Free Republic

An economic Cassandra whose predictions are coming true By Stephen Mihm Saturday, August 16, 2008 NEW YORK: On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and...

Andrew Cuomo, the youngest Housing and Urban Development secretary in history, made a series of decisions between 1997 and 2001 that gave birth to the country's current [housing] crisis. He took actions that—in combination with many other factors—helped plunge Fannie and Freddie into the subprime markets without putting in place the means to monitor their increasingly risky investments. He turned the Federal Housing Administration mortgage program into a sweetheart lender with sky-high loan ceilings and no money down, and he legalized what a federal judge has branded "kickbacks" to brokers that have fueled the sale of overpriced and unsupportable loans....

The government keeps trying to crack down on down-payment assistance programs. But Christopher Russell is one step ahead of the law After celebrating their first anniversary in May, Jeffrey and Tina Giurato were eager to move out of their apartment and into a house. They found an eight-year-old, $198,000 duplex with three bedrooms in Lake in the Hills, Ill. But the couple, insurance agents, needed to buy furniture and would be shy of cash. Their loan officer told them an Indian tribe in central Maine would pony up the $5,940 they needed for the down payment. After the sale closed,...

When Shaun Yandell proposed to his longtime girlfriend Gina Marasco on the doorstep of their new home in the sunny suburb of Elk Grove, California, four years ago, he never imagined things would get this bad. But they did, and it happened almost overnight. "It is going to be heartbreak," Yandell told CNN. "But we are hanging on." Yandell's marriage isn't falling apart: his neighborhood is. Devastated by the subprime mortgage crisis, hundreds of homes have been foreclosed and thousands of residents have been forced to move, leaving in their wake a not-so-pleasant path of empty houses, unkempt lawns, vacant...

In its latest effort to deal with the fallout of the subrprime credit crisis, government-sponsored mortgage buyer Freddie Mac said it will not purchase subprime mortgages secured by properties in New York state with note dates on or after Sept. 1. The move is Freddie's response to recent New York legislation, effective Sept. 1, that creates a new category of subprime mortgages. The state has said the legislation is intended to curb abusive lending practices. But Freddie said the pending law "creates the potential for heightened legal and business risk exposures for the purchasers or assignees of these loans," including...

Everybody Gets a TrophyEconomic perils of the Nanny StateBY TONY ALLISONLet me take you to a magical land called NannyState, where once upon a time everyone was happy, inflation was low and real estate always went up. Or did. Times are a’ changing in NannyState and all is not well.   Everyone was elated in NannyState in 2002-2006, because real estate really went up. Way up. There was no need to sacrifice or save because you could buy a home with no money down. Everyone could enjoy the American Dream! In fact, banks offered a 125% loan so you could upgrade...

The Uppers: The U.S. Bubble economy has burst. I sympathize with those that would argue this is old news. But the probabilities are now high that GDP turns decisively negative during the second half - if it hasn't already. Instead of the year-long Credit crisis showing signs of improvement or even stabilization, a further tightening of Credit Availability is taking hold broadly throughout the economy. The so-called "subprime" crisis has, of late, invaded "prime" and "conventional" mortgages. This is a major additional blow for home prices and the economic support provided from built-up home equity. The securitization markets remain in...

Set against the magnitude of credit cycle issues of the moment that indeed have very meaningful implications for what will be the reality of domestic economic outcomes ahead, questions have arisen as to whether we are now facing a relatively run of the mill bear market for equities or perhaps a bear of generational proportion. The thought has clearly made the rounds that the US equity bear market started in early 2000 was simply interrupted to the downside in 2002/2003 by incredible domestic monetary and credit cycle stimulus, as was truly exemplified by the literal generational bubble that was blown...

Anyone who cares about the health of the US economy should welcome the enactment of the Treasury’s rescue plan for Fannie Mae and Freddie Mac, along with other measures to support the housing market. While there is room for argument about details, the risks to the financial system were too great to allow delay. No one should suppose, however, that the issue is now satisfactorily resolved, even for the short term. Emergency legislation was necessary because market participants were unwilling to buy Fannie and Freddie’s debt; investors doubted that the government-sponsored enterprises were healthy enough to repay it and did...

