http://www.smh.com.au/world/california-bleeding-how-the-dream-turned-sour-in-the-golden-state-20091225-lf1s.html
The economy is reeling and there is a gaping hole in the budget, writes Anne Davies.CALIFORNIA usually conjures up images of Hollywood, cosmetically enhanced beach babes, Silicon Valley, sports cars and expensive real estate.But in the past two years the Golden State has made news, not for its entrepreneurs and excess, but for scenes of poverty, riots and deprivation.In March the Governor, Arnold Schwarzenegger, announced that state fairgrounds in the capital, Sacramento, would be opened up to the homeless after an impromptu tent city sprang up in the shadow of the city centre.El Centro, a town near the Mexican border, enjoys the dubious reputation of having the highest unemployment rate in the nation: just over 25 per cent.In November students staged rowdy sit-ins at campuses of the state-funded University of California after the university administration announced plans to raise fees by 32 per cent, or $US2500 ($2840), over two years, to meet budget shortfalls.And prison canteens and gyms have been turned into seas of triple bunk beds as authorities struggle to accommodate 150,000 prisoners in 33 facilities designed to hold about 80,000.A panel of judges has ruled that to avoid breaching the constitutional prohibition against cruel and unusual punishment, 40,000 must be released. Mr Schwarzenegger is still devising a plan that will probably involve a smaller number of non-violent criminals being set free.The recession has hit California doubly hard. It was one of the states with the biggest bubble in house prices so there has been the inevitable bust. One in every 180 homes received a foreclosure notice in November.
Saturday, December 26, 2009
Tuesday, December 22, 2009
S&P Downgrades On 5 US Mortgage Insurers; Outlook Negative
Standard & Poor's Ratings Services cut the ratings on five U.S. mortgage insurers, bringing two of them to the doorstep of junk territory, amid bigger-than-expected losses and expectations that unemployment will continue to rise through the second quarter of next year.The credit ratings company said the outlook for the mortgage insurers is negative, mostly to reflect the potential for increased losses because of the weak economy.S&P in October put seven mortgage insurers on watch for downgrade, saying claims appeared to be coming in worse that the company expected. On Tuesday, it announced the ratings cuts to the mortgage-insurance arms of Old Republic International Corp. (ORI), Radian Group Inc. (RDN), Genworth Financial Inc. (GNW), PMI Group Inc. (PMI) and United Guaranty Residential Insurance Co.Republic Mortgage Insurance Co., a unit of Old Republic, was cut three notches to BBB-, the doorstep of junk territory while Genworth Mortgage Insurance Corp. was cut two steps to BBB-. The PMI and Radian units were lowered one notch further into junk at B+ while United Guaranty was cut one step to BBB.S&P analyst Ron Joas said the economy has had a "more significant adverse impact" on most mortgage insurers than it expected in April, when it conducted it last extensive review of the sector."At that time, we had expected that mortgage insurers would likely report losses through 2010 and possibly into 2011. However, we'd also expected some loss mitigation beginning in the second half of 2009 and continuing into 2010," he said. Though there have been signs the economy is stabilizing, "we believe the recovery will be sluggish," with unemployment estimated to peak at 10.4% in the middle of next year and foreclosures to continue rising. However, S&P noted that mortgage-modification programs also have been gaining traction.The reviews on the two other companies part of the sector study, CMG Mortgage Insurance Co. and the California Housing Loan Insurance Fund, aren't complete. S&P said they should be "soon."Shares of all four of the publicly traded insurers were higher amid a broad market advance.-By Tess Stynes, Dow Jones Newswires
http://online.wsj.com/article/BT-CO-20091222-706606.html
http://online.wsj.com/article/BT-CO-20091222-706606.html
Chicago Shuts Down To Save Cash
The City of Chicago will be shutting down early for the Christmas holiday, as part of Mayor Daley's plan to save the cash-strapped city money.City Hall, public libraries, health clinics and most other city offices will be closed on Christmas Eve as those city workers are being forced to take the day off without pay.Police and Fire Department operations are not affected and will remain fully staffed. Any other worker needed to provide for the public's safety will also be on the job.As part of the 2009 budget, three reduced-service days were planned for 2009: Aug. 17, the Friday after Thanksgiving; and Christmas Eve. The city expects to save $8.3 million. "Every dollar we save from these measures helps to save jobs, and in the long-term, maintain services for Chicagoans," Mayor Daley said in a statement. "This plan relies on most of our civilian employees to be part of the solution to our very serious budget challenges. I want to thank them again for their efforts."In addition to the reduced service days, all non-union employees were asked to take a series of furlough days and unpaid holidays in 2009, which are expected to continue throughout 2010. Most non-sworn union employees agreed to take similar unpaid time off. There are no reduced-service days scheduled for 2010.
http://cbs2chicago.com/local/chicgo.shut.down.2.1384151.html
http://cbs2chicago.com/local/chicgo.shut.down.2.1384151.html
NIA's Top 10 Predictions for 2010
http://inflation.us/top10predictions2010.html
December 21, 2009 NIA's Top 10 Predictions for 2010The National Inflation Association is pleased to announce its top 10 predictions for 2010.1) We will learn the 2009 holiday shopping season was a bust.The Commerce Department reported seasonally adjusted November retail sales up 1.3% from October. However, if you apply the average seasonal adjustments that were used during the years 2006 and 2007, which account for a normal spike in November sales due to the holiday shopping season, retail sales were actually down 1.3% in November.NIA believes any year-over-year increase in 2009 holiday season retail sales will be bottom bouncing from 2008 and not an indication of an economic recovery. Most likely, adjusted for inflation, retail sales will be flat over a year ago. We expect to see a sharp sell off in many retail stocks, as a full economic recovery appears to be already priced into their share prices.2) We will see a major decline in the Dow/Gold ratio.The Dow/Gold ratio is currently 9.3, having bounced from the low of 7 it saw in early 2009. We are likely to see a decline in the Dow/Gold ratio to below 7 in 2010.Many people who have bought U.S. stocks on the bet of an economic recovery, will soon realize the economy is not recovering and stocks have been rallying only due to inflation. Although some people selling stocks may once again mistakenly move to the U.S. dollar as a safe haven, we believe an increasing amount of people will avoid the U.S. dollar and buy gold as a safe haven.3) We will see a sharp decline in the Gold/Silver ratio.The Gold/Silver ratio is currently 64, above the average of the past 100 years of 50. Between the years 1,000 and 1,873 when silver was used as real money, the Gold/Silver ratio traded between 10 and 16. In recent history, the Gold/Silver ratio dipped below 20 on two occasions, once in 1968 and once again in 1980.NIA believes silver prices will continue to outperform gold in 2010, as the world once again begins looking at silver as money, instead of just an industrial metal. The Gold/Silver ratio could decline to below 50 in 2010.4) The U.S. Dollar Index will see short-term bounce, then huge crash.We are at a point where there are more people who are bearish on the U.S. dollar than ever before, which means from a technical standpoint it is overdue for a short-term bounce. However, we would not consider going long the dollar even as a trade. A huge crash in the U.S. dollar could occur at any time.The world has become flooded with U.S. dollars. Foreigners currently hold over $10 trillion in dollar-denominated assets that can be dumped at any time. With the Federal Reserve continuing to expand its monetary base to record highs, as soon as banks begin lending their excess reserves we could see a spike in consumer prices and a rush to get out of U.S. dollars.5) Oil will rise back above $100 per barrel.We expect oil's next rise above $100 per barrel to be fueled almost entirely by inflation. This time around, it won't matter if there's another substantial decline in oil demand from the U.S. We expect oil prices to rise regardless of if Americans can afford it or not.NIA believes any decrease in demand from the U.S. will be more than made up for by increasing demand from China and India. There hasn't been any major new oil discoveries made in decades and the Federal Reserve's printing of money will surely outpace the discovery of new oil fields.6) There will be a move towards a Libertarian third-party.Americans are waking up to the charade that has been taking place in Washington. Power has been going back and forth between two political parties who do nothing but multiply each other's mistakes. Both the Democrats and Republicans are equally responsible for the economic mess our country is in today.In the last Presidential election, Americans had a choice between two candidates who both supported the government's destructive stimulus plans and bailouts. In the next Presidential election, we believe a third-party candidate will have a serious chance of being elected for the first time in history. We anticipate seeing a new leader emerge and a Libertarian movement begin in 2010.7) Peter Schiff and Rand Paul will both win Republican primaries and be elected to U.S. Senate.We are huge supporters of Peter Schiff and Rand Paul who are seeking the Republican nominations for U.S. Senate in the states of Connecticut and Kentucky respectively. They are both Libertarians at heart but realize their best chance to be elected is to run under the title of a Republican.We need Peter Schiff and Rand Paul to join Ron Paul in Washington so that we at least have three elected representatives that understand the truth about our economy and the need to reverse the hyperinflationary course our country is currently on. Although they may be underdogs because they don't have the support of special interest groups, Peter Schiff and Rand Paul will have huge grassroots support from educated Americans who will travel from all states to volunteer for their campaigns.8) Large 'End the Fed' Protests.In 2009, hundreds of people gathered for several 'End the Fed' protests in front of Federal Reserve buildings nationwide. However, the turnout for these events paled in comparison to the millions of Americans who participated in health care protests and town hall meetings.In 2010, more Americans will realize that it is the Federal Reserve that is the cause of most of our nation's economic problems. While the health care debate divided our nation 50/50, we believe 100% of all Americans will want to end the Federal Reserve as prices of food and other goods needed to live start rising through the roof.9) Major Food Shortages.For the past several decades, most Americans went to college to get a non-productive job on Wall Street and nobody went to school to become a farmer. There is currently a major lack of farmers in the U.S. and to make matters worse, the Real Estate bubble destroyed immeasurable amounts of farmland to build houses we didn't need and couldn't afford.Inventories of agricultural products are the lowest they have been in decades yet the prices of many agricultural commodities are down 70% to 80% from their all time highs adjusted for real inflation. Catastrophic food shortages are possible in 2010, not just in the U.S. but all around the world.10) Paul Volcker Resigns.This may be a long shot but Paul Volcker, Chairman of President Obama's Economic Recovery Advisory Board, could become frustrated with the Obama administration and resign in 2010. Paul Volcker, as former Chairman of the Federal Reserve, was responsible for getting our economy out of the inflationary crisis of the 1970s by raising the federal funds rate up to a peak of 20%.With interest rates currently being held by the Federal Reserve at an artificially low level of 0%, we believe Paul Volcker must know that a currency crisis is coming that will make the inflation of the 1970s look miniscule. If Paul Volcker wants to preserve his reputation and legacy, he must leave the Obama administration, which is unlikely to seriously consider any of his advice.
December 21, 2009 NIA's Top 10 Predictions for 2010The National Inflation Association is pleased to announce its top 10 predictions for 2010.1) We will learn the 2009 holiday shopping season was a bust.The Commerce Department reported seasonally adjusted November retail sales up 1.3% from October. However, if you apply the average seasonal adjustments that were used during the years 2006 and 2007, which account for a normal spike in November sales due to the holiday shopping season, retail sales were actually down 1.3% in November.NIA believes any year-over-year increase in 2009 holiday season retail sales will be bottom bouncing from 2008 and not an indication of an economic recovery. Most likely, adjusted for inflation, retail sales will be flat over a year ago. We expect to see a sharp sell off in many retail stocks, as a full economic recovery appears to be already priced into their share prices.2) We will see a major decline in the Dow/Gold ratio.The Dow/Gold ratio is currently 9.3, having bounced from the low of 7 it saw in early 2009. We are likely to see a decline in the Dow/Gold ratio to below 7 in 2010.Many people who have bought U.S. stocks on the bet of an economic recovery, will soon realize the economy is not recovering and stocks have been rallying only due to inflation. Although some people selling stocks may once again mistakenly move to the U.S. dollar as a safe haven, we believe an increasing amount of people will avoid the U.S. dollar and buy gold as a safe haven.3) We will see a sharp decline in the Gold/Silver ratio.The Gold/Silver ratio is currently 64, above the average of the past 100 years of 50. Between the years 1,000 and 1,873 when silver was used as real money, the Gold/Silver ratio traded between 10 and 16. In recent history, the Gold/Silver ratio dipped below 20 on two occasions, once in 1968 and once again in 1980.NIA believes silver prices will continue to outperform gold in 2010, as the world once again begins looking at silver as money, instead of just an industrial metal. The Gold/Silver ratio could decline to below 50 in 2010.4) The U.S. Dollar Index will see short-term bounce, then huge crash.We are at a point where there are more people who are bearish on the U.S. dollar than ever before, which means from a technical standpoint it is overdue for a short-term bounce. However, we would not consider going long the dollar even as a trade. A huge crash in the U.S. dollar could occur at any time.The world has become flooded with U.S. dollars. Foreigners currently hold over $10 trillion in dollar-denominated assets that can be dumped at any time. With the Federal Reserve continuing to expand its monetary base to record highs, as soon as banks begin lending their excess reserves we could see a spike in consumer prices and a rush to get out of U.S. dollars.5) Oil will rise back above $100 per barrel.We expect oil's next rise above $100 per barrel to be fueled almost entirely by inflation. This time around, it won't matter if there's another substantial decline in oil demand from the U.S. We expect oil prices to rise regardless of if Americans can afford it or not.NIA believes any decrease in demand from the U.S. will be more than made up for by increasing demand from China and India. There hasn't been any major new oil discoveries made in decades and the Federal Reserve's printing of money will surely outpace the discovery of new oil fields.6) There will be a move towards a Libertarian third-party.Americans are waking up to the charade that has been taking place in Washington. Power has been going back and forth between two political parties who do nothing but multiply each other's mistakes. Both the Democrats and Republicans are equally responsible for the economic mess our country is in today.In the last Presidential election, Americans had a choice between two candidates who both supported the government's destructive stimulus plans and bailouts. In the next Presidential election, we believe a third-party candidate will have a serious chance of being elected for the first time in history. We anticipate seeing a new leader emerge and a Libertarian movement begin in 2010.7) Peter Schiff and Rand Paul will both win Republican primaries and be elected to U.S. Senate.We are huge supporters of Peter Schiff and Rand Paul who are seeking the Republican nominations for U.S. Senate in the states of Connecticut and Kentucky respectively. They are both Libertarians at heart but realize their best chance to be elected is to run under the title of a Republican.We need Peter Schiff and Rand Paul to join Ron Paul in Washington so that we at least have three elected representatives that understand the truth about our economy and the need to reverse the hyperinflationary course our country is currently on. Although they may be underdogs because they don't have the support of special interest groups, Peter Schiff and Rand Paul will have huge grassroots support from educated Americans who will travel from all states to volunteer for their campaigns.8) Large 'End the Fed' Protests.In 2009, hundreds of people gathered for several 'End the Fed' protests in front of Federal Reserve buildings nationwide. However, the turnout for these events paled in comparison to the millions of Americans who participated in health care protests and town hall meetings.In 2010, more Americans will realize that it is the Federal Reserve that is the cause of most of our nation's economic problems. While the health care debate divided our nation 50/50, we believe 100% of all Americans will want to end the Federal Reserve as prices of food and other goods needed to live start rising through the roof.9) Major Food Shortages.For the past several decades, most Americans went to college to get a non-productive job on Wall Street and nobody went to school to become a farmer. There is currently a major lack of farmers in the U.S. and to make matters worse, the Real Estate bubble destroyed immeasurable amounts of farmland to build houses we didn't need and couldn't afford.Inventories of agricultural products are the lowest they have been in decades yet the prices of many agricultural commodities are down 70% to 80% from their all time highs adjusted for real inflation. Catastrophic food shortages are possible in 2010, not just in the U.S. but all around the world.10) Paul Volcker Resigns.This may be a long shot but Paul Volcker, Chairman of President Obama's Economic Recovery Advisory Board, could become frustrated with the Obama administration and resign in 2010. Paul Volcker, as former Chairman of the Federal Reserve, was responsible for getting our economy out of the inflationary crisis of the 1970s by raising the federal funds rate up to a peak of 20%.With interest rates currently being held by the Federal Reserve at an artificially low level of 0%, we believe Paul Volcker must know that a currency crisis is coming that will make the inflation of the 1970s look miniscule. If Paul Volcker wants to preserve his reputation and legacy, he must leave the Obama administration, which is unlikely to seriously consider any of his advice.
