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/
Wednesday, February 25, 2009
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
Sunday, February 8, 2009
"Mo mod" cramdown part of Geithner TARP plan
http://www.nypost.com/seven/02062009/bus....
Now, we will get the details Mon at 12, but I don't see how this can be done without taking full control of FNM and FRE to make these decisions to pay off the older higher-principal mortgage. Just a guess from me, though.From the NY Post of all places. More info than I've seen from anywhere else:http://www.nypost.com/seven/02062009/bus....A cornerstone of the economic recovery plan that President Barack Obama is expected to unveil Monday will be modifying problem mortgages, The Post has learned.In a nod to Main Street over Wall Street, sources familiar with the plan say Treasury Secretary Tim Geithner plans to allocate almost half of the remaining $350 billion in funds from the Trouble Asset Relief Program to the so-called "Mo Mod," or mortgage modification, platform."Mo Mod" is an algorithmic mortgage processing program that can rewrite up to 500,000 loans a month, and will be a major part of Treasury's plan to help repair tattered bank balance sheets.The 21-day "Mo Mod" program works by structuring a new mortgage that more accurately reflects a home's worth so that a troubled borrower no longer owes more on their home than the property is worth.The process then enables a lender to pool these new mortgages together into securities that reflect more accurately a home's value, which makes them less risky for investors.As outlined, this plan will be much broader in scope than the Federal Deposit Insurance Corp.'s plan with IndyMac, which was initiated by FDIC Chairman Sheila Bair and has only been able to rework about 5,000 mortgages since last summer.But it will also bail out borrowers who helped trigger the housing crisis by taking out loans they were unable to pay back from the outset, something that has drawn criticism because it effectively rewards the bad behavior of rogue borrowers and lenders.The "Mo Mod" platform relies on proprietary technology developed by a Ponte Vedra Beach, Fla.-based real-estate appraisal firm Smithfield & Wainwright, which built the system over 20 years and uses it for banking clients looking to liquidate mortgage holdings.A spokesperson for Smithfield & Wainwright declined to comment on the plan. The Treasury Department did not return calls.Stopping the slide in housing prices is a priority for the Obama administration, which is also considering providing government guarantees for home loans that have been modified by their servicers in order to stem a surge of foreclosures that's hammering property values.The "Mo Mod" plan comes as a record 19 million US houses stood empty at the end of 2008, and, according to real-estate Web site Zillow.com, US homeowners lost a record $3.3 trillion in equity last year.About one-third of owners whose home values drop 20 percent or more below their loan principal will "hand the keys back to the bank," said Norm Miller, director of real estate programs for the School of Business Administration at the University of San Diego."When you're underwater and prices continue to fall, you tend to walk," Miller said in an interview. "It's a downward spiral that's tough to stop because it feeds on itself. Foreclosures encourage other foreclosures and falling prices discourage buying."
Now, we will get the details Mon at 12, but I don't see how this can be done without taking full control of FNM and FRE to make these decisions to pay off the older higher-principal mortgage. Just a guess from me, though.From the NY Post of all places. More info than I've seen from anywhere else:http://www.nypost.com/seven/02062009/bus....A cornerstone of the economic recovery plan that President Barack Obama is expected to unveil Monday will be modifying problem mortgages, The Post has learned.In a nod to Main Street over Wall Street, sources familiar with the plan say Treasury Secretary Tim Geithner plans to allocate almost half of the remaining $350 billion in funds from the Trouble Asset Relief Program to the so-called "Mo Mod," or mortgage modification, platform."Mo Mod" is an algorithmic mortgage processing program that can rewrite up to 500,000 loans a month, and will be a major part of Treasury's plan to help repair tattered bank balance sheets.The 21-day "Mo Mod" program works by structuring a new mortgage that more accurately reflects a home's worth so that a troubled borrower no longer owes more on their home than the property is worth.The process then enables a lender to pool these new mortgages together into securities that reflect more accurately a home's value, which makes them less risky for investors.As outlined, this plan will be much broader in scope than the Federal Deposit Insurance Corp.'s plan with IndyMac, which was initiated by FDIC Chairman Sheila Bair and has only been able to rework about 5,000 mortgages since last summer.But it will also bail out borrowers who helped trigger the housing crisis by taking out loans they were unable to pay back from the outset, something that has drawn criticism because it effectively rewards the bad behavior of rogue borrowers and lenders.The "Mo Mod" platform relies on proprietary technology developed by a Ponte Vedra Beach, Fla.-based real-estate appraisal firm Smithfield & Wainwright, which built the system over 20 years and uses it for banking clients looking to liquidate mortgage holdings.A spokesperson for Smithfield & Wainwright declined to comment on the plan. The Treasury Department did not return calls.Stopping the slide in housing prices is a priority for the Obama administration, which is also considering providing government guarantees for home loans that have been modified by their servicers in order to stem a surge of foreclosures that's hammering property values.The "Mo Mod" plan comes as a record 19 million US houses stood empty at the end of 2008, and, according to real-estate Web site Zillow.com, US homeowners lost a record $3.3 trillion in equity last year.About one-third of owners whose home values drop 20 percent or more below their loan principal will "hand the keys back to the bank," said Norm Miller, director of real estate programs for the School of Business Administration at the University of San Diego."When you're underwater and prices continue to fall, you tend to walk," Miller said in an interview. "It's a downward spiral that's tough to stop because it feeds on itself. Foreclosures encourage other foreclosures and falling prices discourage buying."
