With Fannie/Freddie Bailout Plan, Treasury Secretary Paulson is Armed and Dangerous With the nation’s financial infrastructure crumbling before our very eyes, the country’s top two economic policymakers made their way to Congress last week for an extraordinary episode of political theater. Fannie Mae and Freddie Mac, the quasi-government entities that form the backbone of America’s gargantuan mortgage market, appeared to be cracking. To the somewhat bewildered members of Congress, U.S. Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson offered radical bailout remedies to save the lenders. Despite the fact that the proposed policies would thoroughly redefine America’s supposedly capitalistic pedigree, the moves were presented as wholly inevitable, and in the end, benevolent and costless.
Mortgage Writedowns to Total $1 Trillion, Gross Says Falling U.S. home prices will force financial firms to write down $1 trillion from their balance sheets, crimping bank lending and sparking sales of assets, said Bill Gross, who manages the world's biggest bond fund. A total of $5 trillion of mortgage loans, or almost half of the nation's home loans, belong to "risky asset categories" such as subprime and Alt-A, Gross of Pacific Investment Management Co. said in commentary posted on the firm's Web site today. About 25 million U.S. homes are at risk of negative equity, which could lead to more foreclosures and a further drop in prices, he said. A home has negative equity when it's worth less than the mortgage with which it was bought. "The problem with writing off $1 trillion from the finance industry's cumulative balance sheet is that if not matched by capital raising, it necessitates a sale of assets, a reduction in lending or both that in turn begins to affect economic growth," Gross wrote. If you are looking for a new chapter in American history, it has just begun. Call it the bailout boom.
Foreclosure filings up 120% 220,000 homes were lost to bank repossessions in the second quarter, and the annual forecast for 2008 will have to be revised upward. As foreclosures continue to soar, 220,000 homes were lost to bank repossessions in the second quarter, according to a housing market report Friday issued by RealtyTrac. That's nearly triple the number from the same period in 2007. A total of 739,714 foreclosure filings were recorded during that three-month period, up 14% from the first quarter, and 121% from the same period in 2007. That means that one of every 171 U.S. households received a filing, which include notices of default, auction sale notices and bank repossessions. "Most areas of the country are seeing at least some increase in foreclosure activity," said James Saccadic, CEO of RealtyTrac, an online marketer of foreclosed homes. "Forty-eight of 50 states and 95 out of the nation's 100 largest metro areas experienced year-over-year increases in foreclosure activity."
U.S. Foreclosures Double as House Prices Decline U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth. One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005. "Rising foreclosures are putting downward pressure on prices, increasing the possibility that homeowners will go upside- down on their mortgages," said Sheryl King, chief U.S. economist at Merrill Lynch & Co. in New York. "That will cause more losses in mortgage portfolios and less willingness from investors to securitize mortgages and therefore fewer mortgages."
Nerves return to financial sector as investors dump shares in WaMu The fear and the speculation that has plagued the financial sector since the start of the credit crisis returned with a vengeance yesterday, with investors dumping shares in one of the country's largest mortgage lenders. Washington Mutual, the Seattle-based savings and loan company, tried to calm nerves, saying it was well capitalised, following a research report which said that many of its creditors had been quietly pulling their money out. Gimme Credit analyst Kathleen Shanley made the claim following a review of the small-print in the company's financial results statement on Tuesday. Since that statement, shares in WaMu – as the company is affectionately known – have lost almost a third of their value
WaMu Bond Risk Rises as Credit-Default Swaps Climb to Record The cost to protect Washington Mutual Inc. bonds from default rose for a third day to a record amid concern that the biggest U.S. savings and loan won't be able to weather the worst housing crisis since the Great Depression. Credit-default swaps on Seattle-based Washington Mutual traded at a record high after Gimme Credit LLC " Washington Mutual this week reported a $3.3 billion second-quarter loss and increased loan loss provisions 69 percent to $5.9 billion as borrowers fell behind on their mortgages.