Sunday, December 20, 2009
Lenders reject homeowners who apply for Obama plan
Lenders reject homeowners who apply for Obama plan
By KEVIN G. HALL
McClatchy Newspapers
WASHINGTON -- Ten months after the Obama administration began pressing lenders to do more to prevent foreclosures, many struggling homeowners are holding up their end of the bargain but still find themselves rejected, and some are even having their homes sold out from under them without notice.
These borrowers, rich and poor, completed trial modifications of their distressed mortgage, and made all the payments, only to learn, often indirectly, that they won't get help after all.
How many is hard to tell. Lenders participating in the administration's Home Affordable Modification Program, or HAMP, still don't provide the government with information about who's rejected and why.
To date, more than 759,000 trial loan modifications have been started, but just 31,382 have been converted to permanent new loans. That averages out to 4 percent, far below the 75 percent conversion rate President Barack Obama has said he seeks.
In the fine print of the form homeowners fill out to apply for Obama's program, which lowers monthly payments for three months while the lender decides whether to provide permanent relief, borrowers must waive important notification rights.
This clause allows banks to reject borrowers without any written notification and move straight to auctioning off their homes without any warning.
That's what happened to Evangelina Flores, the owner of a modest 902-square-foot home in Fontana, Calif. She completed a three-month trial modification, and made the last of the agreed upon monthly payments of $1,134.60 on Nov. 1. Her lawyer said that in late November, Central Mortgage Company told her that it would void her adjustable-rate mortgage, which had risen to a monthly sum above $2,000, and replace it with a fixed-rate mortgage.
"The information they had given us is that she had qualified and that she would be getting her notice of modification in the first week of December," said George Bosch, the legal administrator for the law firm of Edward Lopez and Rick Gaxiola, which is handling Flores' case for free.
Flores, 58, a self-employed child care worker, wired her December payment to Central Mortgage Company on Nov. 30, thinking that her prayers had been answered. A day later, there was a loud, aggressive knock on her door.
Thinking a relative was playing a prank, she opened her front door to find two strangers handing her an eviction notice.
"They arrived real demanding, saying that they were the owners," recalled Flores. "I have high blood pressure, and I felt awful."
Court documents show that her house had been sold that very morning to a recently created company, Shark Investments. The men told Flores she had to be out within three days. The eviction notice had a scribbled signature, and under the signature was the name of attorney John Bouzane.
A representative in his office denied that Bouzane's law firm was involved in Flores' eviction, and said the eviction notice was obtained from Bouzane's Web site, www.fastevictionservice.com.
Why would a lawyer provide for free a document that gives the impression that his law firm is behind an eviction?
"We hope to get the eviction business," said the woman, who didn't identify herself.
Flores bought her home in 2006 for $352,000. Records show that it has a current fair-market value of $99,000. The new owner bought it for $78,000 at an auction Flores didn't even know about.
http://www.miamiherald.com/news/politics/AP/story/1391288.html
By KEVIN G. HALL
McClatchy Newspapers
WASHINGTON -- Ten months after the Obama administration began pressing lenders to do more to prevent foreclosures, many struggling homeowners are holding up their end of the bargain but still find themselves rejected, and some are even having their homes sold out from under them without notice.
These borrowers, rich and poor, completed trial modifications of their distressed mortgage, and made all the payments, only to learn, often indirectly, that they won't get help after all.
How many is hard to tell. Lenders participating in the administration's Home Affordable Modification Program, or HAMP, still don't provide the government with information about who's rejected and why.
To date, more than 759,000 trial loan modifications have been started, but just 31,382 have been converted to permanent new loans. That averages out to 4 percent, far below the 75 percent conversion rate President Barack Obama has said he seeks.
In the fine print of the form homeowners fill out to apply for Obama's program, which lowers monthly payments for three months while the lender decides whether to provide permanent relief, borrowers must waive important notification rights.
This clause allows banks to reject borrowers without any written notification and move straight to auctioning off their homes without any warning.
That's what happened to Evangelina Flores, the owner of a modest 902-square-foot home in Fontana, Calif. She completed a three-month trial modification, and made the last of the agreed upon monthly payments of $1,134.60 on Nov. 1. Her lawyer said that in late November, Central Mortgage Company told her that it would void her adjustable-rate mortgage, which had risen to a monthly sum above $2,000, and replace it with a fixed-rate mortgage.
"The information they had given us is that she had qualified and that she would be getting her notice of modification in the first week of December," said George Bosch, the legal administrator for the law firm of Edward Lopez and Rick Gaxiola, which is handling Flores' case for free.
Flores, 58, a self-employed child care worker, wired her December payment to Central Mortgage Company on Nov. 30, thinking that her prayers had been answered. A day later, there was a loud, aggressive knock on her door.
Thinking a relative was playing a prank, she opened her front door to find two strangers handing her an eviction notice.
"They arrived real demanding, saying that they were the owners," recalled Flores. "I have high blood pressure, and I felt awful."
Court documents show that her house had been sold that very morning to a recently created company, Shark Investments. The men told Flores she had to be out within three days. The eviction notice had a scribbled signature, and under the signature was the name of attorney John Bouzane.
A representative in his office denied that Bouzane's law firm was involved in Flores' eviction, and said the eviction notice was obtained from Bouzane's Web site, www.fastevictionservice.com.
Why would a lawyer provide for free a document that gives the impression that his law firm is behind an eviction?
"We hope to get the eviction business," said the woman, who didn't identify herself.
Flores bought her home in 2006 for $352,000. Records show that it has a current fair-market value of $99,000. The new owner bought it for $78,000 at an auction Flores didn't even know about.
http://www.miamiherald.com/news/politics/AP/story/1391288.html
Saturday, December 19, 2009
First Federal Bank of California and Imperial Capital Bank of La Jolla closed
http://www.latimes.com/business/la-fi-bank-failures19-2009dec19,0,7142345.story?track=rss
First Federal Bank of California and Imperial Capital Bank of La Jolla closed
Both are sold immediately to other Southern California institutions. Regulators have closed 140 U.S. banks this year, 16 in California.
Two more loss-battered Southern California banks were shut down by regulators Friday and immediately sold to two of the largest financial institutions based in the region.Stung by defaults on tricky adjustable mortgages, 80-year-old First Federal Bank of California was closed by federal savings and loan regulators, with its 39 branches to reopen today as part of OneWest Bank. Pasadena-based OneWest, created early this year from the ashes of collapsed home lender IndyMac Bank, agreed to assume all of First Federal's deposits, so no customers will lose money, the Federal Deposit Insurance Corp. said. In Friday's other California failure, Imperial Capital Bank of La Jolla, rocked by troubled loans for apartments and commercial mortgages, was dealt off by the FDIC to City National Bank of Los Angeles, which is emerging as one of the survivors of the banking industry's near-meltdown. Like OneWest, City National agreed to assume all of the acquired bank's deposits, even amounts that exceeded the FDIC's caps on insurance coverage. Imperial Capital's nine branches -- six in California, one in Maryland and two in Nevada -- are to reopen Monday as City National offices. City National was the largest commercial bank with headquarters in Southern California until Pasadena's East West Bank agreed last month to take over a failed rival in the Chinese American niche, San Francisco's United Commercial Bank. That deal beefed up East West, giving it $19 billion in assets to City National's $18 billion. The latest combinations gives City National more than $21 billion in assets and OneWest about $24 billion, although such comparisons matter little given the fact that the acquirers will have to spend much of their time downsizing by working through portfolios of distressed loans. Indeed, OneWest's balance sheet is still stuffed with IndyMac loans that had been targeted for sale before the private market for mortgages dried up, although the FDIC is sharing losses on those loans. The failures bring to 140 the number of U.S. banks that have gone under this year as many loans made during the housing boom earlier this decade have soured. Of California's 16 bank failures this year, First Federal and Imperial Capital rank No. 3 and No. 4, respectively, based on total assets.OneWest is owned by a group of private equity investors that teamed up this year to buy IndyMac Bank from the FDIC months after the Pasadena thrift failed under the weight of defaults on lightly documented loans. The investors had said they hoped to buy nearby banks that also had run into problems with residential mortgages. First Federal, a savings and loan originally based in Santa Monica, fit that description, having booked $547 million in losses over the last seven quarters on so-called pay-option adjustable-rate mortgages. Such loans, also known as option ARMs, allowed borrowers to pay so little each month that their loan balances could increase. Babette Heimbuch, chief executive of First Federal and its parent company, FirstFed Financial Corp., tendered her resignation last week. The S&L had $6.1 billion in total assets and $4.5 billion in deposits as of Sept. 30. In addition to assuming all of the deposits of the failed bank, OneWest agreed to purchase essentially all of the assets, with the FDIC absorbing some of the losses on them.OneWest also announced that it would join in what is becoming an industry-wide moratorium on home foreclosures during the holiday season. City National, which recently moved its headquarters from Beverly Hills to Los Angeles, serves mostly wealthy individuals and small businesses. It has remained well-capitalized despite recent losses on construction and commercial lending. Imperial Capital, with $4 billion in assets and $2.2 billion in deposits, failed to meet a Dec. 14 deadline set by state regulators to raise $200 million in capital. It had lost $112 million in the first three quarters of this year. City National is taking on about $3.4 billion of Imperial Capital's assets. The FDIC agreed to assume a portion of future losses on those assets. The agency said it would keep the remainder of Imperial Capital's portfolio for now. "Imperial Capital Bank is a very good fit for City National, given that eight of its nine locations are in communities we serve," Russell Goldsmith, chief executive of the bank and its parent company, City National Corp., said in a statement. Because some of Imperial Capital's branches are close to City National locations, Goldsmith said he expected that some branches would be closed. But others, such as Imperial's San Francisco site, will be added to City National's existing 64-branch network, he said. "We haven't made any final determinations yet," he said. Neither acquiring bank released details about layoffs, which normally follow bank mergers because they tend to create overlap not only in the branches but also in back-office operations. City National said it would keep Imperial Capital's 140 employees on the payroll, with health benefits, through the holidays while studying the issue. The failure of First Federal is expected to cost the deposit insurance fund $146.3 million. Losses on Imperial Capital's failure were estimated at $619.2 million. Earlier Friday, regulators closed five banks in other states: RockBridge Commercial Bank in Atlanta; New South Federal Savings Bank of Irondale, Ala.; People's First Community Bank of Panama City, Fla.; Independent Bankers' Bank of Springfield, Ill.; and Citizens State Bank, New Baltimore, Mich
First Federal Bank of California and Imperial Capital Bank of La Jolla closed
Both are sold immediately to other Southern California institutions. Regulators have closed 140 U.S. banks this year, 16 in California.
Two more loss-battered Southern California banks were shut down by regulators Friday and immediately sold to two of the largest financial institutions based in the region.Stung by defaults on tricky adjustable mortgages, 80-year-old First Federal Bank of California was closed by federal savings and loan regulators, with its 39 branches to reopen today as part of OneWest Bank. Pasadena-based OneWest, created early this year from the ashes of collapsed home lender IndyMac Bank, agreed to assume all of First Federal's deposits, so no customers will lose money, the Federal Deposit Insurance Corp. said. In Friday's other California failure, Imperial Capital Bank of La Jolla, rocked by troubled loans for apartments and commercial mortgages, was dealt off by the FDIC to City National Bank of Los Angeles, which is emerging as one of the survivors of the banking industry's near-meltdown. Like OneWest, City National agreed to assume all of the acquired bank's deposits, even amounts that exceeded the FDIC's caps on insurance coverage. Imperial Capital's nine branches -- six in California, one in Maryland and two in Nevada -- are to reopen Monday as City National offices. City National was the largest commercial bank with headquarters in Southern California until Pasadena's East West Bank agreed last month to take over a failed rival in the Chinese American niche, San Francisco's United Commercial Bank. That deal beefed up East West, giving it $19 billion in assets to City National's $18 billion. The latest combinations gives City National more than $21 billion in assets and OneWest about $24 billion, although such comparisons matter little given the fact that the acquirers will have to spend much of their time downsizing by working through portfolios of distressed loans. Indeed, OneWest's balance sheet is still stuffed with IndyMac loans that had been targeted for sale before the private market for mortgages dried up, although the FDIC is sharing losses on those loans. The failures bring to 140 the number of U.S. banks that have gone under this year as many loans made during the housing boom earlier this decade have soured. Of California's 16 bank failures this year, First Federal and Imperial Capital rank No. 3 and No. 4, respectively, based on total assets.OneWest is owned by a group of private equity investors that teamed up this year to buy IndyMac Bank from the FDIC months after the Pasadena thrift failed under the weight of defaults on lightly documented loans. The investors had said they hoped to buy nearby banks that also had run into problems with residential mortgages. First Federal, a savings and loan originally based in Santa Monica, fit that description, having booked $547 million in losses over the last seven quarters on so-called pay-option adjustable-rate mortgages. Such loans, also known as option ARMs, allowed borrowers to pay so little each month that their loan balances could increase. Babette Heimbuch, chief executive of First Federal and its parent company, FirstFed Financial Corp., tendered her resignation last week. The S&L had $6.1 billion in total assets and $4.5 billion in deposits as of Sept. 30. In addition to assuming all of the deposits of the failed bank, OneWest agreed to purchase essentially all of the assets, with the FDIC absorbing some of the losses on them.OneWest also announced that it would join in what is becoming an industry-wide moratorium on home foreclosures during the holiday season. City National, which recently moved its headquarters from Beverly Hills to Los Angeles, serves mostly wealthy individuals and small businesses. It has remained well-capitalized despite recent losses on construction and commercial lending. Imperial Capital, with $4 billion in assets and $2.2 billion in deposits, failed to meet a Dec. 14 deadline set by state regulators to raise $200 million in capital. It had lost $112 million in the first three quarters of this year. City National is taking on about $3.4 billion of Imperial Capital's assets. The FDIC agreed to assume a portion of future losses on those assets. The agency said it would keep the remainder of Imperial Capital's portfolio for now. "Imperial Capital Bank is a very good fit for City National, given that eight of its nine locations are in communities we serve," Russell Goldsmith, chief executive of the bank and its parent company, City National Corp., said in a statement. Because some of Imperial Capital's branches are close to City National locations, Goldsmith said he expected that some branches would be closed. But others, such as Imperial's San Francisco site, will be added to City National's existing 64-branch network, he said. "We haven't made any final determinations yet," he said. Neither acquiring bank released details about layoffs, which normally follow bank mergers because they tend to create overlap not only in the branches but also in back-office operations. City National said it would keep Imperial Capital's 140 employees on the payroll, with health benefits, through the holidays while studying the issue. The failure of First Federal is expected to cost the deposit insurance fund $146.3 million. Losses on Imperial Capital's failure were estimated at $619.2 million. Earlier Friday, regulators closed five banks in other states: RockBridge Commercial Bank in Atlanta; New South Federal Savings Bank of Irondale, Ala.; People's First Community Bank of Panama City, Fla.; Independent Bankers' Bank of Springfield, Ill.; and Citizens State Bank, New Baltimore, Mich
Friday, December 18, 2009
Your request is being processed... Fannie, Freddie: Foreclosures Suspende
http://www.huffingtonpost.com/2009/12/18/fannie-freddie-foreclosur_n_396858.html
WASHINGTON — Mortgage finance companies Fannie Mae and Freddie Mac are suspending foreclosures and evictions for about two weeks in a temporary break for borrowers during the holiday season.The suspension, announced Thursday by the government-controlled companies, runs from Saturday through Jan. 3. "No family should have to face the prospect of being evicted during the holiday season," Michael Williams, Fannie Mae's chief executive, said in a statement.Earlier Thursday, Citigroup Inc. announced a 30-day suspension of foreclosures and evictions, affecting about 4,000 borrowers. Fannie and Freddie did not estimate how many homeowners would get this grace period.Last winter, most major lenders suspended foreclosures while the Obama administration developed its $75 billion loan modification program. But foreclosures picked up again after those suspensions lifted
WASHINGTON — Mortgage finance companies Fannie Mae and Freddie Mac are suspending foreclosures and evictions for about two weeks in a temporary break for borrowers during the holiday season.The suspension, announced Thursday by the government-controlled companies, runs from Saturday through Jan. 3. "No family should have to face the prospect of being evicted during the holiday season," Michael Williams, Fannie Mae's chief executive, said in a statement.Earlier Thursday, Citigroup Inc. announced a 30-day suspension of foreclosures and evictions, affecting about 4,000 borrowers. Fannie and Freddie did not estimate how many homeowners would get this grace period.Last winter, most major lenders suspended foreclosures while the Obama administration developed its $75 billion loan modification program. But foreclosures picked up again after those suspensions lifted
Tuesday, December 15, 2009
Citigroup: Abu Dhabi Claim 'Without Merit'
http://www.thestreet.com/story/10646825/1/citigroup-abu-dhabi-claim-without-merit.html?cm_ven=GOOGLEFI
Citigroup: Abu Dhabi Claim 'Without Merit'NEW YORK (TheStreet) -- Citigroup(C Quote) said a claim filed by the Abu Dhabi Investment Authority against the bank that seeks to either terminate an agreement to buy $7.5 billion worth of Citigroup stock or receive damages of more than $4 billion, is "entirely without merit." said Tuesday it expects to "vigorously" defend itself against the allegations. Abu Dhabi invested $7.5 billion in Citigroup in November 2007 and the fund received equity units that paid a high annual dividend. The units were to be converted into Citigroup common stock at up to $37.24 a share between March 15, 2010, and Sept. 15, 2011, giving the fund a 4.9% stake in Citigroup. But Citigroup stock has declined 89% since the end of November 2007. At $37.24 a share, the conversion price would amount to more than 10 times Citigroup's closing stock price Tuesday of $3.56. The Abu Dhabi fund alleges "fraudulent misrepresentations" in connection with the stock sale. Earlier this week, Citigroup reached an agreement with the U.S. government and its regulators to pay back $20 billion it received in bailout aid. The government also agreed to sell its 34% stake in Citigroup. Citigroup received $45 billion in aid from the U.S. government's Troubled Asset Relief Program after taking big losses on mortgages and other investments.