COUNTRYWIDE LOSSES NEXT FOR BOFA
http://www.nypost.com/seven/02082009/bus....
So far Merrill Lynch has been a well-publicized nightmare merger for Bank of America's Ken Lewis.However, it's the CEO Lewis' slapdash acquisition of mortgage giant Countrywide Financial for $4.1 billion that could haunt the financial giant in the future.Charlotte, N.C.-based BofA may wrack up cumulative mortgage losses stemming from its Countrywide purchase of as much as $33 billion, according to financial analyst Paul Miller at Friedman, Billings, Ramsey & Co.That's $10 billion more than the roughly $23 billion BofA set aside to reserve against future losses in its entire mortgage portfolio. BofA agreed to buy Countrywide two years ago last month for $4.1 billion after a $2 billion cash injection months prior didn't help the subprime-laden lender stay afloat - or independent.The projected losses BofA may face also are double the whopping $15 billion fourth-quarter loss that Merrill Lynch's CEO John Thain laid at Lewis' feet.Across Countrywide's entire loan book, FBR estimates that losses in home-equity loans could hit $17 billion, losses in option-adjustable rate mortgages may touch $11.4 billion and losses in hybrid first-lien loans could reach $5 billion."[Countrywide] was a horrible deal," Miller told The Post.Many speculate those future losses that BofA will face by virtue of Countrywide and its other exposures to consumer debt - like its massive credit-card operation - have already been factored into its performance by investors.Perhaps.However, Miller believes that many banks have to be sanguine about their views on such things as the unemployment rate, which hit 7.6 percent last week."A lot of the executives I speak to are projecting unemployment of 8 or 9 percent. But when I ask what happens [to losses on their consumer loan portfolios] if we see double digit [unemployment] they go blank," Millers notes.In a CNBC interview on Friday Lewis said BofA's maintains that the unemployment rate could hit 8 percent or 8.5 percent but also allowed for the possibility that it could reach 9 percent.Ballooning jobless claims over the next several quarters will only place more pressure on BofA's portfolio of mortgages as well as its exposures to credit cards and other consumer debt.And for BofA exposures to commercial real estate loans may also prove a thorn in its side through its purchase of LaSalle Bank in October 2007 from ABN-AMRO.Indeed, on Friday credit-rating agency Fitch lowered BofA's credit outlook on concerns about its home-equity loans, credit-card portfolio and commercial loan book, despite Uncle Sam agreeing to backstop $118 billion in assets and offering up a $20 billion lifeline.To be sure, BofA's Countrywide investment could be a huge success, especially given the fire sale price the financial giant paid to acquire the nation's largest mortgage originator.In his CNBC interview, Lewis noted low-interest rates and a steady consumer push to re-fi mortgages has been a huge positive for BofA's Countrywide purchase so far."Countrywide is on fire at the moment because of re-fis and the lower rates. And so I'm hopeful that we'll prove that was a very good [acquisition] as well," Lewis said.At this point, Wall Street's fretting surrounding BofA is based on the view that the institution will become overwhelmed by bad consumer debt and need to return hat-in-hand to the government.Lewis attempted to put those fears to rest during his CNBC interview adding that BofA will not need another infusion from Troubled Asset Relief Program and, in fact, hopes to pay back its government rescue package "within three years."Investor concerns on Friday dragged BofA down to a multiyear low of $3.77 in Friday morning trading.However, the financial giant's stock gained on Lewis' assurances that he wouldn't need to go back to the government well and on word that the Obama Administration was readying a huge mortgage-modification program.BofA's shares ended up 26.6 percent to close at $6.13 on Friday.Lewis has made BofA into a powerhouse since he took over for Hugh McColl eight years ago.Since then the CEO has been on a merger rampage, scooping up banks such as US Trust, mortgage companies and credit-card outfit MBNA as his competitors including cross-town rival Wachovia Bank withered (Wachovia was acquired by San Francisco-based Wells Fargo).Last year, his maneuvering earned him kudos as Banker of the Year by trade publication American Banker but the twin collapses of Merrill Lynch and the potential implosion of Countrywide has turned him into a goat.