This paper estimates the evolution of equilibrium real home prices in the United States and finds that despite recent declines, single-family homes remained 8 to 20 percent overvalued as of the first quarter of 2008. In the short run, the gap between actual and equilibrium prices does not exert powerful influence over price dynamics. Instead, that dynamics is driven by the inventory-to-sales ratio and by foreclosure starts in a highly inertial relationship. Taken together, this implies that price declines are likely to continue, including past the point where overvaluation is eliminated. The paper also finds that from the early 1990s...

"As Congress heads into a critical week of votes on how to relieve America's home-foreclosure crisis, one of the toughest issues will be how to deal with the racial and ethnic dimensions of the problem. Minorities will be watching closely to see who gets the help."..... ......"Black and Hispanic families have gotten a disproportionate share of subprime lending, and subprime loans are the driving force behind the foreclosures," says Katheen Day, spokeswoman for the Center for Responsible Lending, a nonprofit research and policy group based in Durham, N.C. "We know that black and Hispanic communities are hardest hit.".....

For the Pritzker family of Chicago, the 2001 collapse of subprime-mortgage lender Superior Bank was an embarrassing failure in a corner of their giant business empire. Billionaire Penny Pritzker helped run Hinsdale, Ill.-based Superior, overseeing her family's 50% ownership stake. She now serves as Barack Obama's national campaign-finance chairwoman, which means her banking past could prove to be an embarrassment to her -- and perhaps to the campaign. Superior was seized in 2001 and later closed by federal regulators. Government investigators and consumer advocates have contended that Superior engaged in unsound financial activities and predatory lending practices. Ms. Pritzker, a...

In one of those front-page editorials disguised as "news" stories, the New York Times blames "the lucrative lending practices" of banks and other financial institutions for helping create the current financial crisis of millions of borrowers and of the financial system in general. It must take either a willful determination to believe whatever they want to believe or a cynical desire to propagandize their readers for the New York Times to call "lucrative" the lending practices that have caused many lenders to lose millions of dollars, some to lose billions and some to go bankrupt themselves. Blaming the lenders is...

Forget soccer moms and NASCAR dads. It looks like the swing voter this election year is going to be the “deadbeat borrower.” In Congress, Republicans and Democrats are pushing Barney Frank’s $300 billion boondoggle to underwrite bad loans given to worse customers... And now, activists for the newest civil right - the right to skip your mortgage payments - have taken to the streets of Roxbury. On Tuesday, around 60 local housing activists gathered outside the condo of Paula Taylor. Led by Steve Meacham of the group City Life, they sang the civil rights anthem “‘We Shall Not Be Moved”...

For a second straight month, CA lenders took back over $10 billion ($10.2 billion) in properties from the foreclosure auctions throughout the state. Last month banks took back $10.4 billion. If the banks are lucky and sell the properties for 60 cents of the NEW appraised value, which could be as little as 30-40% of the value at the time they initially lent on the property, then this could represent another $6 billion+ in losses for the nations largest lenders in one state for one month. In case you were wondering, CA represents roughly 30% of the total foreclosure count...

For years immigrant entrepreneurs have taken over small stations with relatively weak signals, providing what for many Caribbean and Latin American immigrants is a key source of information about their local communities, U.S. life and politics, and news from the homeland. When Carlos Aragon, a native of El Salvador, founded Radio Fiesta six years ago on the second story of a strip mall in Woodbridge, he intended it to play just that role for Hispanics in Prince William County. "The intention was to create a bridge between the Hispanic and the Anglo community, interviewing politicians and informing the community and...

The nation’s housing crisis appears to be moving towards another high note — or low note, more accurately — as federal and state authorities move to put legislation into effect that promises to change how lenders and servicers both make and manage loans. For those with a history in mortgage banking watching this unfold, the shifting ground the industry is now one that must seem, at the very least, ironic. After all, the roles now being played by key actors were once very different — and our nation’s collective memory is being proven, yet again, to be astoundingly malleable. It...