Citigroup: Abu Dhabi Claim 'Without Merit'NEW YORK (TheStreet) -- Citigroup(C Quote) said a claim filed by the Abu Dhabi Investment Authority against the bank that seeks to either terminate an agreement to buy $7.5 billion worth of Citigroup stock or receive damages of more than $4 billion, is "entirely without merit." said Tuesday it expects to "vigorously" defend itself against the allegations. Abu Dhabi invested $7.5 billion in Citigroup in November 2007 and the fund received equity units that paid a high annual dividend. The units were to be converted into Citigroup common stock at up to $37.24 a share between March 15, 2010, and Sept. 15, 2011, giving the fund a 4.9% stake in Citigroup. But Citigroup stock has declined 89% since the end of November 2007. At $37.24 a share, the conversion price would amount to more than 10 times Citigroup's closing stock price Tuesday of $3.56. The Abu Dhabi fund alleges "fraudulent misrepresentations" in connection with the stock sale. Earlier this week, Citigroup reached an agreement with the U.S. government and its regulators to pay back $20 billion it received in bailout aid. The government also agreed to sell its 34% stake in Citigroup. Citigroup received $45 billion in aid from the U.S. government's Troubled Asset Relief Program after taking big losses on mortgages and other investments.
Ten top tips for investors in 2010
1. Stay out of all equities. This is a monstrous valuation bubble driven up by zero interest rates. Rates have to go up, and stock markets down. Markets will correct when something reminds them that this is the future outlook.
2. The dollar rally has further to go, and the dollar will go higher as equities fall, so keep to cash and treasuries until the dollar tops out.
3. No need to diversify into foreign currencies in 2010, except for dollar-linked currencies like the UAE dirham that offer higher interest rates and an explicit government guarantee on all deposits.
4. Buy gold and silver on price weakness when the US dollar rally tops out, and oil stocks.
5. Beware emerging markets like Brazil, Russia, China and India. What has gone up in a hurry will crash in a heap.
6. This will be the ‘Year of the Short’ so, if you want to play the market look to options or short ETFs.
7. Real estate is locked in a downtrend. Interest rates are very low, and real estate only bottoms out when rates are high.
8. Stay liquid for the lifetime buying opportunities that will follow a big crash. Then buy when Warren Buffett says.
9. Do remember to save some of what you earn for future investment opportunities which otherwise tend to occur when you have no savings.
10. Remember that in an era of low interest rates the value of a job is considerable because it would take a much higher capital sum to earn the same in interest. Look after your job
http://arabianmoney.net/category/dubai-property/
2. The dollar rally has further to go, and the dollar will go higher as equities fall, so keep to cash and treasuries until the dollar tops out.
3. No need to diversify into foreign currencies in 2010, except for dollar-linked currencies like the UAE dirham that offer higher interest rates and an explicit government guarantee on all deposits.
4. Buy gold and silver on price weakness when the US dollar rally tops out, and oil stocks.
5. Beware emerging markets like Brazil, Russia, China and India. What has gone up in a hurry will crash in a heap.
6. This will be the ‘Year of the Short’ so, if you want to play the market look to options or short ETFs.
7. Real estate is locked in a downtrend. Interest rates are very low, and real estate only bottoms out when rates are high.
8. Stay liquid for the lifetime buying opportunities that will follow a big crash. Then buy when Warren Buffett says.
9. Do remember to save some of what you earn for future investment opportunities which otherwise tend to occur when you have no savings.
10. Remember that in an era of low interest rates the value of a job is considerable because it would take a much higher capital sum to earn the same in interest. Look after your job
http://arabianmoney.net/category/dubai-property/
Saturday, December 12, 2009
Despite Low Mortgage Rates, Homeowners Can't Refinance
http://www.cnbc.com/id/34395705
Published: Saturday, 12 Dec 2009 5:31 PM ETText SizeBy: David StreitfeldThe New York TimesMortgage rates in the United States have dropped to their lowest levels since the 1940s, thanks to a trillion-dollar intervention by the federal government.Yet the banks that once handed out home loans freely are imposing such stringent requirements that many homeowners who might want to refinance are effectively locked out.The scarcity of credit not only hurts homeowners but also has broad economic repercussions at a time when consumer spending and employment are showing modest signs of improvement, hinting at a recovery after two years of recession.Refinancing could save owners hundreds of dollars a month, which could be spent, saved or used to pay down debts. Extra spending would help lift the economy, and lower payments might spare some people from losing their homes to foreclosure.The plight of homeowners has become a volatile political issue. On Friday, as the House passed a series of new financial regulations, it narrowly defeated a provision that would have allowed bankruptcy judges to modify the terms of mortgages.The measure was strongly opposed by the banking industry.President Obama, in his weekly address on Saturday, placed much of the blame for the recession on “the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.”The president is scheduled to meet with banking executives at the White House on Monday in another administration effort to increase the flow of loans to consumers and small businesses.Among those expected to attend are representatives from Citigroup, JPMorgan Chase, Bank of America, Wells Fargo and Goldman Sachs.An estimated six of 10 homeowners with mortgages have rates that exceed the 4.8 percent rate currently available on 30-year fixed mortgages, the least risky form of home loans.Nevertheless, only half as many refinancing applications were reported last week than were reported at the beginning of January, the peak level for the year.The total dollar volume of refinancing activity in 2009 will be about $1 trillion. In 2003, another year when rates fell, it was $2.8 trillion. (Mortgage applications to purchase houses showed modest improvement for much of the year, but recently fell sharply to their lowest level in 12 years.)“The government has succeeded in driving mortgage rates down to their lowest level in our lifetime,” said Guy Cecala, the publisher of Inside Mortgage Finance magazine. “That hasn’t been a big home run, because a lot of people can’t take advantage of it.”It is highly unusual for mortgage money to be available below 5 percent.Average rates fell as low as 4.7 percent in the 1940s, as the government held down interest rates to finance World War II, and stayed just below 5 percent until the early 1950s.Rates went above 5 percent in 1952 and stayed there — until this year. The super-low rates are not likely to last much longer.The Federal Reserve program that has driven rates to such lows, which involves buying $1.25 trillion in mortgage-backed securities, is scheduled to expire in March, and Fed leaders have said that it would not be renewed.Some analysts believe rates could jump as high as 6 percent in the spring. On a $300,000 mortgage, such a jump would cost an extra $225 a month.Andrew Knapp, a sales executive in Bartlett, Ill., has tried twice to refinance, which would save his family several hundred sorely needed dollars every month.Lenders said the house had lost value and the Knapps had too much debt.“There was no urgency for them to do anything,” Mr. Knapp said.The most recent Federal Reserve survey of lenders found that they were continuing to tighten terms for business and household loans.Banks say they are under pressure from regulators to raise their cash reserves, which means fewer loans.continue
Published: Saturday, 12 Dec 2009 5:31 PM ETText SizeBy: David StreitfeldThe New York TimesMortgage rates in the United States have dropped to their lowest levels since the 1940s, thanks to a trillion-dollar intervention by the federal government.Yet the banks that once handed out home loans freely are imposing such stringent requirements that many homeowners who might want to refinance are effectively locked out.The scarcity of credit not only hurts homeowners but also has broad economic repercussions at a time when consumer spending and employment are showing modest signs of improvement, hinting at a recovery after two years of recession.Refinancing could save owners hundreds of dollars a month, which could be spent, saved or used to pay down debts. Extra spending would help lift the economy, and lower payments might spare some people from losing their homes to foreclosure.The plight of homeowners has become a volatile political issue. On Friday, as the House passed a series of new financial regulations, it narrowly defeated a provision that would have allowed bankruptcy judges to modify the terms of mortgages.The measure was strongly opposed by the banking industry.President Obama, in his weekly address on Saturday, placed much of the blame for the recession on “the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.”The president is scheduled to meet with banking executives at the White House on Monday in another administration effort to increase the flow of loans to consumers and small businesses.Among those expected to attend are representatives from Citigroup, JPMorgan Chase, Bank of America, Wells Fargo and Goldman Sachs.An estimated six of 10 homeowners with mortgages have rates that exceed the 4.8 percent rate currently available on 30-year fixed mortgages, the least risky form of home loans.Nevertheless, only half as many refinancing applications were reported last week than were reported at the beginning of January, the peak level for the year.The total dollar volume of refinancing activity in 2009 will be about $1 trillion. In 2003, another year when rates fell, it was $2.8 trillion. (Mortgage applications to purchase houses showed modest improvement for much of the year, but recently fell sharply to their lowest level in 12 years.)“The government has succeeded in driving mortgage rates down to their lowest level in our lifetime,” said Guy Cecala, the publisher of Inside Mortgage Finance magazine. “That hasn’t been a big home run, because a lot of people can’t take advantage of it.”It is highly unusual for mortgage money to be available below 5 percent.Average rates fell as low as 4.7 percent in the 1940s, as the government held down interest rates to finance World War II, and stayed just below 5 percent until the early 1950s.Rates went above 5 percent in 1952 and stayed there — until this year. The super-low rates are not likely to last much longer.The Federal Reserve program that has driven rates to such lows, which involves buying $1.25 trillion in mortgage-backed securities, is scheduled to expire in March, and Fed leaders have said that it would not be renewed.Some analysts believe rates could jump as high as 6 percent in the spring. On a $300,000 mortgage, such a jump would cost an extra $225 a month.Andrew Knapp, a sales executive in Bartlett, Ill., has tried twice to refinance, which would save his family several hundred sorely needed dollars every month.Lenders said the house had lost value and the Knapps had too much debt.“There was no urgency for them to do anything,” Mr. Knapp said.The most recent Federal Reserve survey of lenders found that they were continuing to tighten terms for business and household loans.Banks say they are under pressure from regulators to raise their cash reserves, which means fewer loans.continue
Thursday, March 26, 2009
Buy A House For Free
Buy a House For Free
The only way that owning real estate may ultimately be a better inflation hedge then other things is going to be a function of leverage, a function of debt. But there is lots of risk there, if you borrow money and house prices drop first.But if we get real hyperinflation which is what I expect to happen, if you borrow a lot of money and and use to buy a house and you don`t pay all the house, lets say you buy a 200,000 USD house but you use only 20,000 USD of your own money and you borrow the other 180,000 USD. You are not tying up yours 200,000 in an asset. You are only tying up 20,000 USD. You take advantage of the low mortgages today, a 30 year fixed rate mortgage of 5% and you make your payments for a while and all of a sudden there is massive inflation and at some point you may be able to pay your entire mortgage with the money that you might of otherwise use to buy a can of soda. You end up having your house virtually for free.(Wall Street Unspun transcript)
http://peterschiffblog.blogspot.com/2009/03/buy-house-for-free.html
The only way that owning real estate may ultimately be a better inflation hedge then other things is going to be a function of leverage, a function of debt. But there is lots of risk there, if you borrow money and house prices drop first.But if we get real hyperinflation which is what I expect to happen, if you borrow a lot of money and and use to buy a house and you don`t pay all the house, lets say you buy a 200,000 USD house but you use only 20,000 USD of your own money and you borrow the other 180,000 USD. You are not tying up yours 200,000 in an asset. You are only tying up 20,000 USD. You take advantage of the low mortgages today, a 30 year fixed rate mortgage of 5% and you make your payments for a while and all of a sudden there is massive inflation and at some point you may be able to pay your entire mortgage with the money that you might of otherwise use to buy a can of soda. You end up having your house virtually for free.(Wall Street Unspun transcript)
http://peterschiffblog.blogspot.com/2009/03/buy-house-for-free.html
Wednesday, February 25, 2009
Expanded First-Time Homebuyer Credit Available
Expanded First-Time Homebuyer Credit Available
By DIANA GOLOBAYFebruary 25, 2009 1:22 PM CST
The Treasury Department on Wednesday announced the availability of an expanded tax credit for first-time home buyers as part of the Obama Administration’s affordability initiatives. The financial stimulus package — the American Recovery and Reinvestment Act of 2009 — includes a provision that will make up to $8,000 available to qualifying taxpayers that buy homes in 2009.
“The expansion of the first-time home buyer tax break as part of the President’s recovery agenda gives money to taxpayers when they need it most, while also targeting an important group of buyers,” said Treasury secretary Tim Geithner. “We view our economic recovery plan, our financial stability plan and now this homeowner affordability plan as three legs of the same stool — an integrated whole that represents our immediate response to the current crisis.”
The new law states that qualifying home buyers may claim up to $8,000 — or $4,000 for married individuals filing separately — on either their 2008 or 2009 tax returns. Unlike the previous law — which required recipients of the tax credit to repay the funds over a number of years without interest — the new homebuyer credit effective with the passage of the act does not have to be repaid.
“First-time home buyers represent a significant portion of existing single-family home sales,” Treasury officials said in a media statement. “In 2008, nearly one out of every two homebuyers were buying for the first time, and the expansion in the first-time homebuyer credit will make it easier for first-time home buyers to enter the housing market this year.”
http://www.housingwire.com/2009/02/25/expanded-first-time-homebuyer-credit-available/
By DIANA GOLOBAYFebruary 25, 2009 1:22 PM CST
The Treasury Department on Wednesday announced the availability of an expanded tax credit for first-time home buyers as part of the Obama Administration’s affordability initiatives. The financial stimulus package — the American Recovery and Reinvestment Act of 2009 — includes a provision that will make up to $8,000 available to qualifying taxpayers that buy homes in 2009.
