian dollar. The kicker is that you gain if the dollar falls due to inflation.

http://www.businessinsider.com/dollar-carry-traders-take-advantage-of-fed-stimulus-2009-9

Sunday, September 27, 2009

CBO says Social Security in the red by next year

Voltron says: The upswing back into the black assumes a "V" shaped economic recovery.
http://crfb.org/blogs/cbo-projects-social-security-deficits-2010

Friday, September 25, 2009

Humor: Elephant in the room (video)

http://www.youtube.com/v/RYA0DsPcbaU

U.S. Bailout at $11.6 Trillion

To put $11,600 Billion into context, consider some major US expenses, adjusted for inflation:

Marshall Plan: $115.3B
Louisiana Purchase: $217B
Apollo Moon Shots: $237B
S&L Bailout: $256B
Korean War: $454B
the New Deal: $500
Operation Iraqi Freedom: $597B
Vietnam War: $698B
NASA (total): $851.2B
WWII: $3.6T

http://www.ritholtz.com/blog/2009/09/bailout-costs-to-date/

Loan Losses Triple-Slam The Banks

http://www.businessinsider.com/loan-losses-triple-slam-banks-25-09-09

Thursday, September 24, 2009

Short sales increase

http://www.baltimoresun.com/business/chi-sun-short-sales-0920sep20,0,1828281.story?page=1

Inflation a Risk Without Foreign Debt Buyers: Robertson

http://www.cnbc.com/id/33004753

Dollar under scrutiny at G20 summit

http://news.yahoo.com/s/afp/financeeconomyg20forexuschina

Home prices down 12.5% from last year

The median sales price was $177,700, down 12.5 percent from $203,200 in the same month last year.

Home sales drop 2.7 percent.

Foreclosures and other financially distressed sellers accounted for about 30 percent of the market.

With unemployment and foreclosures rising in the upper end of the housing market, "there will be plenty of more pain for higher-priced properties,"

http://finance.yahoo.com/news/Home-sales-drop-27-apf-2064841344.html?x=0&.v=6

Housing Crash to Resume on 7 Million Foreclosures, Amherst Says - Bloomberg.com

The crash in U.S. home prices will probably resume because about 7 million properties that are likely to be seized by lenders have yet to hit the market.

Monday, September 21, 2009

Bankruptcy Filings Approach 2005 Highs

http://globaleconomicanalysis.blogspot.com/2009/09/bankruptcy-filings-approach-2005-highs.html

Bank of America versus America

BofA to face SEC trial, Loses Gov't Guarantees

Housing: "Facing a triple whammy" at end of Year

"We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures." 
Thomas Lawler, housing economist



Unable To Sell Homes, Brokers Turn To Arson

A California couple was so dependent on the housing market that, facing economic ruin after they lost virtually all of their property wealth when the economy tanked, they allegedly burned down their own home for insurance money.




Sunday, September 20, 2009

Conditions build for another meltdown

excerpt:

One year after the demise of Lehman Brothers Holdings Inc. paralyzed the financial system, "mega-banks," as Fine's group calls them, are as interconnected and inscrutable as ever. The Obama administration's plan for a regulatory overhaul wouldn't force them to shrink or simplify their structure.

"We could have another Lehman Monday," Niall Ferguson, author of the 2008 book "The Ascent of Money" and a professor of history at Harvard University in Cambridge, Mass., said in an interview. "The system is essentially unchanged, except that post-Lehman, the survivors have 'too big to fail' tattooed on their chests."

More proof that banks are kicking the can down the road.

Voltron says: 62% of the foreclosures in Nevada are "postponed" . . . what are they waiting for?

http://boombustblog.com/200909191145/The-ARE-trying-to-kick-the-bad-mortgages-down-the-road-here-s-proof.html

Updated Links

Voltron says: I've updated the links on the right column on the blog. Enjoy.

Mortgage mod rules favor Wells Fargo

Voltron says: Normally when a house goes into foreclosure, any second mortgage gets wiped out. There has been a lot of contention about what happens to a second mortgage when a mortgage gets modified. Wells Fargo has a huge exposure to home equity loans (second liens).

excerpt:
"BlackRock Inc. Chairman Laurence Fink said Obama administration programs to help homeowners stave off foreclosure may hinder the recovery of the mortgage market while benefiting banks that own second loans on the properties."

"Fink said policies introduced this year to reduce foreclosures are flawed because they don’t require home-equity loans to be wiped out before the mortgage is modified. Instead, in a break with the intentions of contracts, the second loan’s terms may also be revised, spreading the financial loss among lenders, he said."

"One concern is that many servicers, which handle billing and collection for mortgage owners, also hold home-equity loans that would lose all value in a foreclosure."

...aid for consumers whose debt is greater than the value of their homes is being blocked because other loan changes allow second mortgages to be kept “on the books of the financial institution as a performing asset”

“If you really want to protect the homeowner, wipe out the second lien, modify the first lien,” Fink said.