Key US mortgage lender goes bust IndyMac is the fifth US bank to fail so far this year One of the largest US mortgage lenders, the California-based IndyMac Bank, has collapsed amid a growing credit crisis. Federal regulators seized the bank's assets, fearing it might not be able to meet withdrawals by depositors. It is the second-largest financial institution to fail in US history, regulators say. The failure came on a day when shares in the two biggest US home loan institutions - Freddie Mac and Fannie Mae - fell at one stage by almost 50%. IndyMac had been...

Study Finds Flawed Practices at Ratings Firms By MICHAEL M. GRYNBAUM The analyst at the credit ratings agency was blunt: “Let’s hope we are all wealthy and retired by the time this house of cards falters.” That candid assessment, sent by e-mail to a colleague in December 2006, referred to the market for certain investments linked to subprime mortgages — investments that were assigned top AAA ratings from major agencies, only to later plummet in value. That e-mail message and dozens like it were disclosed Tuesday in a blistering 37-page report issued by the Securities and Exchange Commission, which confirmed...

CCC rating (That's Credit crunch computer cock-up) Moody's, the ratings agency, is reviewing its computer models and setting up a central monitoring system after admitting that a bug led it to incorrectly grade several European mortgage debt instruments. The agency admits that it incorrectly gave its highest AAA rating to about $1bn worth of European "constant proportion debt obligations". Triple-A ratings are required before many investors like pension funds are allowed to invest. Following a review of its processes Moody's found that its staff had not acted to cover up the error with the modelling. But it found some members...

This real estate market collapse is starting to send signals that it will differ from the last one in one key aspect: It may not last as long. That hope is gleaned from four reports released late last month showing sales have increased for four consecutive months. And there is a strong indication that June's sales will increase from May. Before a market can recover, it has to find a bottom. Maybe we've seen it. "Probably by the end of the year we will start to see some stability in the (county's) housing market," said Jack Kyser, vice president and...

How did the U.S. financial crisis happen? A review of the road to ruin reveals a course littered with more villains than heroes. No, it’s not the Great Depression, but the United States is facing a nasty economy-wide retrenchment following the excesses of the 2000s, with no easy way to dance through it. Think 1979 to 1982, when then U.S. Federal Reserve Chairman Paul Volcker exorcised consumer price inflation from the economy. The difference today is that the inflationary explosion has been absorbed by prices of assets—houses, stocks and bonds, office buildings—rather than by the prices of things you buy...

Signature home loan of Golden West eliminated amid housing bust SAN FRANCISCO (MarketWatch) -- Wachovia Corp. said on Monday that it won't offer mortgages with negative amortization features anymore, one of the main types of home loans offered by Golden West, the mortgage giant the bank acquired for $24 billion roughly two years ago. Wachovia Wachovia also said it's waiving pre-payment penalties on its so-called Pick-a-Pay mortgages, which allow borrowers to choose between several different monthly payments. The lower payment options increased the total amount owed on these mortgages, which is known as negative amortization. "For all new loan originations,...

Uncovering the roots of the disastrous home mortgage bubble that popped last year will keep economic historians busy for decades. Yet, one factor has so far been largely overlooked: the bipartisan social engineering crusade to drive up the rate of homeownership by handing out more mortgages to minorities. More than a negligible amount of the blame for the mortgage meltdown can be traced back to multiculturalism: government-mandated affirmative-action lending, demographic change, illegal immigration, and the mind-numbing effects of political correctness. The chickens have finally come home to roost. About half of all mortgages for blacks and Hispanics are subprime, versus...

More than 400 people have been arrested since March as part of a sweeping Justice Department crackdown on alleged mortgage fraud schemes. Ex-Bear Stearns execs could face criminal charges for misleading investors. More Photos The FBI said the schemes — 144 mortgage fraud cases, resulting in 406 arrests between March 1 and June 18 — caused $1 billion in mortgage losses and have contributed to the nation's housing crisis. The arrests, dubbed operation “malicious mortgage,� were announced Thursday along with the separate indictments of two Bear Stearns hedge fund managers on fraud, conspiracy and insider trading charges — the first...