“The expansion of the first-time home buyer tax break as part of the President’s recovery agenda gives money to taxpayers when they need it most, while also targeting an important group of buyers,” said Treasury secretary Tim Geithner. “We view our economic recovery plan, our financial stability plan and now this homeowner affordability plan as three legs of the same stool — an integrated whole that represents our immediate response to the current crisis.”
The new law states that qualifying home buyers may claim up to $8,000 — or $4,000 for married individuals filing separately — on either their 2008 or 2009 tax returns. Unlike the previous law — which required recipients of the tax credit to repay the funds over a number of years without interest — the new homebuyer credit effective with the passage of the act does not have to be repaid.
“First-time home buyers represent a significant portion of existing single-family home sales,” Treasury officials said in a media statement. “In 2008, nearly one out of every two homebuyers were buying for the first time, and the expansion in the first-time homebuyer credit will make it easier for first-time home buyers to enter the housing market this year.”
http://www.housingwire.com/2009/02/25/expanded-first-time-homebuyer-credit-available/
Tuesday, February 24, 2009
U.S. Bubble Collapse to Be Worse Than Japan’s, CLSA’s Wood Says
U.S. Bubble Collapse to Be Worse Than Japan’s, CLSA’s Wood Says
By Patrick Rial
Feb. 23 (Bloomberg) -- The U.S. is facing a deflationary collapse more severe than the crash that hobbled Japan’s economy in the 1990s, leaving gold as the only defensive play for investors, according to CLSA Ltd.’s Christopher Wood.
The housing recession in the U.S. led to a crisis in the banking system as lenders became saddled with illiquid mortgage assets, souring the securitization industry that helped drive credit growth in recent years. The nation’s retail sales fell 10.5 percent in December as consumers became more pessimistic and scaled back purchases.
“The collapse of securitization is a much more deflationary situation in the U.S. than anything seen in Japan when the bubble collapsed in the early 1990s,” Wood, Institutional Investor’s top-ranked Asia strategist, said at a conference in Tokyo sponsored by CLSA. “What we need in the future is a more fundamentally disciplined system, even at the cost of higher levels of growth.”
Gold may be the safest haven for investors as policy makers accelerate responses to the crisis, devaluing currencies versus hard assets such as gold in the process, said Wood. Gold is likely to more than quadruple from the current level of $986 per ounce currently to $3,500 in 2010, he said.
Wood, who in 2003 predicted the U.S. housing crisis, joined New York University economist Nouriel Roubini in cautioning against investment in Europe due to the rising risk among economies in the eastern and central parts of the continent that carry current account deficits.
Moody’s Investors Service Inc. on Feb. 17 said some of Europe’s largest banks may be downgraded because of loans to eastern Europe, sending shares of lenders tumbling.
“In my view, we will have a full-scale currency collapse in central and eastern Europe,” the strategist said. “This will lead to a growing focus on the huge exposure of the European banks to these distressed economies.”
China and India remain the best bets for equity investors over the long term, Wood said.
Feb. 23 (Bloomberg) -- The U.S. is facing a deflationary collapse more severe than the crash that hobbled Japan’s economy in the 1990s, leaving gold as the only defensive play for investors, according to CLSA Ltd.’s Christopher Wood.
The housing recession in the U.S. led to a crisis in the banking system as lenders became saddled with illiquid mortgage assets, souring the securitization industry that helped drive credit growth in recent years. The nation’s retail sales fell 10.5 percent in December as consumers became more pessimistic and scaled back purchases.
“The collapse of securitization is a much more deflationary situation in the U.S. than anything seen in Japan when the bubble collapsed in the early 1990s,” Wood, Institutional Investor’s top-ranked Asia strategist, said at a conference in Tokyo sponsored by CLSA. “What we need in the future is a more fundamentally disciplined system, even at the cost of higher levels of growth.”
Gold may be the safest haven for investors as policy makers accelerate responses to the crisis, devaluing currencies versus hard assets such as gold in the process, said Wood. Gold is likely to more than quadruple from the current level of $986 per ounce currently to $3,500 in 2010, he said.
Wood, who in 2003 predicted the U.S. housing crisis, joined New York University economist Nouriel Roubini in cautioning against investment in Europe due to the rising risk among economies in the eastern and central parts of the continent that carry current account deficits.
Moody’s Investors Service Inc. on Feb. 17 said some of Europe’s largest banks may be downgraded because of loans to eastern Europe, sending shares of lenders tumbling.
“In my view, we will have a full-scale currency collapse in central and eastern Europe,” the strategist said. “This will lead to a growing focus on the huge exposure of the European banks to these distressed economies.”
China and India remain the best bets for equity investors over the long term, Wood said.
Monday, February 23, 2009
American Express paying card holders to close their accounts
AmEx paying card holders to close their accountsFebruary 23, 2009NEW YORK (Reuters) - American Express Co (NYSE:AXP - News), battered by mounting credit card losses, is offering $300 to a limited number of U.S. card holders who pay off their balances and close their accounts, the company said on Monday."We sent the offer out to a select number of card members," said Molly Faust, a company spokeswoman. "We are looking at different ways that we can manage credit risk based on the costumers overall credit profile."The company did not say how many card holders would receive the offer and did not disclose the total of their card balances....
http://finance.yahoo.com/news/AmEx-p...-14442536.html
http://finance.yahoo.com/news/AmEx-p...-14442536.html
Clinton urges China's continued investment in US
Clinton urges China's continued investment in US
BEIJING – U.S. Secretary of State Hillary Rodham Clinton is urging China to continue investing in United States Treasury bonds and said Sunday that country's continued investment in the U.S. is a recognition that the two countries depend on each other.
"I certainly do think that the Chinese government and central bank are making a smart decision by continuing to invest in Treasury bonds," she said during an interview with the popular talk show "One on One." "It's a safe investment. The United States has a well-deserved financial reputation."
In order to boost the economy, the U.S has to incur more debt, she said. "It would not be in China's interest if we were unable to get our economy moving," Clinton said. "So by continuing to support American Treasury instruments, the Chinese are recognizing our interconnection. We are truly going to rise or fall together. We are in the same boat and, thankfully, we are rowing in the same direction.
"Our economies are so intertwined, the Chinese know that to start exporting again to their biggest market, namely the United States the United States has to take some very drastic measures with this stimulus package, which means we have to incur more debt."
With the export-heavy Chinese economy reeling from the U.S. downturn, Clinton has sought in meetings with President Hu Jintao, Foreign Minister Yang Jiechi and Premier Wen Jiabao to reassure Beijing that its massive holdings of U.S. Treasury notes and other government debt would remain a solid investment.
Yang responded that China wants to see its foreign exchange reserves — the world's largest at $1.95 trillion — invested safely and wanted to continue working with the United States. "I want to emphasize here that the facts speak louder than words. The fact is that China and the United States have conducted good cooperation, and we are ready to continue to talk with the U.S. side," Yang said.
During her trip to China, Cinton's emphasis on the global economy, climate change and security were meant to highlight the growing importance of U.S.-China relations, which have often frayed over disagreements on human rights. Authorities in Beijing face a year of sensitive anniversaries — 20 years since the crushing of the Tiananmen Square democracy movement and 50 years since the failed Tibetan uprising that forced the Dalai Lama into exile.
As she wrapped up her trip to China, she also met with women rights advocates and attended church after a day of talks on Saturday with Chinese officials focused on economic and climate change cooperation rather than differences on human rights that traditional feature prominently in U.S.-China talks.
The session at the U.S. Embassy in Beijing gathered female lawyers, academics, environmental activists, health care workers and entrepreneurs to highlight the growing leadership role of Chinese women.
On Saturday, Clinton and Yang said regular dialogue on economic issues would now include terrorism and other security issues. Details will be finalized by President Barack Obama and the Chinese president at an economic summit in London in April. "We have every reason to believe that the United States and China will recover and together we will help lead the world recovery," she told reporters at a news conference with Yang.
Ahead of her talks, Clinton said China's controversial human rights record would be largely off the table, a blunt admission that startled rights groups and dispensed with standard diplomatic tact.
Activists complained Saturday that Chinese police were monitoring dissidents and had confined some to their homes during Clinton's two-day visit. Several of those targeted had signed "Charter 08," an unusually open call for civil rights and political reforms.
Along with cooperating on the financial crisis, the U.S. wants China to step up efforts to address threats from nuclear programs in Iran and North Korea, and the tenuous security situations in Afghanistan and Pakistan.
With China surpassing the U.S. last year as the world's leading producer of greenhouse gases, Clinton said she and Chinese officials had agreed to develop clean energy technology that would use renewable sources and safely store the dirty emissions from burning coal.
Visiting a new gas-fueled power plant in Beijing, Clinton urged China not to repeat the "same mistakes" that Western countries had made when they developed.
Beijing was the last and perhaps most important stop on Clinton's itinerary, although she sought to assure officials in each capital of the new administration's intent to reengage with them.
Clinton was capping a week on the road in Japan, Indonesia, South Korea and China intended to demonstrate the Obama administration's commitment to Asia.
In Japan and South Korea, concerns over North Korea's nuclear program dominated the agenda, particularly amid a rise in belligerent rhetoric from Pyongyang directed at Seoul. She reaffirmed U.S. alliances with both countries and signed an agreement in Tokyo on the realignment of American forces.
Clinton raised eyebrows on Thursday when she suggested that a potential succession crisis to replace reclusive North Korean leader Kim Jong Il might be behind the hostility and that such a power struggle might complicate efforts to restart stalled nuclear disarmament talks.
She dismissed surprise over her remarks by saying her observation was nothing new.
In Indonesia, Clinton promised that the Obama administration would not neglect Southeast Asia, a region that felt slighted during President Bush's two terms in office. She also announced that planning was under way to resume Peace Corps programs in Jakarta.
http://news.yahoo.com/s/ap/20090222/ap_on_go_pr_wh/as_clinton_china
BEIJING – U.S. Secretary of State Hillary Rodham Clinton is urging China to continue investing in United States Treasury bonds and said Sunday that country's continued investment in the U.S. is a recognition that the two countries depend on each other.
"I certainly do think that the Chinese government and central bank are making a smart decision by continuing to invest in Treasury bonds," she said during an interview with the popular talk show "One on One." "It's a safe investment. The United States has a well-deserved financial reputation."
In order to boost the economy, the U.S has to incur more debt, she said. "It would not be in China's interest if we were unable to get our economy moving," Clinton said. "So by continuing to support American Treasury instruments, the Chinese are recognizing our interconnection. We are truly going to rise or fall together. We are in the same boat and, thankfully, we are rowing in the same direction.
"Our economies are so intertwined, the Chinese know that to start exporting again to their biggest market, namely the United States the United States has to take some very drastic measures with this stimulus package, which means we have to incur more debt."
With the export-heavy Chinese economy reeling from the U.S. downturn, Clinton has sought in meetings with President Hu Jintao, Foreign Minister Yang Jiechi and Premier Wen Jiabao to reassure Beijing that its massive holdings of U.S. Treasury notes and other government debt would remain a solid investment.
Yang responded that China wants to see its foreign exchange reserves — the world's largest at $1.95 trillion — invested safely and wanted to continue working with the United States. "I want to emphasize here that the facts speak louder than words. The fact is that China and the United States have conducted good cooperation, and we are ready to continue to talk with the U.S. side," Yang said.
During her trip to China, Cinton's emphasis on the global economy, climate change and security were meant to highlight the growing importance of U.S.-China relations, which have often frayed over disagreements on human rights. Authorities in Beijing face a year of sensitive anniversaries — 20 years since the crushing of the Tiananmen Square democracy movement and 50 years since the failed Tibetan uprising that forced the Dalai Lama into exile.
As she wrapped up her trip to China, she also met with women rights advocates and attended church after a day of talks on Saturday with Chinese officials focused on economic and climate change cooperation rather than differences on human rights that traditional feature prominently in U.S.-China talks.
The session at the U.S. Embassy in Beijing gathered female lawyers, academics, environmental activists, health care workers and entrepreneurs to highlight the growing leadership role of Chinese women.
On Saturday, Clinton and Yang said regular dialogue on economic issues would now include terrorism and other security issues. Details will be finalized by President Barack Obama and the Chinese president at an economic summit in London in April. "We have every reason to believe that the United States and China will recover and together we will help lead the world recovery," she told reporters at a news conference with Yang.
Ahead of her talks, Clinton said China's controversial human rights record would be largely off the table, a blunt admission that startled rights groups and dispensed with standard diplomatic tact.
Activists complained Saturday that Chinese police were monitoring dissidents and had confined some to their homes during Clinton's two-day visit. Several of those targeted had signed "Charter 08," an unusually open call for civil rights and political reforms.
Along with cooperating on the financial crisis, the U.S. wants China to step up efforts to address threats from nuclear programs in Iran and North Korea, and the tenuous security situations in Afghanistan and Pakistan.
With China surpassing the U.S. last year as the world's leading producer of greenhouse gases, Clinton said she and Chinese officials had agreed to develop clean energy technology that would use renewable sources and safely store the dirty emissions from burning coal.
Visiting a new gas-fueled power plant in Beijing, Clinton urged China not to repeat the "same mistakes" that Western countries had made when they developed.
Beijing was the last and perhaps most important stop on Clinton's itinerary, although she sought to assure officials in each capital of the new administration's intent to reengage with them.
Clinton was capping a week on the road in Japan, Indonesia, South Korea and China intended to demonstrate the Obama administration's commitment to Asia.
In Japan and South Korea, concerns over North Korea's nuclear program dominated the agenda, particularly amid a rise in belligerent rhetoric from Pyongyang directed at Seoul. She reaffirmed U.S. alliances with both countries and signed an agreement in Tokyo on the realignment of American forces.
Clinton raised eyebrows on Thursday when she suggested that a potential succession crisis to replace reclusive North Korean leader Kim Jong Il might be behind the hostility and that such a power struggle might complicate efforts to restart stalled nuclear disarmament talks.
She dismissed surprise over her remarks by saying her observation was nothing new.
In Indonesia, Clinton promised that the Obama administration would not neglect Southeast Asia, a region that felt slighted during President Bush's two terms in office. She also announced that planning was under way to resume Peace Corps programs in Jakarta.
http://news.yahoo.com/s/ap/20090222/ap_on_go_pr_wh/as_clinton_china
Monday, February 16, 2009
Failure to save East Europe will lead to worldwide meltdown
Failure to save East Europe will lead to worldwide meltdown
The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.
By Ambrose Evans-PritchardLast Updated: 2:05AM GMT 15 Feb 2009
Comments 90 Comment on this article
If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.
Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.
"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.
Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said. We'll see about that.
Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.
Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.
"This is the largest run on a currency in history," said Mr Jen.
In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.
Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.
They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).
Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.
Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.
Under a "Taylor Rule" analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.
But I digress. It is East Europe that is blowing up right now. Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system.
Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.
The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.
Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.
"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.
"There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."
Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4pc in the fourth quarter.
If Deutsche Bank is correct, the economy will have shrunk by nearly 9pc before the end of this year. This is the sort of level that stokes popular revolt.
The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.
So we watch and wait as the lethal brush fires move closer.
If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4623525/Failure-to-save-East-Europe-will-lead-to-worldwide-meltdown.html
The unfolding debt drama in Russia, Ukraine, and the EU states of Eastern Europe has reached acute danger point.
By Ambrose Evans-PritchardLast Updated: 2:05AM GMT 15 Feb 2009
Comments 90 Comment on this article
If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.
Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.
"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.
Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said. We'll see about that.
Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.
Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.
"This is the largest run on a currency in history," said Mr Jen.