So far Merrill Lynch has been a well-publicized nightmare merger for Bank of America's Ken Lewis.However, it's the CEO Lewis' slapdash acquisition of mortgage giant Countrywide Financial for $4.1 billion that could haunt the financial giant in the future.Charlotte, N.C.-based BofA may wrack up cumulative mortgage losses stemming from its Countrywide purchase of as much as $33 billion, according to financial analyst Paul Miller at Friedman, Billings, Ramsey & Co.That's $10 billion more than the roughly $23 billion BofA set aside to reserve against future losses in its entire mortgage portfolio. BofA agreed to buy Countrywide two years ago last month for $4.1 billion after a $2 billion cash injection months prior didn't help the subprime-laden lender stay afloat - or independent.The projected losses BofA may face also are double the whopping $15 billion fourth-quarter loss that Merrill Lynch's CEO John Thain laid at Lewis' feet.Across Countrywide's entire loan book, FBR estimates that losses in home-equity loans could hit $17 billion, losses in option-adjustable rate mortgages may touch $11.4 billion and losses in hybrid first-lien loans could reach $5 billion."[Countrywide] was a horrible deal," Miller told The Post.Many speculate those future losses that BofA will face by virtue of Countrywide and its other exposures to consumer debt - like its massive credit-card operation - have already been factored into its performance by investors.Perhaps.However, Miller believes that many banks have to be sanguine about their views on such things as the unemployment rate, which hit 7.6 percent last week."A lot of the executives I speak to are projecting unemployment of 8 or 9 percent. But when I ask what happens [to losses on their consumer loan portfolios] if we see double digit [unemployment] they go blank," Millers notes.In a CNBC interview on Friday Lewis said BofA's maintains that the unemployment rate could hit 8 percent or 8.5 percent but also allowed for the possibility that it could reach 9 percent.Ballooning jobless claims over the next several quarters will only place more pressure on BofA's portfolio of mortgages as well as its exposures to credit cards and other consumer debt.And for BofA exposures to commercial real estate loans may also prove a thorn in its side through its purchase of LaSalle Bank in October 2007 from ABN-AMRO.Indeed, on Friday credit-rating agency Fitch lowered BofA's credit outlook on concerns about its home-equity loans, credit-card portfolio and commercial loan book, despite Uncle Sam agreeing to backstop $118 billion in assets and offering up a $20 billion lifeline.To be sure, BofA's Countrywide investment could be a huge success, especially given the fire sale price the financial giant paid to acquire the nation's largest mortgage originator.In his CNBC interview, Lewis noted low-interest rates and a steady consumer push to re-fi mortgages has been a huge positive for BofA's Countrywide purchase so far."Countrywide is on fire at the moment because of re-fis and the lower rates. And so I'm hopeful that we'll prove that was a very good [acquisition] as well," Lewis said.At this point, Wall Street's fretting surrounding BofA is based on the view that the institution will become overwhelmed by bad consumer debt and need to return hat-in-hand to the government.Lewis attempted to put those fears to rest during his CNBC interview adding that BofA will not need another infusion from Troubled Asset Relief Program and, in fact, hopes to pay back its government rescue package "within three years."Investor concerns on Friday dragged BofA down to a multiyear low of $3.77 in Friday morning trading.However, the financial giant's stock gained on Lewis' assurances that he wouldn't need to go back to the government well and on word that the Obama Administration was readying a huge mortgage-modification program.BofA's shares ended up 26.6 percent to close at $6.13 on Friday.Lewis has made BofA into a powerhouse since he took over for Hugh McColl eight years ago.Since then the CEO has been on a merger rampage, scooping up banks such as US Trust, mortgage companies and credit-card outfit MBNA as his competitors including cross-town rival Wachovia Bank withered (Wachovia was acquired by San Francisco-based Wells Fargo).Last year, his maneuvering earned him kudos as Banker of the Year by trade publication American Banker but the twin collapses of Merrill Lynch and the potential implosion of Countrywide has turned him into a goat.
Driven down by debt, Dubai expats give new meaning to long-stay car park
http://business.timesonline.co.uk/tol/business/markets/the_gulf/article5663618.ece
For many expatriate workers in Dubai it was the ultimate symbol of their tax-free wealth: a luxurious car that few could have afforded on the money they earned at home.Now, faced with crippling debts as a result of their high living and Dubai’s fading fortunes, many expatriates are abandoning their cars at the airport and fleeing home rather than risk jail for defaulting on loans.Police have found more than 3,000 cars outside Dubai’s international airport in recent months. Most of the cars – four-wheel drives, saloons and “a few” Mercedes – had keys left in the ignition.Some had used-to-the-limit credit cards in the glove box. Others had notes of apology attached to the windscreen.Related Links* With no oil, desert economy is built on shifting sand * Dubai millionaires' beach becomes cesspool * Dubai lifts veil of secrecy to assuage fears “Every day we find more and more cars,” said one senior airport security official, who did not want to be named. “Christmas was the worst – we found more than two dozen on a single day.”When the market collapsed and the emirate’s once-booming economy started to slow down, many expatriates were left owning several homes and unable to pay the mortgages without credit.“There were a lot of people living the high life, investing in real estate and a lifestyle they couldn’t afford,” one senior banker said.Under Sharia, which prevails in Dubai, the punishment for defaulting on a debt is severe. Bouncing a check, for example, is punishable with jail. Those who flee the emirate are known as skips.The abandoned cars underscore a worrying trend. Five years ago the Emir, Sheikh Mohammed bin Rashid Al Maktoum, embarked on an ambitious plan to transform Dubai into a hub for business and tourism. A building boom fuelled double-digit growth, with thousands of Westerners arriving every day, eager to cash in on the emirate’s promise of easy living and wealth.Many Westerners invested in Dubai’s skyrocketing real estate market, buying and reselling homes before building was even complete. But, as the recession took effect, property and financial companies made thousands of workers redundant and banks tightened lending. Construction companies have delayed or cancelled projects and tourism is slowing.There are increasing signs that the foreigners who once flocked to Dubai are leaving. “There is no way of tracking actual numbers, but the anecdotal evidence is overwhelming. Dubai is emptying out,” said a Western diplomat.International