$30 billion home loan time bomb set for 2010

Next year, many option ARM payments will begin to readjust, slamming borrowers with dramatically higher monthly mortgage bills. Analysts say that could unleash the next big wave of foreclosures

Saturday, September 19, 2009

Strategic Default Data Suggests Foreclosure Prevention Tactics Useless

An interesting report in the Los Angeles Times shows that a person with super-prime credit scores is more likely to walk away from an underwater mortgage than a person with a subprime credit rating.

http://globaleconomicanalysis.blogspot.com/2009/09/strategic-default-data-suggests.html

Suit Alleges Trusted Blacks Drew Minorities to High-Rate Loans

Voltron says: This Wells Fargo story won't go away.

http://washingtonindependent.com/59633/suit-alleges-trusted-black-figures-drew-minorities-to-high-rate-loans

Friday, September 18, 2009

Moody's bearish on housing recovery

Analysts say it will take more than 10 years to recapture peak home prices

Voltron says: Of course Moody's is wrong about this, like they are always wrong about everything. I expect that the government will try to paper it over with inflation; however, it's interesting that Moody's is admitting that there is a problem looming. Of course they probably won't change the rosy forecasts they use to rate mortgage pools.

http://www.marketwatch.com/story/home-prices-wont-regain-peak-this-decade-moodys-2009-09-18?siteid=nwhreal

Is Wells Fargo Making AIG's Suicidal Mistake?

http://www.businessinsider.com/john-carney-is-wells-fargo-making-aigs-suicidal-mistake-2009-9

FDIC is broke

http://www.calculatedriskblog.com/2009/09/fdics-bair-dif-may-borrow-from-treasury.html

FHA going the way of Fannie and Freddie

http://www.washingtonpost.com/wp-dyn/content/article/2009/09/17/AR2009091704594.html

Bove: Wells Fargo Sitting On A Volcano About To Explode (WFC)

http://www.businessinsider.com/bove-wells-fargo-sitting-on-a-volcano-about-to-explode-2009-9

Tuesday, September 15, 2009

We still have the same disease

Nassim "Black Swan" Taleb: ‘We still have the same disease'
http://www.theglobeandmail.com/report-on-business/crash-and-recovery/we-still-have-the-same-disease/article1286246/

Jim Rogers: "Investors . . . should learn how to sell short [long term] government bonds"
http://www.youtube.com/watch?v=Vqbu6ZS3nJI&feature=youtube_gdata

Meredith Whitney: "Banks are extending and pretending"
http://www.cnbc.com/id/32856449

Friday, September 11, 2009

Home Prices Could Fall by Another 25%: Whitney

CNBC.com excerpt:

Home prices in the US could fall by another 25 percent because of high unemployment and another leg down will come for stocks, banking analyst Meredith Whitney told CNBC Thursday.

"No bank underwrote a loan with 10 percent unemployment on the horizon," Whitney said. "I think there is no doubt that home prices will go down dramatically from here, it's just a question of when."

Local governments and states are chronically under-funded and "most states are under water," adding to the problem of low private consumption, she said.

"If you look at the drivers for unemployment I don't see that reversing very soon," Whitney said.

If consumers were to decide to spend, "that would be a game-changer," but it would be an unnatural thing to do in a recession, she said.

"A lot of themes are constant, which is the US consumer and the small business doesn't have any credit, credit is still contracting," Whitney said.

Consumer debt and consumer credit have dropped according to the latest figures which also show that people have been spending more from their debit cards than from their credit cards.

"Obviously that doesn't bode well for spending," Whitney said.

full article: http://www.cnbc.com/id/32773345












Tuesday, September 8, 2009

Hyperinflation: The winners and losers

Voltron says: Der Spiegel has an article describing the German hyperinflation of the 20s (Hat tip to "Jeep"). I think the major trigger was foreign denominated debt (in that case, war reparations). It's interesting to note who the winners and losers were.

excerpt:

The stupid ones were those who had nest eggs: the thrifty, holders of government bonds, but primarily the country's pensioners. In other words, those who received money without having to work for it, who lived on their pensions or the interest on their savings. Large sections of the middle classes saw themselves stripped of their assets, losing almost everything they had set aside for years. Banks, savings banks, and insurance companies suffered huge losses and were left with nothing but their paper money. As a result, they had to start the majority of their businesses from scratch in 1924.

By perverse contrast, the winners of the hyperinflation were those with massive debts; first and foremost the state, but also private individuals who had borrowed money to buy houses, construction land or farmland, and whose loans were slashed by the switch to the rentenmark.

Some industrialists made huge gains from the period of hyperinflation. Hugo Stinnes, whom Time magazine crowned "Germany's new Kaiser," built up an immense corporate empire comprising heavy industry, newspapers, ships and hotels -- all based on a mountain of debt. As late as the summer of 1922, Stinnes was recommending that people continue capitalizing on "the weapon of inflation." Indeed manufacturers and craftsmen in general profited from the crisis since they possessed plants and buildings -- that is, tangible assets that outlived the currency switch.