Daimler's GotThe Shakes While some European automakers see their earnings prospects this year unaffected by rising raw material and gasoline prices and slowing consumer spending, Daimler begs to differ. The automaker said Thursday that car markets deteriorated significantly in June and continued to do so in July, according to TradeTheNews.com. "Overall economic conditions have not improved and we had to reassess our performance," Thomas Froehlich, spokesman for Daimler, told Forbes.com. The German automaker cut its 2008 outlook after reporting its second-quarter results, which were in line with analysts' expectations. Traders manipulated oil prices - U.S. Regulators claim firm attempted to 'bang the close' by amassing large positions just before markets closed. The government charged an oil trading firm Thursday with manipulating oil prices in the first complaint to be announced since the regulators began a new investigation into wrongdoings in the energy markets. The Commodity Futures Trading Commission accused Optiver Holding, two of its subsidiaries and three employees with manipulation and attempted manipulation of crude oil, heating oil and gasoline futures on the New York Mercantile Exchange. "Optiver traders amassed large trading positions, then conducted trades in such a way to bully and hammer the markets," CFTC Acting Chairman Walt Lukken said at a press conference. "These charges go to the heart of the CFTC's core mission of detecting and rooting out illegal manipulation of the markets." In May, under the backdrop of record oil prices and calls from legislators to crack down on speculative oil trading and market manipulation, the CFTC announced a wide-ranging probe into oil price manipulation. The agency says it has dozens of investigations ongoing.
Stocks Fall Sharply [on Thursday] Renewed Housing Worries Wall Street abruptly ended an earnings-driven rally and closed sharply lower Thursday after a steeper-than-expected decline in existing home sales and worries about the financial sector chilled the market's recent optimism. The major indexes fell about 2 percent, including the Dow Jones industrial average, which lost more than 280 points. The National Association of Realtors said sales resumed their decline in June after a slight rebound in May. Existing home sales declined by 2.6 percent in June, well beyond the 1 percent drop economists had forecast. Investors punished shares of homebuilders and financial companies Thursday because both sectors have struggled with the declining housing market.
US financial stocks in worst fall since 2000 US financial stocks suffered their worst one-day fall since 2000 on Thursday, as investors’ recent optimism was hit by renewed fears over the health of Washington Mutual and weak housing data. Financial shares had rallied more than 30 per cent in the preceding five days amid relief at smaller-than-expected losses at several leading lenders and a government crackdown on abusive short-selling. But the market cracked in the morning after the release of figures showing sharp drops in US home sales and house prices. The rout then gained momentum after Gimme Credit, a research firm, suggested that creditors and customers were cutting their exposure to WaMu – prompting a spirited response by the lender.
Sour Economy Spurs Government$$ Amid Turmoil, U.S. Turns Away From Decades of Deregulation The housing and financial crisis convulsing the U.S. is powering a new wave of government regulation of business and the economy. Federal and state governments alike are increasingly hands-on in their effort to deal with failing businesses, plunging house prices, worthless mortgages and soaring energy prices. The steps add up to a major challenge to the movement toward deregulation that has defined American governance for much of the past quarter-century since the "Reagan Revolution" of the early 1980s. In fact, some proponents today of a bigger oversight role for government are Republican heirs to the legacy of President Reagan.
Dow Skids Amid Grim Housing Data [Thursday] $$ Disappointing housing data plunged stocks into the doldrums Thursday as investors' fears about the mortgage crisis and economic weakness rekindled. The Dow Jones Industrial Average, which enjoyed a 165-point rally over the previous two sessions, erased all of those gains and then some, hobbled by sharp losses in all its financial components. The blue-chip average finished down 283.10 points, off 2.4%, at 11349.28, its lowest close since July 16. The measure has moved back within range of bear-market territory, 19.9% off its record high seen in October. The stock market opened lower and saw its losses widen after the National Association of Realtors reported a larger-than-expected drop in sales of existing homes in June. Sales were off 2.6% to a seasonally adjusted annual rate of 4.86 million units. The decline was more than double the drop expected by Wall Street.
The Short View: Oil and US banks Bastille Day, July 14, is a good day for an old order to come to a sudden and brutal end. And on July 14, the blade came down on the phenomenally successful “buy oil, sell financials” trade. This trade, popular with hedge funds, offered a rare way to make money this year. It exploited the credit crisis and the response it provoked from the Federal Reserve. Investors deserted banks in the US (and Europe to a lesser extent) and bet that liquidity would instead flow to oil. As higher oil prices made it harder to aid banks with lower rates, and intensified pressure on banks’ customers, it was self-reinforcing.