schools are having to be flexible on fees as expatriate parents run out of cash. Louise, a single mother from Britain, said that her son’s school had allowed her to pay a partial fee until she found a new job after her redundancy in December. “According to the headmaster, a lot of people had come into the school saying they had lost their jobs so the school was trying to be a bit more flexible,” she said.Most of the emirate’s banks are not affiliated with British financial institutions, so those who flee do not have to worry about creditors. Their abandoned cars are eventually sold off by the banks at weekly auctions. Those recently advertised include BMWs, Porsches and Mercedes.Simon Goldsmith, a spokesman for the British Embassy in Dubai, said that that there were approximately 100,000 Britons living in Dubai last year. However, the embassy has no way of tracking how many have fled back to the UK. “We’ve heard stories, but when somebody makes that kind of decision, they generally keep it to themselves,” he said.Police have issued warrants against owners of the deserted cars. Those who return risk arrest at the airport.Heading home3.62 million expatriates in Dubai864,000 nationals8% population decline predicted this year, as expatriates leave1,500 visas cancelled every day in Dubai62% of homes occupied by expatriates 60% fall in property values predicted50% slump in the price of luxury apartments on Palm Jumeirah25% reduction in luxury spending among UAE expatriates
For many expatriate workers in Dubai it was the ultimate symbol of their tax-free wealth: a luxurious car that few could have afforded on the money they earned at home.Now, faced with crippling debts as a result of their high living and Dubai’s fading fortunes, many expatriates are abandoning their cars at the airport and fleeing home rather than risk jail for defaulting on loans.Police have found more than 3,000 cars outside Dubai’s international airport in recent months. Most of the cars – four-wheel drives, saloons and “a few” Mercedes – had keys left in the ignition.Some had used-to-the-limit credit cards in the glove box. Others had notes of apology attached to the windscreen.Related Links* With no oil, desert economy is built on shifting sand * Dubai millionaires' beach becomes cesspool * Dubai lifts veil of secrecy to assuage fears “Every day we find more and more cars,” said one senior airport security official, who did not want to be named. “Christmas was the worst – we found more than two dozen on a single day.”When the market collapsed and the emirate’s once-booming economy started to slow down, many expatriates were left owning several homes and unable to pay the mortgages without credit.“There were a lot of people living the high life, investing in real estate and a lifestyle they couldn’t afford,” one senior banker said.Under Sharia, which prevails in Dubai, the punishment for defaulting on a debt is severe. Bouncing a check, for example, is punishable with jail. Those who flee the emirate are known as skips.The abandoned cars underscore a worrying trend. Five years ago the Emir, Sheikh Mohammed bin Rashid Al Maktoum, embarked on an ambitious plan to transform Dubai into a hub for business and tourism. A building boom fuelled double-digit growth, with thousands of Westerners arriving every day, eager to cash in on the emirate’s promise of easy living and wealth.Many Westerners invested in Dubai’s skyrocketing real estate market, buying and reselling homes before building was even complete. But, as the recession took effect, property and financial companies made thousands of workers redundant and banks tightened lending. Construction companies have delayed or cancelled projects and tourism is slowing.There are increasing signs that the foreigners who once flocked to Dubai are leaving. “There is no way of tracking actual numbers, but the anecdotal evidence is overwhelming. Dubai is emptying out,” said a Western diplomat.International schools are having to be flexible on fees as expatriate parents run out of cash. Louise, a single mother from Britain, said that her son’s school had allowed her to pay a partial fee until she found a new job after her redundancy in December. “According to the headmaster, a lot of people had come into the school saying they had lost their jobs so the school was trying to be a bit more flexible,” she said.Most of the emirate’s banks are not affiliated with British financial institutions, so those who flee do not have to worry about creditors. Their abandoned cars are eventually sold off by the banks at weekly auctions. Those recently advertised include BMWs, Porsches and Mercedes.Simon Goldsmith, a spokesman for the British Embassy in Dubai, said that that there were approximately 100,000 Britons living in Dubai last year. However, the embassy has no way of tracking how many have fled back to the UK. “We’ve heard stories, but when somebody makes that kind of decision, they generally keep it to themselves,” he said.Police have issued warrants against owners of the deserted cars. Those who return risk arrest at the airport.Heading home3.62 million expatriates in Dubai864,000 nationals8% population decline predicted this year, as expatriates leave1,500 visas cancelled every day in Dubai62% of homes occupied by expatriates 60% fall in property values predicted50% slump in the price of luxury apartments on Palm Jumeirah25% reduction in luxury spending among UAE expatriates
Saturday, February 7, 2009
Five reasons to buy a home this year
http://www.marketwatch.com/news/story/five-reasons-buying-house-now/story.aspx?guid=01DA1B93-91D1-49E4-A1B1-0ACA9CE66FF4
Five reasons to buy a home this year
Affordability returns to housing, and buyers have loads of negotiating power
By Amy Hoak, MarketWatch
Last update: 12:15 a.m. EST Feb. 6, 2009
CHICAGO (MarketWatch) -- People are afraid to buy a home in times like these, with the economy tanking and home prices continuing to fall. But if you're brave enough to stray from the herd, you might be in for the home-buying opportunity of a lifetime.
Ask for price reductions, improvements, closing costs -- whatever -- and the seller, desperately trying to get a contract, is very likely to work with you, said Jay Papasan, one of the authors of the book "Your First Home." When the market starts improving, your negotiating power starts to diminish, he added.
"People can get a lot of what they need and almost all of what they want today," Papasan said. "Once a few people get off the fence, there's safety in numbers and you lose your leverage."
If you're qualified to buy a home now, the purchase makes sense for your situation and you're prepared to live in that home for at least five years, there are five reasons why you may be headed for a great deal:
1. Affordability is better than ever
According to the National Association of Realtors' housing affordability index, homes were more affordable in December than at any other point since the group started the index in 1970. The affordability index is a measure of the relationship between home prices, mortgage interest rates and family income.