In Poland, 60pc of mortgages are in Swiss francs. The zloty has just halved against the franc. Hungary, the Balkans, the Baltics, and Ukraine are all suffering variants of this story. As an act of collective folly – by lenders and borrowers – it matches America's sub-prime debacle. There is a crucial difference, however. European banks are on the hook for both. US banks are not.
Almost all East bloc debts are owed to West Europe, especially Austrian, Swedish, Greek, Italian, and Belgian banks. En plus, Europeans account for an astonishing 74pc of the entire $4.9 trillion portfolio of loans to emerging markets.
They are five times more exposed to this latest bust than American or Japanese banks, and they are 50pc more leveraged (IMF data).
Spain is up to its neck in Latin America, which has belatedly joined the slump (Mexico's car output fell 51pc in January, and Brazil lost 650,000 jobs in one month). Britain and Switzerland are up to their necks in Asia.
Whether it takes months, or just weeks, the world is going to discover that Europe's financial system is sunk, and that there is no EU Federal Reserve yet ready to act as a lender of last resort or to flood the markets with emergency stimulus.
Under a "Taylor Rule" analysis, the European Central Bank already needs to cut rates to zero and then purchase bonds and Pfandbriefe on a huge scale. It is constrained by geopolitics – a German-Dutch veto – and the Maastricht Treaty.
But I digress. It is East Europe that is blowing up right now. Erik Berglof, EBRD's chief economist, told me the region may need €400bn in help to cover loans and prop up the credit system.
Europe's governments are making matters worse. Some are pressuring their banks to pull back, undercutting subsidiaries in East Europe. Athens has ordered Greek banks to pull out of the Balkans.
The sums needed are beyond the limits of the IMF, which has already bailed out Hungary, Ukraine, Latvia, Belarus, Iceland, and Pakistan – and Turkey next – and is fast exhausting its own $200bn (€155bn) reserve. We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights.
Its $16bn rescue of Ukraine has unravelled. The country – facing a 12pc contraction in GDP after the collapse of steel prices – is hurtling towards default, leaving Unicredit, Raffeisen and ING in the lurch. Pakistan wants another $7.6bn. Latvia's central bank governor has declared his economy "clinically dead" after it shrank 10.5pc in the fourth quarter. Protesters have smashed the treasury and stormed parliament.
"This is much worse than the East Asia crisis in the 1990s," said Lars Christensen, at Danske Bank.
"There are accidents waiting to happen across the region, but the EU institutions don't have any framework for dealing with this. The day they decide not to save one of these one countries will be the trigger for a massive crisis with contagion spreading into the EU."
Europe is already in deeper trouble than the ECB or EU leaders ever expected. Germany contracted at an annual rate of 8.4pc in the fourth quarter.
If Deutsche Bank is correct, the economy will have shrunk by nearly 9pc before the end of this year. This is the sort of level that stokes popular revolt.
The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU "union bonds" should the debt markets take fright at the rocketing trajectory of Italy's public debt (hitting 112pc of GDP next year, just revised up from 101pc – big change), or rescue Austria from its Habsburg adventurism.
So we watch and wait as the lethal brush fires move closer.
If one spark jumps across the eurozone line, we will have global systemic crisis within days. Are the firemen ready?
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4623525/Failure-to-save-East-Europe-will-lead-to-worldwide-meltdown.html
America's Emptiest Cities
America's Emptiest Cities
By Zack O'Malley Greenburg, Forbes.com
Feb 12th, 2009
Vacancy rates in these spots spell lots of empty neighborhoods.
Call it a modern-day tale of two cities.
For decades, Las Vegas, ripe with new construction and economic development, burgeoned into a shimmering urban carnival. Detroit, once the fulcrum of American industry, sagged and rusted under its own weight.
In Depth: America's Emptiest Cities
These days, it's the worst of times for both.
Las Vegas edged Detroit for the title of America's most abandoned city. Atlanta came in third, followed by Greensboro, N.C., and Dayton, Ohio. Our rankings, a combination of rental and homeowner vacancy rates for the 75 largest metropolitan statistical areas in the country, are based on fourth-quarter data released Feb. 3 by the Census Bureau. Each was ranked on rental vacancies and housing vacancies; the final ranking is an average of the two.
Cities like Detroit and Dayton are casualties of America's lengthy industrial decline. Others, like Las Vegas and Orlando, are mostly victims of the recent housing bust. Boston and New York are among the lone bright spots, while Honolulu is the nation's best with a vacancy rate of 5.8% for homes and a scant 0.5% for rentals.
Still, empty neighborhoods are becoming an increasingly daunting problem across the country. The national rental vacancy rate now stands at 10.1%, up from 9.6% a year ago; homeowner vacancy has edged up from 2.8% to 2.9%. Richmond, Va.'s rental vacancy rate of 23.7% is the worst in America, while Orlando's 7.4% rate is lousiest on the homeowner side. Detroit and Las Vegas are among the worst offenders by both measures--the Motor City sports vacancy rates of 19.9% for rentals and 4% for homes; Sin City has rates of 16% and 4.7%, respectively.
"It's a mess," says Vegas developer Laurence Hallier. "Right now, things are just frozen. Everybody's scared."
Hallier, 40, knows from experience. His $600 million Panorama Towers complex was a tremendous success at its inception three years ago. The first of his four planned residential skyscrapers sold out in six months; the second, which opened in 2007, sold out in 12 weeks. As the third tower neared completion last fall, Hallier had sold 92% of its units. Then the recession hit, and only half the units ended up closing. Hallier says it will take years to break even, and plans for the fourth tower have been delayed indefinitely.
There are others who've made--and lost--far worse gambles on Vegas property. In 2007, Israeli billionaire Yitzhak Tshuva and partner Nochi Dankner paid $1.25 billion to buy a 34.5-acre site on the Strip, with plans to build an $8 billion mega-casino modeled after New York's Plaza Hotel. By November, the value of the lot had plummeted to $650 million--half what they paid for it. Groundbreaking on the casino has been pushed back to 2010, and today, the land may be worth less than the $625 million Tshuva and Dankner borrowed to buy it.
The Plaza debacle is emblematic of the problems afflicting millions of property owners in Vegas and around the country--and can explain, in large part, the origins of America's housing crisis.
As real estate prices skyrocketed during the boom, consumers took out massive loans to buy homes, assuming values would continue to rise. Instead they took a nosedive, especially in places like Las Vegas, Florida and Phoenix, where the housing boom had created excess inventory and so-called "bad loans" were rampant. Many homeowners suddenly found themselves with properties worth far less than the mortgages they'd taken out. In the worst cases, banks foreclosed, leaving people without homes--and with more debt than they'd had to begin with.
The situation in places like Las Vegas is bad enough, but Detroit's problems run much deeper. Though its vacancy rates are marginally better than Sin City's, Motown has been on the empty side for decades. An industrial boomtown during the first half of the 20th century, Detroit's population swelled from 285,000 in 1900 to 990,000 in 1920, reaching a peak of 1.8 million in 1950.
But starting in the 1960s, Detroit began a precipitous decline. Detroit's population is now 900,000--half what it was in the middle of the century--and many of its neighborhoods languish in varying states of decay. Most scholars blame rapid suburbanization, outsourcing of manufacturing jobs, and federal programs they say exacerbated the situation by creating a culture of joblessness and dependency.
Yet after more than half a century, countless scholars, politicians, community organizers developers and nonprofit workers have been unable to come up with a solution to fix Detroit.
Will Las Vegas eventually suffer the same fate?
"I don't think Vegas is overbuilt," says Hallier. "Despite what everybody says, Vegas still has 2 million people."
Time will tell if this sort of optimism is warranted. Cynics who've witnessed Detroit's decline might liken Hallier's opinions to another Dickens oeuvre: Great Expectations
http://realestate.yahoo.com/promo/americas-emptiest-cities.html
By Zack O'Malley Greenburg, Forbes.com
Feb 12th, 2009
Vacancy rates in these spots spell lots of empty neighborhoods.
Call it a modern-day tale of two cities.
For decades, Las Vegas, ripe with new construction and economic development, burgeoned into a shimmering urban carnival. Detroit, once the fulcrum of American industry, sagged and rusted under its own weight.
In Depth: America's Emptiest Cities
These days, it's the worst of times for both.
Las Vegas edged Detroit for the title of America's most abandoned city. Atlanta came in third, followed by Greensboro, N.C., and Dayton, Ohio. Our rankings, a combination of rental and homeowner vacancy rates for the 75 largest metropolitan statistical areas in the country, are based on fourth-quarter data released Feb. 3 by the Census Bureau. Each was ranked on rental vacancies and housing vacancies; the final ranking is an average of the two.
Cities like Detroit and Dayton are casualties of America's lengthy industrial decline. Others, like Las Vegas and Orlando, are mostly victims of the recent housing bust. Boston and New York are among the lone bright spots, while Honolulu is the nation's best with a vacancy rate of 5.8% for homes and a scant 0.5% for rentals.
Still, empty neighborhoods are becoming an increasingly daunting problem across the country. The national rental vacancy rate now stands at 10.1%, up from 9.6% a year ago; homeowner vacancy has edged up from 2.8% to 2.9%. Richmond, Va.'s rental vacancy rate of 23.7% is the worst in America, while Orlando's 7.4% rate is lousiest on the homeowner side. Detroit and Las Vegas are among the worst offenders by both measures--the Motor City sports vacancy rates of 19.9% for rentals and 4% for homes; Sin City has rates of 16% and 4.7%, respectively.
"It's a mess," says Vegas developer Laurence Hallier. "Right now, things are just frozen. Everybody's scared."
Hallier, 40, knows from experience. His $600 million Panorama Towers complex was a tremendous success at its inception three years ago. The first of his four planned residential skyscrapers sold out in six months; the second, which opened in 2007, sold out in 12 weeks. As the third tower neared completion last fall, Hallier had sold 92% of its units. Then the recession hit, and only half the units ended up closing. Hallier says it will take years to break even, and plans for the fourth tower have been delayed indefinitely.
There are others who've made--and lost--far worse gambles on Vegas property. In 2007, Israeli billionaire Yitzhak Tshuva and partner Nochi Dankner paid $1.25 billion to buy a 34.5-acre site on the Strip, with plans to build an $8 billion mega-casino modeled after New York's Plaza Hotel. By November, the value of the lot had plummeted to $650 million--half what they paid for it. Groundbreaking on the casino has been pushed back to 2010, and today, the land may be worth less than the $625 million Tshuva and Dankner borrowed to buy it.
The Plaza debacle is emblematic of the problems afflicting millions of property owners in Vegas and around the country--and can explain, in large part, the origins of America's housing crisis.
As real estate prices skyrocketed during the boom, consumers took out massive loans to buy homes, assuming values would continue to rise. Instead they took a nosedive, especially in places like Las Vegas, Florida and Phoenix, where the housing boom had created excess inventory and so-called "bad loans" were rampant. Many homeowners suddenly found themselves with properties worth far less than the mortgages they'd taken out. In the worst cases, banks foreclosed, leaving people without homes--and with more debt than they'd had to begin with.
The situation in places like Las Vegas is bad enough, but Detroit's problems run much deeper. Though its vacancy rates are marginally better than Sin City's, Motown has been on the empty side for decades. An industrial boomtown during the first half of the 20th century, Detroit's population swelled from 285,000 in 1900 to 990,000 in 1920, reaching a peak of 1.8 million in 1950.
But starting in the 1960s, Detroit began a precipitous decline. Detroit's population is now 900,000--half what it was in the middle of the century--and many of its neighborhoods languish in varying states of decay. Most scholars blame rapid suburbanization, outsourcing of manufacturing jobs, and federal programs they say exacerbated the situation by creating a culture of joblessness and dependency.
Yet after more than half a century, countless scholars, politicians, community organizers developers and nonprofit workers have been unable to come up with a solution to fix Detroit.
Will Las Vegas eventually suffer the same fate?
"I don't think Vegas is overbuilt," says Hallier. "Despite what everybody says, Vegas still has 2 million people."
Time will tell if this sort of optimism is warranted. Cynics who've witnessed Detroit's decline might liken Hallier's opinions to another Dickens oeuvre: Great Expectations
http://realestate.yahoo.com/promo/americas-emptiest-cities.html
Saturday, February 14, 2009
G7 approves IMF gold sales - Italy econ minister
By Gavin Jones
TOKYO (Reuters) - The Group of Seven rich nations on Saturday approved the sale of gold by the International Monetary Fund from April as part of a broad reform of its budget, Italian Economy Minister Tommaso Padoa-Schioppa said.
"There was an acceptance among the G7 that resources should be raised by selling gold," Padoa-Schioppa, who is also the head of the IMF's steering committee (IMFC), told reporters after a meeting of G7 finance ministers in Tokyo.
He said the agreement would be finalised in April and would complement spending cuts being drawn up by the IMF under its new managing director, Dominique Strauss-Kahn.
"The current gold price means a flow of income can be ensured," Padoa-Schioppa said.
Morgan Stanley analyst Stephen Jen said the Fund held 103.4 million ounces of gold worth some $92 billion at current market prices. That was up from $23 billion just five years ago.
"The IMF is rich, if it wants to be," he wrote in a recent note to clients, issued before the G7's approval of the gold sales. "This is arguably a good time to consider selling some of these gold holdings and investing the proceeds in financial securities with positive yields."
A surge in oil prices has boosted gold's appeal as a hedge against inflation.
The precious metal gained more than 30 percent in 2007 as safe-haven buying increased due to the credit market turmoil and worries about the health of the dollar as it fell to record lows against the euro
Gold continued its upward march this year. Cash gold hit a record high of $936.50 an ounce on Feb. 1, up about 12 percent since the start of the year, and was quoted at $918.00/918.70 an ounce in late New York on Friday.
Padoa-Schioppa noted that in the case of the United States, approval for gold sales would be required by Congress, meaning "the administration must present a proposal and support it".
Padoa-Schioppa said he would step down as president of the IMFC because of the recent fall of the Italian government which meant he would soon lose his job as economy minister.
Asked if he would continue as IMFC head, he said: "I don't believe so, it has to be a minister in office, and soon I will no longer be a minister in office."
http://in.reuters.com/article/businessNews/idINIndia-31847320080209?pageNumber=1&virtualBrandChannel=0
TOKYO (Reuters) - The Group of Seven rich nations on Saturday approved the sale of gold by the International Monetary Fund from April as part of a broad reform of its budget, Italian Economy Minister Tommaso Padoa-Schioppa said.
"There was an acceptance among the G7 that resources should be raised by selling gold," Padoa-Schioppa, who is also the head of the IMF's steering committee (IMFC), told reporters after a meeting of G7 finance ministers in Tokyo.
He said the agreement would be finalised in April and would complement spending cuts being drawn up by the IMF under its new managing director, Dominique Strauss-Kahn.
"The current gold price means a flow of income can be ensured," Padoa-Schioppa said.
Morgan Stanley analyst Stephen Jen said the Fund held 103.4 million ounces of gold worth some $92 billion at current market prices. That was up from $23 billion just five years ago.
"The IMF is rich, if it wants to be," he wrote in a recent note to clients, issued before the G7's approval of the gold sales. "This is arguably a good time to consider selling some of these gold holdings and investing the proceeds in financial securities with positive yields."
A surge in oil prices has boosted gold's appeal as a hedge against inflation.
The precious metal gained more than 30 percent in 2007 as safe-haven buying increased due to the credit market turmoil and worries about the health of the dollar as it fell to record lows against the euro
Gold continued its upward march this year. Cash gold hit a record high of $936.50 an ounce on Feb. 1, up about 12 percent since the start of the year, and was quoted at $918.00/918.70 an ounce in late New York on Friday.
Padoa-Schioppa noted that in the case of the United States, approval for gold sales would be required by Congress, meaning "the administration must present a proposal and support it".
Padoa-Schioppa said he would step down as president of the IMFC because of the recent fall of the Italian government which meant he would soon lose his job as economy minister.