What Financials Rally?$$ Countrywide Loans Marked to Market Show Sector Frailty No sooner had financial stocks gotten up off the mat than poor existing-home sales body-slammed them. The abrupt halt Thursday to the relief rally that started last week underscored how little confidence investors have in the sector. Many feel they can't get a handle on bank balance sheets. Details that emerged earlier this week from Bank of America's purchase of Countrywide Financial help explain why that is the case. The deal's numbers show that big losses could still lurk in banks' closets. If so, their loan portfolios are worth far less than the stated values, and reserves taken against possible losses are inadequate. And if bank capital is overstated, firms could again be forced into dilutive capital raising.
GOP kills effort to release oil from US stockpile House Republicans on Thursday scuttled a bill that Democrats hoped would help lower gasoline prices by forcing the Energy Department to release 70 million barrels of oil - about a three-day supply - from the national stockpile. Democrats promised that the action would have produced immediate relief at the pump, as was the case with similar releases in 1991, 2000 and 2005. The Strategic Petroleum Reserve now holds about 700 million barrels. Despite winning a clear 268-157 majority, the measure still lost. Democratic leaders had brought the proposal up for debate under rules requiring a two-thirds vote to pass. But passing the bill by just a majority would have meant allowing Republicans to force a vote on new offshore drilling leases.
Ford posts $8.7 billion loss on asset write-downs Ford Motor Co. posted the worst quarterly performance in its history Thursday, losing $8.67 billion in the second quarter. The company also said it will retool two more North American truck and sport utility vehicle plants to build small, fuel-efficient vehicles, and it announced plans to bring six new small vehicles to North America from Europe by the end of 2012. The net loss includes $8.03 billion worth of write-offs because the sharp decline in U.S. truck and SUV sales has reduced the value of Ford's North American truck plants and Ford Motor Credit Co.'s lease portfolio. Even excluding those items, Ford lost 62 cents per share, worse than Wall Street expected. Twelve analysts surveyed by Thomson Financial, on average, expected a 27 cent loss per share.
Bleeding cash, Ford looks to Europe for help Bleeding cash and with its very survival uncertain, Ford Motor Co., an icon of American automaking, will try to import some of its success from across the Atlantic. Ford reported its worst-ever quarterly loss Thursday and announced plans to bring over six small, fuel-efficient cars it makes in Europe and start selling them in North America, where Ford is losing billions on its truck-heavy lineup. The company burned through nearly $11 billion of its cash stockpile in the past year and reported a second-quarter loss of $8.7 billion. Ford is trying to save itself by quickly morphing from a truck company into a car company. But the help from Europe won't arrive until 2010: It takes time to retool U.S. plants, and importing the cars directly is too costly. Industry watchers wonder whether Ford has enough cash to survive until then.
Ford, Daimler, Hyundai profits fall; Renault up Ford Motor Co. posted its worst quarterly loss ever Thursday in a roiling global auto market that also saw profits fall at Daimler AG, Hyundai Motor Co. and AutoNation Inc. Renault SA reported a profit increase in the first half of the year but still plans to cut jobs and scale back production. The rising cost of oil and raw materials and the economic slowdown in North America and Western Europe were generally to blame for the automakers' woes. In the U.S., auto sales dropped 10 percent in the first half of the year as consumers were stunned by high gas prices and falling home values. Sales in Europe dropped 8 percent in June and threaten to continue their slide. "Demand in Western Europe has deteriorated sharply and there are no signs of recovery in the remainder of the year," Standard and Poor's Ratings Services said Thursday as it revised its outlook on Renault to negative. AutoNation Inc., the largest U.S. auto retailer, said its second-quarter profits tumbled 33 percent to $51.8 million as sales dried up. The Fort Lauderdale, Fla.-based company announced plans to cut 1,300 jobs and sell underperforming dealerships in order to reduce costs by $100 million per year.