John and Julie Chilman, for example, recently have been able to stretch their dollars in the Las Vegas area. The listing price for the five-bedroom home they're buying was $265,000; they offered $250,000.
"Our Realtor was like 'Yeah, pipe dream. Like they're going to take that,'" John Chilman said. "And all they did was counter $255,000... and they're paying all closing costs." The home had lingered on the market, and was listed for $310,000 just six months ago, he said.
In Las Vegas, prices have fallen 50.7% from their peak and are now where they were in the second quarter of 2002, according to data from Clear Capital, a real estate valuation and data provider for banks and investment firms.
Video: Home Buyers Remain Cautious
Housing prices are down and mortgage rates remain low, but home buyers should be aware that they're in it for the long haul. MarketWatch's Amy Hoak reports. (Feb. 5)A report from Moody's Economy.com, released this week, predicted that house prices will stabilize by the end of this year, even though the Case-Shiller house price index will fall another 11% from the fourth quarter of 2008. By the end of the real-estate downturn, prices will have fallen by double digits, from peak to trough, in almost 62% of the nation's 381 metro areas, according to the report. In 10% of the areas, declines will be more than 30%.
Not all markets have experienced huge drops, however, so it's wise to take a look at how far prices have fallen in your area. The Office of Federal Housing Enterprise Oversight's Web site has a house price calculator that can help.
2. You have a large inventory to choose from
In many places it is taking months to sell a home, creating loads of inventory -- from new homes to existing homes to foreclosures. There was a 12.9-month supply of inventory in December given that month's sales pace, according to NAR.
A large selection gives buyers more choices and drives down prices. And home sellers have gotten the picture.
It's fair to say that home sellers have become "increasingly desperate," Papasan said. "People who have had for-sale signs in the yard for six months are starting to become in tune with the reality of the situation," he said. Buyers can take advantage.
But if you put off a purchase until inventory shrinks substantially, you might not get as good a price, said Eddie Fadel, author of the book "Don't Rent, Buy!" And be forewarned: It's nearly impossible to time the exact bottom of the housing market and even if you do there's no guarantee you'll make a killing.
"You buy for quality of life... don't buy on speculation," said Duane Andrews, CEO of Clear Capital. "I wouldn't buy a home expecting the housing market to rebound quickly in the next 10 years," he said, adding that he expects moderate gains in values when the turnaround does happen.
Historically, real estate appreciates about 5% a year over the long term, said Nancy Flint-Budde, a Salem, N.Y.-based certified financial planner. But as the country crawls out of a recession, many markets probably won't see huge home-price gains any time soon.
3. Builders are offering big discounts
Home builders are getting even more aggressive with their pricing
In fact, Fadel recommends looking at completed new homes first because builders are offering such steep discounts. Plus, you'd have a warranty not only on the home itself, but also on the home's appliances, he said.
"[Builders] want to save their credit, save their brand, save their reputation and clear out inventory," he said. "They can go buy cheap land today with that cash."
His advice: Walk in with a preapproval for a mortgage, make an offer, then walk away without making a deal if you have to. Chances are, a builder will call back and reconsider that offer rather than let a potential buyer get away.
4. Mortgage rates are historically low
It's not just the price of the home that will affect affordability; mortgage terms will also affect your monthly payments. These days, rates are very attractive for conforming loans, those that can be purchased by mortgage agencies Fannie Mae and Freddie Mac. (The current limit is $417,000, although that can rise as high as $625,500 in high-cost markets.)
Earlier this year, rates on the popular 30-year fixed-rate mortgage hit a level not seen in decades, and rates have stayed relatively near that low for weeks. This week, the 30-year fixed-rate mortgage averaged 5.25%, according to Freddie Mac's weekly mortgage survey. More mortgage help could also be on the way. Last week, President Obama said that his new economic plan, which Treasury Secretary Timothy Geithner is set to unveil Monday, would help lower the cost of mortgages for home buyers, although he did not give specifics.
But low rates don't mean lenders are handing out mortgages easily. You'll need good credit, a substantial down payment and a willingness to document your income in order to qualify for those great rates, if you can qualify at all.
5. You can get a federal tax credit
There's currently a federal credit of up to $7,500 for home buyers who haven't owned a home in at least three years. The credit needs to be paid back, although the repayment feature is removed in the economic stimulus plan that passed in the House of Representatives.
That extra cash will come in handy: The average first-time home buyer spends about $6,000 in the first six months of owning a home, said Flint-Budde.
The National Home Builders Association is pushing for more help for home buyers, including an even bigger tax credit -- the Senate in its version of the economic stimulus bill is proposing a $15,000 credit. And both NAHB and the National Association of Realtors want the incentive to help all buyers, not only those who are becoming homeowners for the first time.
Waiting for further federal developments, however, might sap a buyer's negotiating power, as more people get back into the market and competition returns, Fadel said.
"The more Washington gives, demand will increase," he said.
Amy Hoak is a MarketWatch reporter based in Chicago
Five reasons to buy a home this year
Affordability returns to housing, and buyers have loads of negotiating power
By Amy Hoak, MarketWatch
Last update: 12:15 a.m. EST Feb. 6, 2009
CHICAGO (MarketWatch) -- People are afraid to buy a home in times like these, with the economy tanking and home prices continuing to fall. But if you're brave enough to stray from the herd, you might be in for the home-buying opportunity of a lifetime.