Asked if he would continue as IMFC head, he said: "I don't believe so, it has to be a minister in office, and soon I will no longer be a minister in office."
http://in.reuters.com/article/businessNews/idINIndia-31847320080209?pageNumber=1&virtualBrandChannel=0
Friday, February 13, 2009
China sees risk from big US debt issuance-official
BEIJING, Feb 13 (Reuters) - Buying U.S. Treasury bonds is an option -- but not the only option -- for China, which is aware that huge debt issuance by Washington would reduce the value of China's existing portfolio, a banking regulator said in remarks published on Friday.
Luo Ping, a director-general at the China Banking Regulatory Commission, was clarifying a Financial Times report that quoted him as saying creditor countries had no choice but to invest their surpluses in U.S. Treasuries.
"For everyone, including China, it is the only option," the FT quoted Luo as saying in New York on Wednesday.
In an elaboration of his remarks, the China News Service paraphrased Luo as saying:"Compared with gold or bonds issued by other countries and regions, U.S. Treasury bonds are still an option (for China).
"But if the U.S. government issues a large amount of Treasury bonds amid efforts to deal with the economic crisis, all investors who hold U.S. Treasuries will suffer losses."
China News Service carried the article on its website, www.china.com.cn.
China, with foreign exchange reserves of about $2 trillion now, is the world's largest holder of U.S. government debt. (Reporting by Langi Chiang; Editing by Alan Wheatley and Ken Wills)
http://www.reuters.com/article/marketsNews/idUSPEK7311520090213
Luo Ping, a director-general at the China Banking Regulatory Commission, was clarifying a Financial Times report that quoted him as saying creditor countries had no choice but to invest their surpluses in U.S. Treasuries.
"For everyone, including China, it is the only option," the FT quoted Luo as saying in New York on Wednesday.
In an elaboration of his remarks, the China News Service paraphrased Luo as saying:"Compared with gold or bonds issued by other countries and regions, U.S. Treasury bonds are still an option (for China).
"But if the U.S. government issues a large amount of Treasury bonds amid efforts to deal with the economic crisis, all investors who hold U.S. Treasuries will suffer losses."
China News Service carried the article on its website, www.china.com.cn.
China, with foreign exchange reserves of about $2 trillion now, is the world's largest holder of U.S. government debt. (Reporting by Langi Chiang; Editing by Alan Wheatley and Ken Wills)
http://www.reuters.com/article/marketsNews/idUSPEK7311520090213
Washington Hopes ‘Vulture’ Investors Will Buy Bad Assets
Washington Hopes ‘Vulture’ Investors Will Buy Bad Assets
By MICHAEL J. de la MERCED and ZACHERY KOUWE
Published: February 10, 2009
Howard S. Marks is the sort of financier who Washington hopes will help fix the nation’s tumbledown banks. Trouble is, he is not quite sure he wants the job.
Michael Appleton for The New York Times
Traders on the floor of the New York Stock Exchange on Tuesday. The markets slid all day.
Mr. Marks is a former banker who became a pioneer in the graveyard of Wall Street. He is one of the biggest players in distressed investing — putting money into risky investments that few others will touch.
But he and other potential investors are wary of the risk in this case.
With its plan to shore up banks that was announced on Tuesday, the Obama administration hopes to entice investors like Mr. Marks, who has $55 billion at his command, to buy troubled assets from the nation’s banks and enable them to make the loans needed to jump-start the economy.
The administration hopes, in short, to counterbalance some of the fear gripping the financial world with a bit of old-fashioned greed.
To combat the bust, Washington wants to marshal some of the same financiers who grew rich during the boom: hedge fund managers and corporate buyout specialists.
But Mr. Marks and other investors like him said they were in no hurry to wade into this mess. Distressed investors — “vultures” is the Wall Street term for them — aim to buy investments on the cheap in hopes of reaping big returns.
Yet even for the vultures, the risks — political as well as financial — seem daunting. Some worry about being seen as profiteers who benefit at taxpayers’ expense, even though the economy could get worse unless they swoop in.
“You have to ask whether this is an attractive deal,” said Mr. Marks, the chairman of Oaktree Capital Management, a big money management firm in Los Angeles. It all depends on the price, the terms and the risks, he said. Wall Street, of course, wants what it always wants: a lot of potential profit on the upside, and not much risk of losses on the downside. But as Treasury Secretary Timothy F. Geithner outlined his sweeping rescue plan on Tuesday, the questions kept piling up.
What kind of assets would the banks sell, and at what price? What role would the government play? And, of course, the big one: what are these investments really worth? The banks themselves are struggling to place values on them.
Hundreds of billions of dollars of these assets are hanging over banks. Until there is a clear way to purge them, the industry, and the broader economy, are likely to languish.
That is where the vultures come in. Hedge funds and other institutions dominate the field of distressed investing, and they are known for driving hard bargains. In recent weeks, several prominent hedge fund managers met with Lawrence H. Summers, the head of the National Economic Council, to discuss their interest in the planned public-private partnership.
Few of these investors were willing to discuss their plans publicly on Tuesday. Some worried their own investors, which include large public pension funds, might view the potential investments as too risky. And some would not be allowed to buy such assets under their own investment guidelines.
But if the vultures do alight, their rewards could be enormous. Funds specializing in distressed investments earned annual returns of more than 30 percent in the early 1990s as the economy pulled out of recession.
“There are plenty of guys who are willing to take the risk, but they want the high returns,” said Chip MacDonald, a partner at the law firm Jones Day.
Some private investment firms, like Apollo Global Management, headed by Leon D. Black, first made their names and fortunes in the wake of the savings and loan crisis, when the government’s Resolution Trust Corporation sold off assets to other investors on the cheap.
Others, like the Blackstone Group, the large buyout firm run by Stephen A. Schwarzman, and Paulson & Company, whose chief, John Paulson, made billions betting against subprime mortgages, have told their investors they are hunting for the bargains in the ruins of the financial sector.
Still others, like the Pacific Investment Management Company, the big bond fund, and BlackRock, another money management firm, could also emerge as big buyers of the troubled assets.
Howard Newman, the chief executive of Pine Brook Road Partners, a private equity firm that invests in financial companies, said such investors drew a distinction between potentially valuable assets and those that are outright toxic. Some good assets simply cannot be sold right now given the turmoil in the markets.
“If the purpose of the partnership is to find a place to house the loss, I don’t think private equity will be willing to do that,” Mr. Newman said.
Some executives said they wanted the government to subsidize their purchases with low-cost loans. Others said the Treasury should put a floor under their potential losses.
One model might be the government-brokered sale of IndyMac Bancorp, the large California mortgage lender that failed last summer. IndyMac was bought by a group of private firms last month for $13.9 billion. As part of the deal, the investors agreed to assume the first 20 percent of the bank’s losses, while the government picked up the rest.
Another big issue is the price at which the troubled assets would be valued by the banks. While potential investors want to buy as cheaply as possible, the banks might have to take debilitating write-downs if they sold at fire-sale prices. Such an outcome might not be in the government’s — or taxpayers’ — interests.
But competing interests are bound to bedevil this kind of deal, said Campbell R. Harvey, a professor at the Fuqua School of Business at Duke University.
“Given the conflicting objectives, I’m not sure I’d be interested in this kind of altruistic investing,” he said.
And the potential political costs, money managers said, are real. Some managers said that if they did their job well, they could earn double-digit returns and, with them, public scorn.
“We can’t really win,” one private equity executive said. “When we made money, people criticized us. This year, we lost money, and people are criticizing us.”
http://www.nytimes.com/2009/02/11/business/economy/11react.html?ref=business
By MICHAEL J. de la MERCED and ZACHERY KOUWE
Published: February 10, 2009
Howard S. Marks is the sort of financier who Washington hopes will help fix the nation’s tumbledown banks. Trouble is, he is not quite sure he wants the job.
Michael Appleton for The New York Times
Traders on the floor of the New York Stock Exchange on Tuesday. The markets slid all day.
Mr. Marks is a former banker who became a pioneer in the graveyard of Wall Street. He is one of the biggest players in distressed investing — putting money into risky investments that few others will touch.
But he and other potential investors are wary of the risk in this case.
With its plan to shore up banks that was announced on Tuesday, the Obama administration hopes to entice investors like Mr. Marks, who has $55 billion at his command, to buy troubled assets from the nation’s banks and enable them to make the loans needed to jump-start the economy.
The administration hopes, in short, to counterbalance some of the fear gripping the financial world with a bit of old-fashioned greed.
To combat the bust, Washington wants to marshal some of the same financiers who grew rich during the boom: hedge fund managers and corporate buyout specialists.
But Mr. Marks and other investors like him said they were in no hurry to wade into this mess. Distressed investors — “vultures” is the Wall Street term for them — aim to buy investments on the cheap in hopes of reaping big returns.
Yet even for the vultures, the risks — political as well as financial — seem daunting. Some worry about being seen as profiteers who benefit at taxpayers’ expense, even though the economy could get worse unless they swoop in.
“You have to ask whether this is an attractive deal,” said Mr. Marks, the chairman of Oaktree Capital Management, a big money management firm in Los Angeles. It all depends on the price, the terms and the risks, he said. Wall Street, of course, wants what it always wants: a lot of potential profit on the upside, and not much risk of losses on the downside. But as Treasury Secretary Timothy F. Geithner outlined his sweeping rescue plan on Tuesday, the questions kept piling up.
What kind of assets would the banks sell, and at what price? What role would the government play? And, of course, the big one: what are these investments really worth? The banks themselves are struggling to place values on them.
Hundreds of billions of dollars of these assets are hanging over banks. Until there is a clear way to purge them, the industry, and the broader economy, are likely to languish.
That is where the vultures come in. Hedge funds and other institutions dominate the field of distressed investing, and they are known for driving hard bargains. In recent weeks, several prominent hedge fund managers met with Lawrence H. Summers, the head of the National Economic Council, to discuss their interest in the planned public-private partnership.
Few of these investors were willing to discuss their plans publicly on Tuesday. Some worried their own investors, which include large public pension funds, might view the potential investments as too risky. And some would not be allowed to buy such assets under their own investment guidelines.
But if the vultures do alight, their rewards could be enormous. Funds specializing in distressed investments earned annual returns of more than 30 percent in the early 1990s as the economy pulled out of recession.
“There are plenty of guys who are willing to take the risk, but they want the high returns,” said Chip MacDonald, a partner at the law firm Jones Day.
Some private investment firms, like Apollo Global Management, headed by Leon D. Black, first made their names and fortunes in the wake of the savings and loan crisis, when the government’s Resolution Trust Corporation sold off assets to other investors on the cheap.
Others, like the Blackstone Group, the large buyout firm run by Stephen A. Schwarzman, and Paulson & Company, whose chief, John Paulson, made billions betting against subprime mortgages, have told their investors they are hunting for the bargains in the ruins of the financial sector.
Still others, like the Pacific Investment Management Company, the big bond fund, and BlackRock, another money management firm, could also emerge as big buyers of the troubled assets.
Howard Newman, the chief executive of Pine Brook Road Partners, a private equity firm that invests in financial companies, said such investors drew a distinction between potentially valuable assets and those that are outright toxic. Some good assets simply cannot be sold right now given the turmoil in the markets.
“If the purpose of the partnership is to find a place to house the loss, I don’t think private equity will be willing to do that,” Mr. Newman said.
Some executives said they wanted the government to subsidize their purchases with low-cost loans. Others said the Treasury should put a floor under their potential losses.
One model might be the government-brokered sale of IndyMac Bancorp, the large California mortgage lender that failed last summer. IndyMac was bought by a group of private firms last month for $13.9 billion. As part of the deal, the investors agreed to assume the first 20 percent of the bank’s losses, while the government picked up the rest.
Another big issue is the price at which the troubled assets would be valued by the banks. While potential investors want to buy as cheaply as possible, the banks might have to take debilitating write-downs if they sold at fire-sale prices. Such an outcome might not be in the government’s — or taxpayers’ — interests.
But competing interests are bound to bedevil this kind of deal, said Campbell R. Harvey, a professor at the Fuqua School of Business at Duke University.
“Given the conflicting objectives, I’m not sure I’d be interested in this kind of altruistic investing,” he said.
And the potential political costs, money managers said, are real. Some managers said that if they did their job well, they could earn double-digit returns and, with them, public scorn.
“We can’t really win,” one private equity executive said. “When we made money, people criticized us. This year, we lost money, and people are criticizing us.”
http://www.nytimes.com/2009/02/11/business/economy/11react.html?ref=business
Georgia leads nation in weak banks
Georgia leads nation in weak banks
Crowded marketplace, real estate development loans put state at top of a troubling list
By PAUL DONSKY
The Atlanta Journal-Constitution
Sunday, February 15, 2009
Georgia, famous for its peaches and peanuts, has gained a reputation of late for a far less admirable trait: the problem bank.
Of the 34 American banks to fail in the past year, six were based in Georgia, placing the Peach State behind only California in the race for the nation’s bank failure capital. Florida is a distant third with three failures.
A sheet bearing the Regions Bank logo obscures a sign for what was FirstBank Financial Services in McDonough, after regulators shut down FirstBank earlier this month.
And no state comes close to challenging Georgia when it comes to banks in danger of going under, according to a recent analysis that aims to gauge how likely banks are to face insolvency. Georgia has 42 banks on the list — up from 26 three months earlier — followed by Illinois with 15.
It’s a startlingly poor showing experts blame on a tangled web of factors, from the sheer number of banks crowding the marketplace to risky lending practices that saw many banks concentrate their loans in one area: real estate development.
None of it mattered when times were good. Profits rolled in, borrowers paid their debts on time, investors got rich. But after the economy collapsed, the business model imploded. Bad loans mounted, earnings nose-dived, deposits dried up.
“It worked for a while, and then the music stopped,” said Jon Burke, an Atlanta banking consultant. The problem, he said, “really has to do with way too much commercial banking money — generally speaking, small banks — chasing one little piece of the market, which is residential real estate.”
Of course, every bank is a different and has its own set of variables. Some of the failed and troubled banks are only a few years old, and one has been around for a century. One failed bank gambled big on a south Florida resort, while another lent heavily to Indian-American hotel owners.
But interviews with bankers, analysts, consultants and attorneys point to five factors that helped precipitate Georgia’s banking woes.
REASON 1: Banks, banks, everywhere
Georgia is overbanked, experts say, with 335 banks. That equals one for every 28,000 residents — more than all but a handful of states.
Why is this the case? History and politics play a role.
Until the mid-1990s, state law prohibited banks from operating across the state, creating a climate in which small banks proliferated. North Carolina, similar in size to Georgia, has allowed statewide banking for more than 100 years and now has just 110 banks — one-third as many as Georgia.
Large regional banks that formed in states such as North Carolina snapped up Georgia banks, leaving a pool of former bankers ready and able to start new companies.
Economics and demographics are driving factors, too. Few states have grown as fast as Georgia in recent years, fueled by job growth in metro Atlanta. Loan demand built up, and banks sprouted to meet the need.
Metro Atlanta became the nation’s leader in the creation of new banks, which typically are more vulnerable to economic slowdowns. Since the last recession ended in late 2001, 63 banks opened in Atlanta — more than Phoenix and Miami combined.
Money to start banks was easy to come by, experts say, as investors lined up to chase a lucrative business model: A new bank would grow quickly by lending to residential developers and builders, and it would sell a few years later at several times the bank’s book value.
REASON 2: Too much real estate lending
Many banks threw caution to the wind in recent years and lent heavily to the booming real estate industry.
The strategy paid off handsomely when the market was hot. But when the housing bubble popped, builders were left with a stockpile of homes they couldn’t sell and developers with thousands of empty lots they couldn’t move. Loan defaults skyrocketed, punishing many banks.
The risks took on by some banks were staggering. At The Community Bank in Loganville, which failed in November, loans to residential developers and homebuilders accounted for 80 percent of the bank’s total portfolio. John Fine, a former banking regulator turned consultant, said banks historically have been wary of getting above 40 percent in that category.