Retail seen to risk meltdown in next 10 years Rising costs and depressed demand could reshape Britain's retail industry over the next 10 years, with bankruptcies and job losses set to rise as companies struggle to adapt, a report showed on Friday. The cost of running a retail business is set to explode over the next decade as tighter environmental regulations, higher energy prices and more expensive supply chains create a sustained period of inflation, according to the ActiveResilience Retail Risks report by Verdict Consulting. Verdict estimates retail cost inflation could rise to 9 percent or more over the next 10 years, from 4 percent now. At the same time, it believes consumer demand will slow, with retail spending growth moderating to 2.6 percent in the 2010s from 6 percent in the 1990s. "Managing a simultaneous increase in costs and a slowdown in demand will be extremely challenging," Verdict said." Over the medium term the number of retail bankruptcies and job losses will increase steadily as players adapt to the new retail reality."
New York sues UBS for securities fraud The attorney general of New York accused UBS of consumer and securities fraud on Thursday, saying the bank misled investors when it sold them auction-rate securities. Auction-rate securities are preferred shares or debt instruments with rates that reset regularly, usually every week, in auctions overseen by the brokerage firms that originally sold them. But the $300 billion market for these instruments collapsed in February, trapping investors who had been told that they were safe and easy to cash in. Even as a senior executive at UBS called the market "a complete loser," the bank continued to pitch the securities as short-term, liquid investments, according to the civil complaint filed by Andrew M. Cuomo, attorney general of New York. At the same time, seven executives at the bank sold their personal holdings of the securities, which totaled $21 million, to avoid losses, according to the complaint.
Take taxpayers off hook for rot at Fannie, Freddie By John McCain, Special to the Times Americans should be outraged at the latest sweetheart deal in Washington. Congress will put U.S. taxpayers on the hook for potentially hundreds of billions of dollars to bail out Fannie Mae and Freddie Mac. It's a tribute to what these two institutions — which most Americans have never heard of — have bought with more than $170-million worth of lobbyists in the past decade. With combined obligations of roughly $5-trillion, the rapid failure of Fannie and Freddie would be a threat to mortgage markets and financial markets as a whole. Because of that threat, I support taking the unfortunate but necessary steps needed to keep the financial troubles at these two companies from further squeezing American families. But let us not forget that the threat that Fannie Mae and Freddie Mac pose to financial markets is a tribute to crony capitalism that reflects the power of the Washington establishment.
IT COULD BE CURTAINS FOR LINENS 'N THINGS Linens 'n Things has experienced alarmingly steep sales declines since it went bankrupt, raising worries that the home-furnishings chain may be forced to liquidate its business. The Clifton, NJ-based retailer - taken private in 2005 for $1.3 billion by billionaire Leon Black's Apollo Management - has been hemorrhaging customers since it filed for Chapter 11 reorganization in May, as the chain virtually stopped advertising to conserve cash following a spring ad-spending binge, sources said.
The Fed did not panic The Fed had to prevent a disaster Let us scotch one foolish and dangerous notion already gaining acceptance. Those who accuse the Fed of acting out of panic in slashing rates 75 basis points on Wednesday do not grasp the seriousness of the situation. The move was imperative to prevent a grave financial crisis spiralling into disaster. The threat of a melt-down in the $2.4 trillion market for US municipal bonds had suddenly moved from possible to imminent. No monetary authority could ignore such risks. As skittish markets showed today, more will undoubtedly be required, and soon. But at least the US authorities are facing up to the predicament that they created in the first place by fixing the price of credit artificially low for year after year, and failing to regulate banks, derivatives, and structured credit with a minimum of common sense. "Central banks have lost control," said George Soros to the chastened elites in Davos today, so humbled from the hubris of last year.
Credit card demand surges among small firms Small businesses are increasingly turning to credit cards to keep them afloat, The Bank of England's quarterley credit survey suggests. The banks report that demand for credit cards has increased at the fastest rate in a year. Demand for other forms of unsecured lending have fallen and demand for secured lending has fallen dramatically. The Bank has been conducting this survey every quarter for a year now and it is the first time that the banks report that they expect far less demand from small firms for secured lending over the next three months. What is driving this change? The banks say that they are increasing the price of unsecured and secured loans and toughening up their lending criteria. Why this is driving smaller firms to make more use of credit cards remains unexplained.