Ask for price reductions, improvements, closing costs -- whatever -- and the seller, desperately trying to get a contract, is very likely to work with you, said Jay Papasan, one of the authors of the book "Your First Home." When the market starts improving, your negotiating power starts to diminish, he added.
"People can get a lot of what they need and almost all of what they want today," Papasan said. "Once a few people get off the fence, there's safety in numbers and you lose your leverage."
If you're qualified to buy a home now, the purchase makes sense for your situation and you're prepared to live in that home for at least five years, there are five reasons why you may be headed for a great deal:
1. Affordability is better than ever
According to the National Association of Realtors' housing affordability index, homes were more affordable in December than at any other point since the group started the index in 1970. The affordability index is a measure of the relationship between home prices, mortgage interest rates and family income.
John and Julie Chilman, for example, recently have been able to stretch their dollars in the Las Vegas area. The listing price for the five-bedroom home they're buying was $265,000; they offered $250,000.
"Our Realtor was like 'Yeah, pipe dream. Like they're going to take that,'" John Chilman said. "And all they did was counter $255,000... and they're paying all closing costs." The home had lingered on the market, and was listed for $310,000 just six months ago, he said.
In Las Vegas, prices have fallen 50.7% from their peak and are now where they were in the second quarter of 2002, according to data from Clear Capital, a real estate valuation and data provider for banks and investment firms.
Video: Home Buyers Remain Cautious
Housing prices are down and mortgage rates remain low, but home buyers should be aware that they're in it for the long haul. MarketWatch's Amy Hoak reports. (Feb. 5)A report from Moody's Economy.com, released this week, predicted that house prices will stabilize by the end of this year, even though the Case-Shiller house price index will fall another 11% from the fourth quarter of 2008. By the end of the real-estate downturn, prices will have fallen by double digits, from peak to trough, in almost 62% of the nation's 381 metro areas, according to the report. In 10% of the areas, declines will be more than 30%.
Not all markets have experienced huge drops, however, so it's wise to take a look at how far prices have fallen in your area. The Office of Federal Housing Enterprise Oversight's Web site has a house price calculator that can help.
2. You have a large inventory to choose from
In many places it is taking months to sell a home, creating loads of inventory -- from new homes to existing homes to foreclosures. There was a 12.9-month supply of inventory in December given that month's sales pace, according to NAR.
A large selection gives buyers more choices and drives down prices. And home sellers have gotten the picture.
It's fair to say that home sellers have become "increasingly desperate," Papasan said. "People who have had for-sale signs in the yard for six months are starting to become in tune with the reality of the situation," he said. Buyers can take advantage.
But if you put off a purchase until inventory shrinks substantially, you might not get as good a price, said Eddie Fadel, author of the book "Don't Rent, Buy!" And be forewarned: It's nearly impossible to time the exact bottom of the housing market and even if you do there's no guarantee you'll make a killing.
"You buy for quality of life... don't buy on speculation," said Duane Andrews, CEO of Clear Capital. "I wouldn't buy a home expecting the housing market to rebound quickly in the next 10 years," he said, adding that he expects moderate gains in values when the turnaround does happen.
Historically, real estate appreciates about 5% a year over the long term, said Nancy Flint-Budde, a Salem, N.Y.-based certified financial planner. But as the country crawls out of a recession, many markets probably won't see huge home-price gains any time soon.
3. Builders are offering big discounts
Home builders are getting even more aggressive with their pricing
In fact, Fadel recommends looking at completed new homes first because builders are offering such steep discounts. Plus, you'd have a warranty not only on the home itself, but also on the home's appliances, he said.
"[Builders] want to save their credit, save their brand, save their reputation and clear out inventory," he said. "They can go buy cheap land today with that cash."
His advice: Walk in with a preapproval for a mortgage, make an offer, then walk away without making a deal if you have to. Chances are, a builder will call back and reconsider that offer rather than let a potential buyer get away.
4. Mortgage rates are historically low
It's not just the price of the home that will affect affordability; mortgage terms will also affect your monthly payments. These days, rates are very attractive for conforming loans, those that can be purchased by mortgage agencies Fannie Mae and Freddie Mac. (The current limit is $417,000, although that can rise as high as $625,500 in high-cost markets.)
Earlier this year, rates on the popular 30-year fixed-rate mortgage hit a level not seen in decades, and rates have stayed relatively near that low for weeks. This week, the 30-year fixed-rate mortgage averaged 5.25%, according to Freddie Mac's weekly mortgage survey. More mortgage help could also be on the way. Last week, President Obama said that his new economic plan, which Treasury Secretary Timothy Geithner is set to unveil Monday, would help lower the cost of mortgages for home buyers, although he did not give specifics.
But low rates don't mean lenders are handing out mortgages easily. You'll need good credit, a substantial down payment and a willingness to document your income in order to qualify for those great rates, if you can qualify at all.
5. You can get a federal tax credit
There's currently a federal credit of up to $7,500 for home buyers who haven't owned a home in at least three years. The credit needs to be paid back, although the repayment feature is removed in the economic stimulus plan that passed in the House of Representatives.
That extra cash will come in handy: The average first-time home buyer spends about $6,000 in the first six months of owning a home, said Flint-Budde.