Georgia’s other failed banks — each, like Community Bank, with headquarters in suburban Atlanta — made similar bets on real estate.
“It’s like going to a dessert bar and getting a piece of chocolate cake and a piece of apple pie and a piece of pumpkin pie,” said Fine, whose business is based in Decatur. “It’s too much.”
Other regions such as south Florida, Phoenix and Las Vegas saw home prices tumble even further and faster than Atlanta, but bank failures in those areas have not matched Atlanta’s. Some experts said Atlanta’s home building industry differs from other high-growth regions in that it’s dominated by small homebuilders, which typically have much less of a cushion than big regional and national builders.
Veteran Georgia banking attorney Walt Moeling said Atlanta’s building frenzy went beyond that seen in other markets. Builders, who had little trouble getting loans, built way ahead of the market, expecting jobs — and people — to continue flooding into the region. The Atlanta region now has a staggering 150,000 vacant developed lots — a 12-year supply at the current low rate of absorption.
REASON 3: A shaky deposit base
Banks traditionally grow by building a stable base of deposits from local residents and businesses, largely through bread-and-butter products like checking and savings accounts. These customers often keep money in the same bank for years, if not decades.
But the sheer number of banks created during the real estate boom created so much competition that some banks were unable — or were too impatient — to build up a large base of these “core” deposits.
Instead, they turned to so-called brokered deposits, in which a broker raises money from investors across the nation and shops for the best interest rates. These deposits often demand higher interest rates and are much more volatile — that is, it’s easy for a broker to simply move the pool of money from bank to bank for the best returns.
Most of Georgia’s failed banks relied heavily on brokered deposits. At FirstBank Financial Services, a Henry County bank that failed last week, more than half of the bank’s $298 million in deposits were brokered, according to the FDIC. As a rule of thumb, brokered deposits shouldn’t top more than 20 percent, said John Kline, a Decatur banking consultant.
Brokered deposits are seen as so fickle that regulators frown on their use by banks that are having financial difficulties, sometimes cutting them off altogether. Integrity Bank, which failed last August, saw its pool of brokered deposits fall by more than $100 million after the Federal Deposit Insurance Corp. ordered the bank to reduce its reliance on the money source.
John Burke, an Atlanta banking consultant, said the difficulty of raising core deposits usually helps limit the number of new banks. But the increased use of brokered deposits shattered this natural limit, he said, helping lead to the flood of banks that opened in recent years.
REASON 4: Regulatory issues
As bank losses mount and the number of failures grows, obvious questions arise: Were regulators asleep at the wheel? Should the banking watchdogs have approved so many new banks and allowed them to bet so heavily on real estate?
It’s a complicated issue with no easyanswers, bank experts say.
Until the housing market turned in mid-2007, loans were being paid on time and banks were reporting huge profits.
“It was very hard for regulators to say there was no support for a new bank,” said Walt Moeling, a banking attorney with Bryan Cave Powell Goldstein in Atlanta. “We saw virtually no past due” loans.
State regulators did caution Georgia banks three years ago about potentially crippling losses if the housing bubble burst, but the warning was merely an advisory. Many banks brushed it aside.
John Kline, a former regulator turned consultant based in Decatur, said in some cases regulators ordered banks to diversify their loan portfolios. But often, that simply meant banks had to make sure their real estate loans weren’t all in a single county or at a single price point. They were still left over-exposed in the housing market, he said.
Still, Kline is reluctant to place too much blame on regulators.
“It’s hard for them to prohibit a bank from violating these rules of concentration until the bank shows losses,” he said. “You may have had all this money out to builders in Carroll County, but the homes were selling.”
Kline says federal and state regulators should beef up their staffing so they are able to visit banks more often. Inspections now occur once every 18 months, he said, compared to the old standard of once a year.
REASON 5: Peer pressure
The huge profits earned by some banks during the go-go years of the housing boom put tremendous pressure on their peers to keep up. Investors and board members saw how much money their competitors were earning and demanded similar returns from their own banks.
Integrity, the Alpharetta bank that failed last August, posted such eye-popping profits that it became something of a local benchmark. Some bankers felt forced to bet even more heavily on real estate to boost performance.
“If your bank is growing at 6 percent and you look over at Integrity and it’s growing at 20 percent to 30 percent, directors and managers look around and say, ‘Are we doing everything we can to maximize growth for our shareholders?’” said Atlanta banking attorney Walt Moeling.
“If you didn’t do the loans, someone else was going to. [Atlanta] is the most competitive market in the country, in terms of banks per capita,” he added. “So there was tremendous pressure to lend, and there was tremendous pressure to grow.”
Judy Turner, CEO of Decatur First Bank, a small community bank based in downtown Decatur, said her 12-year-old bank has a conservative culture and was careful not to get too exposed to the real estate market.
But after regulators criticized the bank for not earning as much as its peers, Turner said she felt pressure to take more risks. Many of the banks held up as high earners are no longer in business, she said.
“It became obvious which ones were stars,” Turner said. “They had built their entire business on [real estate] acquisition and development and construction lending. So when that went away, they obviously had some very serious problems.”
http://www.ajc.com/services/content/business/stories/2009/02/15/georgia_failed_banks.html
Crowded marketplace, real estate development loans put state at top of a troubling list
By PAUL DONSKY
The Atlanta Journal-Constitution
Sunday, February 15, 2009
Georgia, famous for its peaches and peanuts, has gained a reputation of late for a far less admirable trait: the problem bank.
Of the 34 American banks to fail in the past year, six were based in Georgia, placing the Peach State behind only California in the race for the nation’s bank failure capital. Florida is a distant third with three failures.
A sheet bearing the Regions Bank logo obscures a sign for what was FirstBank Financial Services in McDonough, after regulators shut down FirstBank earlier this month.
And no state comes close to challenging Georgia when it comes to banks in danger of going under, according to a recent analysis that aims to gauge how likely banks are to face insolvency. Georgia has 42 banks on the list — up from 26 three months earlier — followed by Illinois with 15.
It’s a startlingly poor showing experts blame on a tangled web of factors, from the sheer number of banks crowding the marketplace to risky lending practices that saw many banks concentrate their loans in one area: real estate development.
None of it mattered when times were good. Profits rolled in, borrowers paid their debts on time, investors got rich. But after the economy collapsed, the business model imploded. Bad loans mounted, earnings nose-dived, deposits dried up.
“It worked for a while, and then the music stopped,” said Jon Burke, an Atlanta banking consultant. The problem, he said, “really has to do with way too much commercial banking money — generally speaking, small banks — chasing one little piece of the market, which is residential real estate.”
Of course, every bank is a different and has its own set of variables. Some of the failed and troubled banks are only a few years old, and one has been around for a century. One failed bank gambled big on a south Florida resort, while another lent heavily to Indian-American hotel owners.
But interviews with bankers, analysts, consultants and attorneys point to five factors that helped precipitate Georgia’s banking woes.
REASON 1: Banks, banks, everywhere
Georgia is overbanked, experts say, with 335 banks. That equals one for every 28,000 residents — more than all but a handful of states.
Why is this the case? History and politics play a role.
Until the mid-1990s, state law prohibited banks from operating across the state, creating a climate in which small banks proliferated. North Carolina, similar in size to Georgia, has allowed statewide banking for more than 100 years and now has just 110 banks — one-third as many as Georgia.
Large regional banks that formed in states such as North Carolina snapped up Georgia banks, leaving a pool of former bankers ready and able to start new companies.
Economics and demographics are driving factors, too. Few states have grown as fast as Georgia in recent years, fueled by job growth in metro Atlanta. Loan demand built up, and banks sprouted to meet the need.
Metro Atlanta became the nation’s leader in the creation of new banks, which typically are more vulnerable to economic slowdowns. Since the last recession ended in late 2001, 63 banks opened in Atlanta — more than Phoenix and Miami combined.
Money to start banks was easy to come by, experts say, as investors lined up to chase a lucrative business model: A new bank would grow quickly by lending to residential developers and builders, and it would sell a few years later at several times the bank’s book value.
REASON 2: Too much real estate lending
Many banks threw caution to the wind in recent years and lent heavily to the booming real estate industry.
The strategy paid off handsomely when the market was hot. But when the housing bubble popped, builders were left with a stockpile of homes they couldn’t sell and developers with thousands of empty lots they couldn’t move. Loan defaults skyrocketed, punishing many banks.
The risks took on by some banks were staggering. At The Community Bank in Loganville, which failed in November, loans to residential developers and homebuilders accounted for 80 percent of the bank’s total portfolio. John Fine, a former banking regulator turned consultant, said banks historically have been wary of getting above 40 percent in that category.
Georgia’s other failed banks — each, like Community Bank, with headquarters in suburban Atlanta — made similar bets on real estate.
“It’s like going to a dessert bar and getting a piece of chocolate cake and a piece of apple pie and a piece of pumpkin pie,” said Fine, whose business is based in Decatur. “It’s too much.”
Other regions such as south Florida, Phoenix and Las Vegas saw home prices tumble even further and faster than Atlanta, but bank failures in those areas have not matched Atlanta’s. Some experts said Atlanta’s home building industry differs from other high-growth regions in that it’s dominated by small homebuilders, which typically have much less of a cushion than big regional and national builders.
Veteran Georgia banking attorney Walt Moeling said Atlanta’s building frenzy went beyond that seen in other markets. Builders, who had little trouble getting loans, built way ahead of the market, expecting jobs — and people — to continue flooding into the region. The Atlanta region now has a staggering 150,000 vacant developed lots — a 12-year supply at the current low rate of absorption.
REASON 3: A shaky deposit base
Banks traditionally grow by building a stable base of deposits from local residents and businesses, largely through bread-and-butter products like checking and savings accounts. These customers often keep money in the same bank for years, if not decades.
But the sheer number of banks created during the real estate boom created so much competition that some banks were unable — or were too impatient — to build up a large base of these “core” deposits.
Instead, they turned to so-called brokered deposits, in which a broker raises money from investors across the nation and shops for the best interest rates. These deposits often demand higher interest rates and are much more volatile — that is, it’s easy for a broker to simply move the pool of money from bank to bank for the best returns.
Most of Georgia’s failed banks relied heavily on brokered deposits. At FirstBank Financial Services, a Henry County bank that failed last week, more than half of the bank’s $298 million in deposits were brokered, according to the FDIC. As a rule of thumb, brokered deposits shouldn’t top more than 20 percent, said John Kline, a Decatur banking consultant.
Brokered deposits are seen as so fickle that regulators frown on their use by banks that are having financial difficulties, sometimes cutting them off altogether. Integrity Bank, which failed last August, saw its pool of brokered deposits fall by more than $100 million after the Federal Deposit Insurance Corp. ordered the bank to reduce its reliance on the money source.
John Burke, an Atlanta banking consultant, said the difficulty of raising core deposits usually helps limit the number of new banks. But the increased use of brokered deposits shattered this natural limit, he said, helping lead to the flood of banks that opened in recent years.
REASON 4: Regulatory issues
As bank losses mount and the number of failures grows, obvious questions arise: Were regulators asleep at the wheel? Should the banking watchdogs have approved so many new banks and allowed them to bet so heavily on real estate?
It’s a complicated issue with no easyanswers, bank experts say.
Until the housing market turned in mid-2007, loans were being paid on time and banks were reporting huge profits.
“It was very hard for regulators to say there was no support for a new bank,” said Walt Moeling, a banking attorney with Bryan Cave Powell Goldstein in Atlanta. “We saw virtually no past due” loans.
State regulators did caution Georgia banks three years ago about potentially crippling losses if the housing bubble burst, but the warning was merely an advisory. Many banks brushed it aside.
John Kline, a former regulator turned consultant based in Decatur, said in some cases regulators ordered banks to diversify their loan portfolios. But often, that simply meant banks had to make sure their real estate loans weren’t all in a single county or at a single price point. They were still left over-exposed in the housing market, he said.
Still, Kline is reluctant to place too much blame on regulators.
“It’s hard for them to prohibit a bank from violating these rules of concentration until the bank shows losses,” he said. “You may have had all this money out to builders in Carroll County, but the homes were selling.”
Kline says federal and state regulators should beef up their staffing so they are able to visit banks more often. Inspections now occur once every 18 months, he said, compared to the old standard of once a year.
REASON 5: Peer pressure
The huge profits earned by some banks during the go-go years of the housing boom put tremendous pressure on their peers to keep up. Investors and board members saw how much money their competitors were earning and demanded similar returns from their own banks.
Integrity, the Alpharetta bank that failed last August, posted such eye-popping profits that it became something of a local benchmark. Some bankers felt forced to bet even more heavily on real estate to boost performance.
“If your bank is growing at 6 percent and you look over at Integrity and it’s growing at 20 percent to 30 percent, directors and managers look around and say, ‘Are we doing everything we can to maximize growth for our shareholders?’” said Atlanta banking attorney Walt Moeling.
“If you didn’t do the loans, someone else was going to. [Atlanta] is the most competitive market in the country, in terms of banks per capita,” he added. “So there was tremendous pressure to lend, and there was tremendous pressure to grow.”
Judy Turner, CEO of Decatur First Bank, a small community bank based in downtown Decatur, said her 12-year-old bank has a conservative culture and was careful not to get too exposed to the real estate market.
But after regulators criticized the bank for not earning as much as its peers, Turner said she felt pressure to take more risks. Many of the banks held up as high earners are no longer in business, she said.
“It became obvious which ones were stars,” Turner said. “They had built their entire business on [real estate] acquisition and development and construction lending. So when that went away, they obviously had some very serious problems.”
http://www.ajc.com/services/content/business/stories/2009/02/15/georgia_failed_banks.html
House passes Obama's economic stimulus bill
WASHINGTON – Handing the new administration a big win, the House Friday passed President Barack Obama's $787 billion plan to resuscitate the economy.
The bill was passed 246-183 with no Republican help. It now goes to the Senate where a vote was possible late Friday to meet a deadline of passing the plan before a recess begins next week.
All but seven Democrats voted for the bill — a 1,071 page, 8-inch-thick measure that combines $281 billion in tax cuts for individuals and businesses with more than a half-trillion dollars in government spending. The money would go for infrastructure, health care and help for cash-starved state governments, among scores of programs. Seniors would get a $250 bonus Social Security check.
Obama claims the plan will save or create 3.5 million jobs, but Republicans said it won't work because it has too little in tax cuts and spreads too much money around to everyday projects like computer upgrades for federal agencies.
"This legislation falls woefully short," said House GOP Leader John Boehner of Ohio. "With a price tag of more than $1 trillion when you factor in interest, it costs every family almost $10,000 in added debt. This is an act of generational theft that our children and grandchildren will be paying for far into the future."
The final $787 billion measure has been pared back from versions previously debated in order to attract support from three Senate GOP moderates — Susan Collins and Olympia Snowe of Maine and Arlen Specter of Pennsylvania. Their help is essential to meeting a 60-vote threshold in the Senate. The bill originally passed the Senate by a 61-37 tally, but Sen. Edward Kennedy, D-Mass., suffering from brain cancer, is not expected to vote. Sherrod Brown, D-Ohio, was planning to fly in after a memorial service for his mother to cast the deciding vote.
Democrats lavished praise on the measure, which combines tax cuts for workers and businesses with more than a half-trillion dollars in government spending aimed at boosting economic demand.
"By investing in new jobs, in science and innovation, in energy, in education ... we are investing in the American people, which is the best guarantee of the success of our nation," said House Speaker Nancy Pelosi, D-Calif.
The plan is the signature initiative of the fledgling Obama administration, which is betting that combining tax cuts of $400 a year for individuals and $800 for couples with an infusion of spending for unemployment assistance, $250 payments to people on Social Security, and extra money for states to help with the Medicaid health program for the poor and disabled will arrest the economy's fall.