Jobs, housing hit new lowsUnemployment claims surge Two cornerstones of the economy - jobs and housing - sank to new depths Thursday, with unemployment claims bolting higher and home prices recording one of their steepest drops on record. The bleak reports underscored the self-reinforcing cycle hampering the economy: As home prices sink, foreclosures rise, banks feel pressure to shy away from lending and employers cut jobs. The Labor Department said the number of newly laid-off people filing for unemployment benefits rose to 406,000 last week, a jump of a seasonally adjusted 34,000. The last time jobless claims were higher was after the Gulf Coast hurricanes in 2005. The housing news wasn't any better: As sales of previously owned homes fell in June and a glut of unsold and foreclosed homes on the market, the value of Americans' biggest asset continued to sag.
Ford suffers record loss Shifts focus from trucks Ford Motor Co., the world's third-biggest automaker, posted a record quarterly loss of $8.7 billion and accelerated a conversion to fuel-efficient vehicles to wean itself from money-losing trucks. Ford shares fell the most in eight years after the company reported a second-quarter deficit of $3.88 a share compared to a profit of $750 million, or 31 cents, a year earlier. The figure included $8 billion in pretax write-downs for plant closings and the declining value of truck leases at Ford Motor Credit Co.
Grand jury investigating home lenders for fraud A federal grand jury is investigating mortgage lenders Countrywide Financial Corp., New Century Financial Corp. and IndyMac Bancorp Inc., a person familiar with the situation told the Associated Presson Thursday. Subpoenas seeking documents have been issued to all three companies, according to the source, who was not authorized to speak publicly about the case and requested anonymity. The subpoenas are seeking e-mails, phone bills, financial records and other information, according to the Los Angeles Times, which cited unnamed people with direct knowledge of the subpoenas in first reporting the investigation was under way. The grand jury investigation is the clearest sign yet that prosecutors are investigating whether fraud and other crimes might have contributed to the mortgage crisis that led to the demise of all three California-based lenders.
Iran ends cooperation with UN nuclear arms probe Iran signaled Thursday that it will no longer cooperate with U.N. experts probing for signs of clandestine nuclear weapons work, confirming the investigation is at a dead end a year after it began. The announcement from Iranian Vice President Gholam Reza Aghazadeh compounded skepticism about denting Tehran's nuclear defiance, just five days after Tehran stonewalled demands from six world powers that it halt activities capable of producing the fissile core of warheads. Besides demanding a suspension of uranium enrichment - a process that can create both fuel for nuclear reactors and payloads for atomic bombs - the six powers have been pressing Tehran to cooperate with the International Atomic Energy Agency's probe.
An Oil Romance On the Rocks Five Years After BP United With Russian Tycoons, a Marriage of Opportunity Is in Collapse The marriage of British oil giant BP and a group of Russian-bred tycoons in a joint venture in 2003 was strained from the start. "The first risk . . . is mutual distrust," the joint venture's executive director German Khan warned his colleagues in the company newsletter when the deal was signed. Mistrust has curdled into open hostility, despite the fact that the 50-50 joint venture, called TNK-BP, has doubled or tripled in value -- and paid out a staggering $18 billion in dividends to its shareholders in just five years. Both sides are tapping into rich reservoirs of grievance and accusation. The Russian oligarchs accuse BP of pursuing its own interests, overloading the venture with costly expatriates and refusing to let it pursue exploration opportunities in other countries, such as Cuba. Meanwhile, BP suspects that its Russia-based partners want to siphon off prized assets and seize management control. BP also believes the partners have prompted Moscow authorities to escalate tax investigations, conduct a raid on the company's offices, and turn down the visas of 148 expatriate workers who have been forced to leave the country. Separately one expatriate staff member was arrested on suspicion of espionage.