The National Home Builders Association is pushing for more help for home buyers, including an even bigger tax credit -- the Senate in its version of the economic stimulus bill is proposing a $15,000 credit. And both NAHB and the National Association of Realtors want the incentive to help all buyers, not only those who are becoming homeowners for the first time.
Waiting for further federal developments, however, might sap a buyer's negotiating power, as more people get back into the market and competition returns, Fadel said.
"The more Washington gives, demand will increase," he said.
Amy Hoak is a MarketWatch reporter based in Chicago
Five reasons not to buy a home this year
http://www.marketwatch.com/news/story/five-reasons-buying-home-2009/story.aspx?guid=%7B22185FBD-7F44-4A49-A604-A29D4225E122%7D&tool=1&dist=bigcharts&
Five reasons not to buy a home this year
Homes are more affordable, but don't rush -- prices won't skyrocket soon
By Amy Hoak, MarketWatch
Last update: 12:15 a.m. EST Feb. 6, 2009
CHICAGO (MarketWatch) -- The unemployment rate is creeping up and home prices keep falling: Two great reasons why it might be best to put your home buying plans on hold.
After all, your own job could be the next on the chopping block. Plus, why not wait until home prices have reached their bottom and you can safely buy knowing your new house won't depreciate like a car coasting out of the dealership?
"It may be 2010 or 2011 before the general public believes it's safe to go back into housing," said Steve Fifield, president of Chicago-based Fifield Companies, a firm that builds condominium, apartment, and office buildings. "You don't want to be the first guy to go back in."
Keep in mind, for some Americans buying won't even be an option due to stricter mortgage underwriting standards that require bigger down payments and higher credit scores.
But if you think you might qualify and you're tempted to test the market, consider these five reasons for staying on the sidelines instead:
1. Prices are still dropping
Data shows that prices are still dropping in many markets. If you buy today, your home could be worth less in a year or even two.
"People don't like to buy depreciating assets," said David Berson, chief economist for The PMI Group. According to PMI's most recent U.S. Market Risk Index, reported last month, the risk of lower prices two years from now has increased across the country. Half of the country's 50 largest cities had an elevated or high probability of seeing lower house prices by the end of the third quarter of 2010, compared with the third quarter of 2008.
Other home price measures haven't painted a rosy picture either. According to the Case-Shiller home price index, values in 20 major U.S. cities fell 18.2% in November, compared with November 2007. Prices are down 25% from their peak in 2006, according to the index.
Steep discounts in some of the hardest hit housing markets have some people wondering if prices could be starting to bottom. But some markets saw price drops later on than others -- and it could take longer for those latecomers to improve, Fifield said.
2. This sale will be on for a while
From a pure investment standpoint, you'd probably be better off investing in stocks, said Nancy Flint-Budde, a Salem, N.Y.-based certified financial planner. In a normal market, real estate appreciates about 5% a year, she said. But even if prices stop falling this year, as Moody's Economy.com is predicting, price appreciation could be weak for a while.
In fact, while some recoveries resemble a "V"-shaped pattern, this housing recovery could look like an "L" -- once a bottom hits, prices will flat line, said Jay Papasan, one of the authors of the book "Your First Home." Prices likely won't rocket to housing-boom levels soon, as conditions are exacerbated by rising unemployment and foreclosure inventory.
The lesson: This housing sale could go on for a while, so there is no need to rush.
"Even if in December of 2009 the first stories appear that sellers aren't lowering prices any more... you need that uptick and information showing that not only are sales increasing, but prices have stabilized and are starting to go up," Fifield said.
3. You may not stay put
If prices continue to drop, you might have to be in that home for longer than you thought in order for the investment to make financial sense.
In any market, it's best to buy a home with the intention of staying there five to 10 years, said Flint-Budde. This guideline is even more important today, when you might have to absorb more price drops and weather a couple years of slow price growth.
Video: Home Buyers Remain Cautious
Housing prices are down and mortgage rates remain low, but home buyers should be aware that they're in it for the long haul. MarketWatch's Amy Hoak reports. (Feb. 5)First-time buyers must be listening to that rule of thumb: According to research from the National Association of Realtors, the typical first-time home buyer in 2008 planned to stay in their new for 10 years, up from seven years in 2007.
Brian Rayhack, for example, is renting an apartment in Chicago because he's just not sure how long he'd be living in the city. "If I was going to be here more than five years I definitely would have bought," he said. For the flexibility that comes with renting, it's was worth it for him to wait.
4. Your job could be the next to go
Maybe you're spooked by the headlines of job cuts. Perhaps you have friends who have recently been laid off. If you think your own job might is in danger, stop right there -- and stay put.
But even if you're comfortable with your own job security, investigate how your future neighbors are faring.
Your real-estate agent will tell you to pay attention to local market conditions instead of national trends. But don't stop by only looking at neighborhood home prices; the health of the local job market is also important to consider.
Have there been many layoffs in the area recently? What are the largest employers, and are they in industries that are suffering severely? Is the local economy diversified?
"What is the state of the job market in my area, and my metro area in general? That's going to impact overall demand," said Richard Moody, chief economist with Mission Residential. At the very least, get a sense of what the local inventory situation is like, relative to demand, to anticipate the pressures on prices over the coming months or years, he added.
It's best to get a broad picture of the housing market, rather than simply asking yourself "can I afford it or not," Moody said.