Local school districts would receive $70 billion in additional funding for K-12 programs and special education and to prevent cutbacks and layoffs and repair crumbling schools. There's about $50 billion for energy programs, much of which goes to efficiency programs and renewable energy.
Some $46 billion would go to transportation projects, not enough to please many lawmakers.
Negotiators insisted on including a $70 billion tax break to make sure middle- to upper-income taxpayers won't get hit by the alternative minimum tax and forced a reduction of Obama's signature tax break for 95 percent of workers.
The AMT was designed 40 years ago to make sure wealthy people pay at least some tax, but is updated for inflation each year to avoid tax increases averaging $2,300 a year. Fixing the annual problems now allows lawmakers to avoid difficult battles down the road, but economists say the move won't do much to lift the economy.
Republicans pointed out a bevy of questionable spending items that made the final cut in House-Senate negotiations, including money to replace computers at federal agencies, inspect canals, and issue coupons for convertor boxes to help people watch TV when the changeover to digital signals occurs this summer.
"This measure is not bipartisan. It contains much that is not stimulative," said Sen. John McCain, R-Ariz., Obama's rival for the White House. "And is nothing short — nothing short — of generational theft" since it burdens future generations with so much debt, he added.
http://news.yahoo.com/s/ap/20090213/ap_on_bi_ge/congress_stimulus
The bill was passed 246-183 with no Republican help. It now goes to the Senate where a vote was possible late Friday to meet a deadline of passing the plan before a recess begins next week.
All but seven Democrats voted for the bill — a 1,071 page, 8-inch-thick measure that combines $281 billion in tax cuts for individuals and businesses with more than a half-trillion dollars in government spending. The money would go for infrastructure, health care and help for cash-starved state governments, among scores of programs. Seniors would get a $250 bonus Social Security check.
Obama claims the plan will save or create 3.5 million jobs, but Republicans said it won't work because it has too little in tax cuts and spreads too much money around to everyday projects like computer upgrades for federal agencies.
"This legislation falls woefully short," said House GOP Leader John Boehner of Ohio. "With a price tag of more than $1 trillion when you factor in interest, it costs every family almost $10,000 in added debt. This is an act of generational theft that our children and grandchildren will be paying for far into the future."
The final $787 billion measure has been pared back from versions previously debated in order to attract support from three Senate GOP moderates — Susan Collins and Olympia Snowe of Maine and Arlen Specter of Pennsylvania. Their help is essential to meeting a 60-vote threshold in the Senate. The bill originally passed the Senate by a 61-37 tally, but Sen. Edward Kennedy, D-Mass., suffering from brain cancer, is not expected to vote. Sherrod Brown, D-Ohio, was planning to fly in after a memorial service for his mother to cast the deciding vote.
Democrats lavished praise on the measure, which combines tax cuts for workers and businesses with more than a half-trillion dollars in government spending aimed at boosting economic demand.
"By investing in new jobs, in science and innovation, in energy, in education ... we are investing in the American people, which is the best guarantee of the success of our nation," said House Speaker Nancy Pelosi, D-Calif.
The plan is the signature initiative of the fledgling Obama administration, which is betting that combining tax cuts of $400 a year for individuals and $800 for couples with an infusion of spending for unemployment assistance, $250 payments to people on Social Security, and extra money for states to help with the Medicaid health program for the poor and disabled will arrest the economy's fall.
Local school districts would receive $70 billion in additional funding for K-12 programs and special education and to prevent cutbacks and layoffs and repair crumbling schools. There's about $50 billion for energy programs, much of which goes to efficiency programs and renewable energy.
Some $46 billion would go to transportation projects, not enough to please many lawmakers.
Negotiators insisted on including a $70 billion tax break to make sure middle- to upper-income taxpayers won't get hit by the alternative minimum tax and forced a reduction of Obama's signature tax break for 95 percent of workers.
The AMT was designed 40 years ago to make sure wealthy people pay at least some tax, but is updated for inflation each year to avoid tax increases averaging $2,300 a year. Fixing the annual problems now allows lawmakers to avoid difficult battles down the road, but economists say the move won't do much to lift the economy.
Republicans pointed out a bevy of questionable spending items that made the final cut in House-Senate negotiations, including money to replace computers at federal agencies, inspect canals, and issue coupons for convertor boxes to help people watch TV when the changeover to digital signals occurs this summer.
"This measure is not bipartisan. It contains much that is not stimulative," said Sen. John McCain, R-Ariz., Obama's rival for the White House. "And is nothing short — nothing short — of generational theft" since it burdens future generations with so much debt, he added.
http://news.yahoo.com/s/ap/20090213/ap_on_bi_ge/congress_stimulus
Wednesday, February 11, 2009
China wants guarantees on debt!
Feb. 11 (Bloomberg) -- China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.
The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.
Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.
China may voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20, according to He Zhicheng, an economist at Agricultural Bank of China, the nation’s third-largest lender by assets. A People’s Bank of China official, who didn’t wish to be identified, declined to comment on the telephone.
Clinton Talks
“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”
Chinese Foreign Ministry Spokeswoman Jiang Yu said yesterday that talks with Clinton would cover bilateral relations, the financial crisis and international affairs, according to the Xinhua news agency.
The dollar fell 0.6 percent to 89.96 yen today on concern that the U.S. government’s bank-rescue plan will fail to revive lending. Treasuries declined as investors prepared to bid for a record $21 billion sale of 10-year notes today. The yield on the benchmark 10-year note rose three basis points to 2.83 percent.
Currency Reserves
“These comments are some sort of a threat but of course China can never get such a guarantee,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. The U.S. may assure China that it will clean up the financial system and that it “won’t push for a weaker dollar but they can’t promise not to increase the fiscal deficit,” he said.
U.S. government bonds returned 14 percent last year including price gains and reinvested interest, the most since rallying 18.5 percent in 1995, according to indexes compiled by Merrill Lynch & Co. Concern that the flood of bonds would overwhelm demand caused Treasuries to lose 3.08 percent in January, the steepest drop in almost five years, Merrill data show.
China’s loss of more than $5 billion from investing $10.5 billion of its reserves in New York-based Blackstone Group LP, Morgan Stanley and TPG Inc. since mid-2007 may increase its demand for the relative safety of Treasuries.
“The government will be a net buyer of Treasuries in the short term because there’s no sign they have changed their strategy,” said Zhang Ming, secretary general of the international finance research center at the Chinese Academy of Social Sciences in Beijing. “But personally, I don’t think we should increase holdings because the medium- and long-term risks are quite high.”
Fed Buying
Bill Gross, co-chief investment officer of Pacific Investment Management Co., said on Feb. 5 the Federal Reserve will have to buy Treasuries to curb yields as debt sales increase. Fed officials said Jan. 28 they were “prepared” to buy longer-term Treasuries.
“The biggest concern for China to continue buying U.S. Treasuries is that if Obama’s stimulus doesn’t work out as expected, the Fed may have to print money to cover the deficit,” said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., partly owned by Morgan Stanley. “That will cause a dollar slump.”
China’s foreign-exchange reserves grew about $40 billion in the fourth quarter, the least since mid-2004, as an end to yuan appreciation since July prompted investors to pull money out.
The world’s third-biggest economy grew 6.8 percent in the fourth quarter, the slowest pace in seven years. Policy makers announced a 4 trillion yuan ($585 billion) economic stimulus plan in November to spur domestic demand.
Linking Disputes
Yu said China has no plans to channel its reserves toward stimulating its own economy because its trade surplus is sufficient to fund any import needs. China’s trade surplus was $39 billion in January.
China “should diversify its reserves away from U.S. Treasuries if the value of China’s foreign-exchange reserves is in danger of being inflated away by the U.S. government’s pump- priming,” he said.
China may try to link trade and currency policy disputes to its future investment in Treasuries, said Lu Zhengwei, an economist in Shanghai at Industrial Bank Co., a Chinese lender partly owned by a unit of HSBC Holdings Plc.
U.S. Treasury Secretary Timothy Geithner accused China on Jan. 22 of “manipulating” the yuan to give an unfair advantage to its exporters. The currency has dropped 0.16 percent this year to 6.8342 per dollar, following a 21 percent gain since a peg against the dollar was abandoned in July 2005.
“China can also use this opportunity to get a promise from the U.S. not to make inappropriate requests on bilateral trade and the Chinese yuan,” Lu said. “We can’t afford more yuan appreciation as the economy is facing a serious slowdown.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXWQEydhsoUI&refer=home
The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.
Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.
China may voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20, according to He Zhicheng, an economist at Agricultural Bank of China, the nation’s third-largest lender by assets. A People’s Bank of China official, who didn’t wish to be identified, declined to comment on the telephone.
Clinton Talks
“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”
Chinese Foreign Ministry Spokeswoman Jiang Yu said yesterday that talks with Clinton would cover bilateral relations, the financial crisis and international affairs, according to the Xinhua news agency.
The dollar fell 0.6 percent to 89.96 yen today on concern that the U.S. government’s bank-rescue plan will fail to revive lending. Treasuries declined as investors prepared to bid for a record $21 billion sale of 10-year notes today. The yield on the benchmark 10-year note rose three basis points to 2.83 percent.
Currency Reserves
“These comments are some sort of a threat but of course China can never get such a guarantee,” said Thomas Harr, a currency strategist at Standard Chartered Plc in Singapore. The U.S. may assure China that it will clean up the financial system and that it “won’t push for a weaker dollar but they can’t promise not to increase the fiscal deficit,” he said.
U.S. government bonds returned 14 percent last year including price gains and reinvested interest, the most since rallying 18.5 percent in 1995, according to indexes compiled by Merrill Lynch & Co. Concern that the flood of bonds would overwhelm demand caused Treasuries to lose 3.08 percent in January, the steepest drop in almost five years, Merrill data show.
China’s loss of more than $5 billion from investing $10.5 billion of its reserves in New York-based Blackstone Group LP, Morgan Stanley and TPG Inc. since mid-2007 may increase its demand for the relative safety of Treasuries.
“The government will be a net buyer of Treasuries in the short term because there’s no sign they have changed their strategy,” said Zhang Ming, secretary general of the international finance research center at the Chinese Academy of Social Sciences in Beijing. “But personally, I don’t think we should increase holdings because the medium- and long-term risks are quite high.”
Fed Buying
Bill Gross, co-chief investment officer of Pacific Investment Management Co., said on Feb. 5 the Federal Reserve will have to buy Treasuries to curb yields as debt sales increase. Fed officials said Jan. 28 they were “prepared” to buy longer-term Treasuries.
“The biggest concern for China to continue buying U.S. Treasuries is that if Obama’s stimulus doesn’t work out as expected, the Fed may have to print money to cover the deficit,” said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., partly owned by Morgan Stanley. “That will cause a dollar slump.”
China’s foreign-exchange reserves grew about $40 billion in the fourth quarter, the least since mid-2004, as an end to yuan appreciation since July prompted investors to pull money out.
The world’s third-biggest economy grew 6.8 percent in the fourth quarter, the slowest pace in seven years. Policy makers announced a 4 trillion yuan ($585 billion) economic stimulus plan in November to spur domestic demand.
Linking Disputes
Yu said China has no plans to channel its reserves toward stimulating its own economy because its trade surplus is sufficient to fund any import needs. China’s trade surplus was $39 billion in January.
China “should diversify its reserves away from U.S. Treasuries if the value of China’s foreign-exchange reserves is in danger of being inflated away by the U.S. government’s pump- priming,” he said.
China may try to link trade and currency policy disputes to its future investment in Treasuries, said Lu Zhengwei, an economist in Shanghai at Industrial Bank Co., a Chinese lender partly owned by a unit of HSBC Holdings Plc.
U.S. Treasury Secretary Timothy Geithner accused China on Jan. 22 of “manipulating” the yuan to give an unfair advantage to its exporters. The currency has dropped 0.16 percent this year to 6.8342 per dollar, following a 21 percent gain since a peg against the dollar was abandoned in July 2005.
“China can also use this opportunity to get a promise from the U.S. not to make inappropriate requests on bilateral trade and the Chinese yuan,” Lu said. “We can’t afford more yuan appreciation as the economy is facing a serious slowdown.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXWQEydhsoUI&refer=home
Banks Rescue Will 'Make Things Worse': Rogers
Banks Rescue Will 'Make Things Worse': Rogers
The new financial rescue plan may not work and could even make things worse because it plunges the US further into debt and it is designed by the same people who failed to forecast the crisis and take measures, legendary investor Jim Rogers told CNBC Tuesday.
Treasury Secretary Timothy Geithner will unveil a long-awaited package of measures to help the financial sector at 11 am New York time.
But Rogers said Geithner, who was president of the New York Federal Reserve Bank, "has been dead wrong about everything for 15 years in a row," and so was President Barack Obama's economic advisor Lawrence Summers, who acted as Treasury Secretary at the turn of the century.
"It is mind-boggling to me," Rogers told "Squawk Box Europe."
"If I were on your show 15 weeks in a row and was wrong, you'd probably never invite me back. These guys have been wrong year after year after year consistently and here they are making the same mistakes again. This is not going to solve the problem, it's going to make it worse."
Video: click here for the first part of CNBC's Jim Roger's interview and here for the second part >>>
He said he was not contemplating investing into financials, as bankruptcies were still possible, and banks were still trying to find out how affected they were by the crisis.
"What's happening is they've all panicked, cutting back everything, trying to see what they've got," Rogers said.
Big companies such as AIG (NYSE:AIG - News) or Fannie Mae (NYSE: fnm) as well as other US banks don't know how to value their assets, he said.
"Everybody is frozen, trying to figure out ok, what are we worth, what do we do?"
In addition, the recent shifts towards protectionism are harmful, Rogers warned.
"This is very dangerous, that's what caused the great depression in the 1930s. If it happens again, then you'd better sell all the stocks, you'd better sell a lot of everything and bunker down," he said.
"We already have a lot of social unrest developing. If protectionism comes back, you'd better be really, really careful," Rogers added.
http://finance.yahoo.com/news/Banks-Rescue-Will-Make-Things-cnbc-14311295.html
The new financial rescue plan may not work and could even make things worse because it plunges the US further into debt and it is designed by the same people who failed to forecast the crisis and take measures, legendary investor Jim Rogers told CNBC Tuesday.
Treasury Secretary Timothy Geithner will unveil a long-awaited package of measures to help the financial sector at 11 am New York time.
But Rogers said Geithner, who was president of the New York Federal Reserve Bank, "has been dead wrong about everything for 15 years in a row," and so was President Barack Obama's economic advisor Lawrence Summers, who acted as Treasury Secretary at the turn of the century.
"It is mind-boggling to me," Rogers told "Squawk Box Europe."
"If I were on your show 15 weeks in a row and was wrong, you'd probably never invite me back. These guys have been wrong year after year after year consistently and here they are making the same mistakes again. This is not going to solve the problem, it's going to make it worse."
Video: click here for the first part of CNBC's Jim Roger's interview and here for the second part >>>
He said he was not contemplating investing into financials, as bankruptcies were still possible, and banks were still trying to find out how affected they were by the crisis.
"What's happening is they've all panicked, cutting back everything, trying to see what they've got," Rogers said.
Big companies such as AIG (NYSE:AIG - News) or Fannie Mae (NYSE: fnm) as well as other US banks don't know how to value their assets, he said.
"Everybody is frozen, trying to figure out ok, what are we worth, what do we do?"
In addition, the recent shifts towards protectionism are harmful, Rogers warned.
"This is very dangerous, that's what caused the great depression in the 1930s. If it happens again, then you'd better sell all the stocks, you'd better sell a lot of everything and bunker down," he said.
"We already have a lot of social unrest developing. If protectionism comes back, you'd better be really, really careful," Rogers added.
http://finance.yahoo.com/news/Banks-Rescue-Will-Make-Things-cnbc-14311295.html
Subscribe to:
Posts (Atom)
Posts