THE FINAL GLOBALIZATION OF THE U.S. BANKING SYSTEM We live in a globalized world—a world without barriers or borders, which means every aspect of our economic structure has to change. A private corporation, we call the Federal Reserve, controls the majority of our monetary system. To understand the new set of powers being advanced by the U.S. Treasury Department to the Federal Reserve, we first must recognize that the Federal Reserve Act passed in 1913never gave them (the Feds) total power over our economy. To appreciate the importance of what is currently taking place, we must first realize that as a private corporation, the Federal Reserve is not required to make public who sits on their board of Directors nor who or what banks and corporations hold stock in their private company. Additionally, they are not required to publish an annual report, and I am told, they pay no taxes. So why is it that the American people cannot forgive themselves the interest on their debt? It is because it is owed to a private corporation!
Why Democrats don't want to lower gas prices Senator lets cat out of the bag on Bloomberg TV show A Democratic senator on the Energy and Natural Resources Committee inadvertently explained why her colleagues have no intention of ending the moratorium on offshore oil drilling or increasing the areas open for exploration and production – no matter how popular the idea might be with gas prices soaring. In an interview with Bloomberg TV's "Money and Politics" last night, Sen. Maria Cantwell, D-Wash., explained Democrats don't want to increase supplies of oil and gasoline because they want to wean Americans off of petroleum products. Asked point-blank if Democrats in the Senate would consider how increasing the supply of oil would lower the prices that are pinching U.S. consumers, Cantwell replied: "Oh, we definitely want to move beyond petroleum. And so there will be a supply side offered by the Democrats and it will include everything from battery technology to making sure that we have good home domestic supply, and looking, as I said about moving faster on those kind of things like wind and solar that can help us with our high cost of natural gas." In other words, no.
Bankruptcies soar in Santa Clara County as homeowners struggle with mortgages, credit cards Like many others caught in the housing crisis, Arthur was on the verge of losing his $600,000 home to foreclosure. This month, nearing $1 million in debt, the veteran real estate agent and San Jose father of three filed for Chapter 13 bankruptcy. "I have taken upward of 25 phone calls a day from creditors," he said. "When you have 25 people grinding on you day after day, it takes a toll." Arthur can add himself to the list of 5,941 people who filed for bankruptcy in the San Jose Division of U.S. Bankruptcy Court from July 2007 through June 2008. Of the four Bay Area bankruptcy courts, San Jose's - which oversees Santa Clara, Santa Cruz, San Benito and Monterey counties - posted the highest increase in bankruptcies - 69.7 percent - over the 12 previous months. Once, job loss, massive medical bills or divorce were the primary reasons people declared bankruptcy. Now, a growing number of filings are related to the housing crisis, say local judges, attorneys and credit counselors.
Russia Conducts Test Flights Near N. Pole Flights Boost Military Presence In An Area Believed To Be Rich In Oil, Gas Russia's navy conducted test flights near the North Pole on Thursday, boosting its military presence in an area believed to contain vast quantities of oil and natural gas. Cpl. Vladimir Serga, a naval spokesman, said that Il-38 anti-submarine bombers and Tu-142 long-range strategic bombers of the Northern Fleet took part in the exercise, in which the planes' crews tested radio and weapons systems management equipment. Serga described the exercise as successful. The flights come two days after a Russian missile cruiser began patrols in the Arctic.
The next colonial scramble The news that massive deposits of oil and gas have been found in the Arctic confirms what geologists, oil companies and governments have believed for decades: that these icy wastes house vast fossil fuel resources. But the precise estimate now made by the United States Geological Survey – suggesting that the region contains about one-third of the world's undiscovered gas and about one-sixth of its undiscovered oil – is bound, at a time of high oil prices, to accelerate what could well be the world's last great colonial scramble.
That scramble has been proceeding steadily, without much fanfare, for some time. There are already more than 400 oil and gas fields north of the Arctic Circle. Shell has quietly spent $2bn (£1bn) acquiring drilling leases off Alaska. ExxonMobil and BP have spent huge sums on exploration rights off Canada. Just last week the US government lifted a 17-year ban on offshore drilling to make the US less reliant on imports.
The powers that border the Arctic – Canada, the United States, Russia, Norway and Denmark – have begun jostling for advantage. Last year a Russian submarine planted a flag under the North Pole to stake its claim. Canada is talking about commissioning 12 new nuclear-powered submarines to patrol the waters. Moscow has built a huge fleet of heavy icebreakers
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