Two former managers at investment bank Bear Stearns have been arrested in New York over the collapse of the bank's hedge fund last year. Reports say Ralph Cioffi and Matthew Tannin will face charges in connection with their management of hedge funds that collapsed in June 2007. The bank's hedge funds bet on the high-risk sub-prime mortgage market in the US before it collapsed. Authorities in Brooklyn are due to give details about the case later. FBI spokesman Jim Margolis told the BBC the men faced criminal charges of "securities fraud related to their management of two Bear Stearns hedge...

Former hedge fund managers Matthew Tannin and Ralph Cioffi have been arrested by the Federal Bureau of Investigation, charged with securities fraud and conspiracy in connection with their management of two Bear Stearns hedge funds which collapsed last summer, a bellwether event in the subprime and credit crisis. The two are the highest level executives charged in the subprime mess to date. ......

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. "A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist. A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion...

NEW YORK (MarketWatch) -- Amplifying on the discussion about increasing oversight of the global financial system, one of America's top banking regulators called for more restrictions on risk, liquidity and capital at investment banks. ... "It makes sense to extend some form of greater prudential regulation to investment banks as well as a process or protocol for dealing with a systemically significant investment bank approaching failure," Sheila Bair, chairman of the Federal Deposit Insurance Corp., said Wednesday. ... Big brokerage firms like Goldman Sachs Group, Lehman Brothers Holdings and Morgan Stanley are facing increasing calls that they should be regulated...

Wall St rattled by inflation, credit crisis and weak housing sector Wednesday June 18, 2008, 7:37 am Wall Street investors have been rattled overnight by inflation fears, the credit crisis and the weak housing sector with its implications for economic growth. There has been a surge in business price inflation, with the Producer Price Index jumping 1.4 per cent in May, exacerbated by energy and food costs. Also in May, housing starts across America have fallen 3.3 per cent to their lowest level in 17 years. Investment firm Goldman Sachs has warned that US banks will collectively need to raise...

'India's GDP to grow at 9.5% in FY 09' Mumbai, June 16: India's real GDP is expected to grow at an impressive 9.5 per cent in FY 09, the Centre for Monitoring Indian Economy (CMIE) said in its monthly review in Mumbai. The Indian Economy is heading towards the fourth consecutive year of an over-9 per cent growth and like in the last five years, growth this year too was expected to be driven by capital investments happening in India, CMIE said. As per CMIE CapEx Service, projects worth Rs 3.4 lakh-crore are scheduled for commissioning in FY 09. This...

NEW YORK -- Lehman Brothers Holdings Inc.'s fiscal second-quarter loss of $2.8 billion matched its preannounced forecast a week ago, in results Chairman and Chief Executive Richard S. Fuld Jr. said were "totally unacceptable." ...losses were caused "in hindsight" by poor choices in its plunge into making high-risk loans for leveraged buyouts and accumulating mortgages for packaging into securities. ... In a sign of how worried investors are about a company's ability to finance its operations with debt, Lehman boasted that its leverage ratio fell to 24.3 from 31.7 at the end of the first quarter and 28.7 last year....

In 2004, as regulators warned that subprime lenders were saddling borrowers with mortgages they could not afford, the U.S. Department of Housing and Urban Development helped fuel more of that risky lending. Eager to put more low-income and minority families into their own homes, the agency required that two government-chartered mortgage finance firms purchase far more "affordable" loans made to these borrowers. HUD stuck with an outdated policy that allowed Freddie Mac and Fannie Mae to count billions of dollars they invested in subprime loans as a public good that would foster affordable housing. Housing experts and some congressional leaders...