Most farmers also did extremely well. "They had money to burn, and spent it willy-nilly," writer Lion Feuchtwanger recalled. Some bought themselves entire stables of racehorses, others expensive cars. "Farmer Greindlberger drove from the grimy village street of Englschalking to Munich in an elegant limousine complete with a liveried chauffeur, while he himself was dressed in a brown velvet jacket and a green chamois-tufted hat," Feuchtwanger wrote of the rural rich.

Never before had Germany witnessed such a fundamental redistribution of wealth, and many of the winners were those who had previously been wealthy.

The rest of the article is here: http://www.spiegel.de/international/germany/0,1518,641758,00.html

The Next Financial Crisis

http://www.tnr.com/article/economy/the-next-financial-crisis

Peter Schiff on gold (video)

More sinister gold hanky-panky

Voltron says: Gold mining companies often sell their production in advance or hedge against down moves in the price of gold. Major mining companies are stopping this practice which indicates they think the price of gold is going higher. This article explains how this might be tied to gold market manipulation by central banks.

Insiders are heavy sellers

http://www.time.com/time/business/article/0,8599,1920635,00.html

A year after financial crisis, a new world order emerges

Voltron says: a good summary and outlook:

http://news.yahoo.com/s/mcclatchy/20090908/pl_mcclatchy/3307834/print

Saturday, September 5, 2009

Wednesday, September 2, 2009

Wells Fargo CEO Stumpf Says Some Loan-Loss Rates Are Peaking

Voltron says: I'm not sure the CEOs comments are going to make anyone feel better about Wells Fargo.

excerpt:

Sept. 2 (Bloomberg) -- Wells Fargo & Co., the nation’s largest home lender, may be reaching a peak for losses tied to troubled loans, President and Chief Executive Officer John Stumpf said.

“There are some indications that we’re seeing a top in some of our problem loan areas,” Stumpf said in an interview from Wells Fargo’s San Francisco headquarters broadcast today on Bloomberg Television. In some businesses, the bank is seeing “very high levels of loss, but they look like they’re flattening out.”

Voltron says: agreed. This is an inflection point before the losses resume.

Assets no longer collecting interest climbed 45 percent to $18.3 billion as of June 30 from the first quarter, the lender said on July 22. Charge-offs widened to 2.11 percent of loans in the second quarter from 1.54 percent in the first quarter.

Stumpf has told investors that he must increase profit before taxes and provisions at a pace to offset credit losses.

Voltron says: Oh, they'll "earn" their way out. no problem. whatever...

Loss rates on auto loans are stabilizing, Stumpf said, and “some buckets” of home-equity lines of credit “seem to be maybe not getting worse than they were before.”

Voltron says: That does not inspire confidence.

Philadelphia gets a subprime loan

Voltron says: what could possibly go wrong?

Wells Fargo's Tight Lips Drag on Shares

Excerpt:

NEW YORK -- Wells Fargo & Co. routinely ducks hard questions from investors. That insistence on silence has lately hurt the San Francisco bank's stock.

Wells Fargo is surely one of the strongest survivors of the financial crisis thus far, having gobbled up crumbling rival Wachovia Corp. at a fire-sale price last year. That merger made the one-time West Coast bank a national powerhouse of retail banking, with more than 10,000 branches and $1.3 trillion in assets.

But Wells Fargo's stature didn't prevent its shares from falling abruptly Tuesday amid a swirl of unfounded rumors. The shares fell as much as 6% during the day before recovering after CEO John Stumpf's said the bank doesn't plan to raise more capital to pay back government bailout money, which can hurt existing investors.

The stock's wild ride in part reflects investors' growing unease over Wells Fargo's refusal to mimic the routine disclosure practices of its large-bank rivals. Whereas J.P. Morgan Chase & Co., for example, provides extra detail about the condition of its operations, Wells Fargo says as little as possible.

A spokeswoman for Wells Fargo declined to comment for this report.

Wells Fargo stock is down about 11% year to date; that fall is less than the 32% decline at Citigroup Inc., but well behind the rise of 17% at Bank of America Inc. and the 31% rise in J.P. Morgan shares.

Wells Fargo is the only large bank that refuses to hold a quarterly conference call to discuss its earnings -- a prime opportunity for investors to ask questions of company executives. The bank also won't disclose its tangible book value per share, a statistic that became a focus of investors during the financial crisis, and that other banks routinely provide.

Perhaps most importantly, Wells Fargo has repeatedly refused to say exactly how the troubled loans it purchased with Wachovia are faring.

Is Wells Fargo Regretting Its Wachovia Acquisition?

http://seekingalpha.com/article/159603-is-wells-fargo-regretting-its-wachovi
a-acquisition