Politicians deploy righteous indignation like college students use credit cards—to excess and with abandon. For such seasoned performers, the emotion is easy to muster, and there are few upfront costs. Rail against powerful interests or the mendacity of your opponent on the stump, and the crowd goes nuts. But there are sometimes hidden costs in the fine print, interest payments not due for months, especially when the outrage is calculated for maximum political effect. And that outrage came back to haunt Barack Obama Wednesday when Jim Johnson, the man running his vice presidential search team, stepped down after the Wall...

<p>So this summer,there will be another confrontation. BillO lives on Long Island. I plan on chartering at least one bus - hopefully more - from New York City. We'll visit Bill with vets and Jews and African-Americans and peacefully set forth our grievances. We'll ask for an apology and suggest ways in which BillO might improve his behavior in the future.</p>

   Another Step In The Wrong Direction May 29, 2008 Whenever the government intervenes to solve a free market problem the outcome is always the same...ten new problems are created and the original problem remains unsolved. And Democrat Senator Christopher Dodd’s “Federal Housing Finance Regulatory Reform Act of 2008” is no exception. According to Dodd, this legislation, “marks tremendous progress in my ongoing effort to help stabilize our markets and provide relief to hundreds of thousands of Americans who, due to no fault of their own, are struggling to keep their homes.” “Due to no fault of their own”? What is he talking about? I...

BIRMINGHAM, Ala. — In 2002, a banker named Charles E. LeCroy arrived here with a novel pitch to ease taxpayers’ burden. Some Wall Street wizardry, he said, could lighten their load. ... Six years on, officials here are still struggling to untangle the financial web that Mr. LeCroy and his fellow bankers spun. Jefferson County is teetering on the brink of bankruptcy after a series of exotic bond deals that the bankers concocted went wrong ... During the last few years, Jefferson County entered into a series of complex transactions, called swaps, worth a staggering $5.4 billion. The accusations and...

The Financial Times business newspaper reported Wednesday that Moody's wrongly assigned triple-A ratings to complex European debt products called constant proportion debt obligations, or CPDOs. Moody's said it rated 44 European CPDO tranches totaling about $4 billion. It said it also hired a law firm to conduct an external investigation into why the coding error in a computer model caused the products to be given a rating four notches higher than they merited.

A bailout that wouldn't cost you a dime There's a way to keep buyers in their homes that's simple and fair, but lenders have persuaded Congress to set it aside. By Liz Pulliam Weston Congress is considering a plan that could prevent foreclosures for about half a million homeowners. The legislation, which passed the House earlier this month, would do the following: Allow strapped borrowers to refinance into more-affordable, federally guaranteed mortgages. Aid only homeowners, not investors or speculators. Require those homeowners to split any future home profits 50-50 with the government. Cost taxpayers an estimated $1.7 billion, according to...

Construction of new homes posted the biggest increase in more than two years in April. While it was a rare spot of good news for the housing market, analysts said it's far too soon to declare an end to the prolonged slump. The Commerce Department reported Friday that housing construction rose by 8.2 percent in April to a seasonally adjusted annual rate of 1.03 million units. Building of single-family homes continued to weaken, however. The growth came from a big jump in apartment construction. Analysts predicted the surprising rebound in April would be temporary given the headwinds builders are still...

US slump to prop up India as next offshoring hotspot 14 May, 2008, 0750 hrs IST,Chiranjoy Sen, TNN BANGALORE: Belt-tightening by global technology giants—a fallout of US economic slowdown—is likely to reinforce India as the most preferred offshoring destination. Top technology firms are actively moving part of their workforce from the US, UK and European markets to lower-cost destinations. They cite availability of local talent, better delivery and conducive enviroment as key offshoring reasons. While they may not admit it, firms would be looking at stepping the gas on offshoring to curb bloating costs and to lift margins. Networking and...

The number of properties with a filing...declined 5 percent from March. California had the most properties facing foreclosure at 64,683, an increase of 112 percent from April 2007. The number of properties declined less than 1 percent from March. The state posted the second-highest foreclosure rate in the country, with one in every 204 households receiving a foreclosure-related notice. California metro areas accounted for six of the 10 U.S. metropolitan areas with the highest foreclosure rates, led by Merced, with one in every 66 households receiving a foreclosure notice.

America May Well Be Only Halfway through the House-Price Bust < SOUNDING more like a cartographer than central banker, Ben Bernanke this week showed off the Federal Reserve's latest gizmo for tracking America's property bust: a series of maps that colour-code price declines, foreclosures and other gauges of housing distress for every county in the country. The Fed chairman's goal was to show graphically that falling prices meant more foreclosures, and he went on to urge lenders to write down the principal on troubled loans where the house is worth less than the value of the mortgage. But the jazzy...

The subprime mortgage meltdown has cost the world 15% of its market capitalization, about $9 trillion. The primary culprit who caused all of this financial loss, pain and suffering is not the mortgage companies. Neither is it the overextended borrowers. It is our own federal regulations interfering with the free market. ... The unintended consequences of good intentions can do more economic harm than all the mean-spirited greed within capitalism. Part of the good intention was forcing banks to be good neighbors by making altruistic loans that discriminated in favor of underprivileged communities. Any attempts by banks to set higher...

Former Federal Reserve Chairman Alan Greenspan said on Thursday that the worst of the credit crisis is over, according to attendees at a New York speech. Greenspan also said house prices still had a long way to fall and it was unlikely they would stabilize by year-end, according to meeting attendees who provided Reuters details of the speech delivered at the Alternative Public Strategies Conference. The attendees, who declined to be identified by name, said Greenspan mentioned that U.S. growth was likely to be sluggish for an extended period of time. The U.S economy is reeling from a housing-led slowdown,...

In a speech Monday night before the Columbia Business School’s 32nd Annual Dinner, Fed Chairman Ben Bernanke said that, “”About one quarter of subprime adjustable-rate mortgages are currently 90 days or more delinquent or in foreclosure.” He also said that, “Delinquency rates also have increased in the prime and near-prime segments of the mortgage market, although not nearly so much as in the subprime sector. As a consequence of rising delinquencies, foreclosure proceedings were initiated on some 1.5 million U.S. homes during 2007, up 53 percent from 2006, and the rate of foreclosure starts looks likely to be yet higher...

Obama's subprime pal PENNY PRITZKER Finance chief's bank failed in 2001, costing 1,400 customers some of their savings April 28, 2008 BY ABDON M. PALLASCH Political Reporter/apallasch@suntimes.com White House hopeful Barack Obama talks a lot on the campaign trail about how failing banks have used subprime loans to victimize customers. "Part of the reason we got a current mortgage crisis has to do with the fact that people got suckered in to loans that they could not pay," he told a crowd in Reading, Pa., last week. "There were a lot of predatory loans that were given out, a lot...

...Up until 1995 the Community Reinvestment Act was largely a requirement to support "community groups" in poor neighborhoods. Of course, this often meant left wing groups like ACORN, etc. But after 1995 the scope of the law was dramatically increased. Over the strenuous objections of the banks themselves and some Republicans in Congress, CRA was renewed and modified in such a way that it gave far more power to the federal government to punish banks for not lending more widely in poor neighborhoods. The classic "fair housing" laws from the Martin Luther King Jr. era of civil rights were deemed...

Expectations for a pause in U.S. monetary policy were bolstered by an article in Thursday's Wall Street Journal, where noted Fed watcher Greg Ip said, "The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week -- but then may be ready for a breather." However, the Journal article also points out that a pause in rate cuts would not necessarily signal the end of the financial turmoil in the U.S. economy. "It is almost certain to signal continued concern about economic growth and a willingness to cut rates further if...

Plaintiffs have filed approximately two private lawsuits a day related to subprime mortgages in the US this year, setting case volumes on course to exceed levels not seen since the aftermath of the savings-and-loan ­crisis, a study has found. During the first quarter of this year, 170 new civil cases were filed in federal courts, approaching the 181 filings made during the final six months of 2007, according to a review by Navigant Consulting, published on Wednesday. They were overwhelmingly dominated by class-action lawsuits, which accounted for 76 per cent of new cases. “Like the credit crunch itself, the litigation...