5. Your cash reserves will be eaten up
Given the recession and the fragile economy today, even if you feel confident about your job it's wise to have a cushion to land on in the event you get hit with a financial broadside, a divorce or a major health bill, for instance. If your down payment would deplete your rainy day fund, keep saving for a while before house hunting.
"Even if you feel like you're secure in your job, it's much smarter to have five or six months of expenses to have aside. A reserve is a wise thing in this economy today," Papasan said.
Amy Hoak is a MarketWatch reporter
Five reasons not to buy a home this year
Homes are more affordable, but don't rush -- prices won't skyrocket soon
By Amy Hoak, MarketWatch
Last update: 12:15 a.m. EST Feb. 6, 2009
CHICAGO (MarketWatch) -- The unemployment rate is creeping up and home prices keep falling: Two great reasons why it might be best to put your home buying plans on hold.
After all, your own job could be the next on the chopping block. Plus, why not wait until home prices have reached their bottom and you can safely buy knowing your new house won't depreciate like a car coasting out of the dealership?
"It may be 2010 or 2011 before the general public believes it's safe to go back into housing," said Steve Fifield, president of Chicago-based Fifield Companies, a firm that builds condominium, apartment, and office buildings. "You don't want to be the first guy to go back in."
Keep in mind, for some Americans buying won't even be an option due to stricter mortgage underwriting standards that require bigger down payments and higher credit scores.
But if you think you might qualify and you're tempted to test the market, consider these five reasons for staying on the sidelines instead:
1. Prices are still dropping
Data shows that prices are still dropping in many markets. If you buy today, your home could be worth less in a year or even two.
"People don't like to buy depreciating assets," said David Berson, chief economist for The PMI Group. According to PMI's most recent U.S. Market Risk Index, reported last month, the risk of lower prices two years from now has increased across the country. Half of the country's 50 largest cities had an elevated or high probability of seeing lower house prices by the end of the third quarter of 2010, compared with the third quarter of 2008.
Other home price measures haven't painted a rosy picture either. According to the Case-Shiller home price index, values in 20 major U.S. cities fell 18.2% in November, compared with November 2007. Prices are down 25% from their peak in 2006, according to the index.
Steep discounts in some of the hardest hit housing markets have some people wondering if prices could be starting to bottom. But some markets saw price drops later on than others -- and it could take longer for those latecomers to improve, Fifield said.
2. This sale will be on for a while
From a pure investment standpoint, you'd probably be better off investing in stocks, said Nancy Flint-Budde, a Salem, N.Y.-based certified financial planner. In a normal market, real estate appreciates about 5% a year, she said. But even if prices stop falling this year, as Moody's Economy.com is predicting, price appreciation could be weak for a while.
In fact, while some recoveries resemble a "V"-shaped pattern, this housing recovery could look like an "L" -- once a bottom hits, prices will flat line, said Jay Papasan, one of the authors of the book "Your First Home." Prices likely won't rocket to housing-boom levels soon, as conditions are exacerbated by rising unemployment and foreclosure inventory.
The lesson: This housing sale could go on for a while, so there is no need to rush.
"Even if in December of 2009 the first stories appear that sellers aren't lowering prices any more... you need that uptick and information showing that not only are sales increasing, but prices have stabilized and are starting to go up," Fifield said.
3. You may not stay put
If prices continue to drop, you might have to be in that home for longer than you thought in order for the investment to make financial sense.
In any market, it's best to buy a home with the intention of staying there five to 10 years, said Flint-Budde. This guideline is even more important today, when you might have to absorb more price drops and weather a couple years of slow price growth.
Video: Home Buyers Remain Cautious
Housing prices are down and mortgage rates remain low, but home buyers should be aware that they're in it for the long haul. MarketWatch's Amy Hoak reports. (Feb. 5)First-time buyers must be listening to that rule of thumb: According to research from the National Association of Realtors, the typical first-time home buyer in 2008 planned to stay in their new for 10 years, up from seven years in 2007.
Brian Rayhack, for example, is renting an apartment in Chicago because he's just not sure how long he'd be living in the city. "If I was going to be here more than five years I definitely would have bought," he said. For the flexibility that comes with renting, it's was worth it for him to wait.
4. Your job could be the next to go
Maybe you're spooked by the headlines of job cuts. Perhaps you have friends who have recently been laid off. If you think your own job might is in danger, stop right there -- and stay put.
But even if you're comfortable with your own job security, investigate how your future neighbors are faring.
Your real-estate agent will tell you to pay attention to local market conditions instead of national trends. But don't stop by only looking at neighborhood home prices; the health of the local job market is also important to consider.
Have there been many layoffs in the area recently? What are the largest employers, and are they in industries that are suffering severely? Is the local economy diversified?
"What is the state of the job market in my area, and my metro area in general? That's going to impact overall demand," said Richard Moody, chief economist with Mission Residential. At the very least, get a sense of what the local inventory situation is like, relative to demand, to anticipate the pressures on prices over the coming months or years, he added.
It's best to get a broad picture of the housing market, rather than simply asking yourself "can I afford it or not," Moody said.
5. Your cash reserves will be eaten up
Given the recession and the fragile economy today, even if you feel confident about your job it's wise to have a cushion to land on in the event you get hit with a financial broadside, a divorce or a major health bill, for instance. If your down payment would deplete your rainy day fund, keep saving for a while before house hunting.
"Even if you feel like you're secure in your job, it's much smarter to have five or six months of expenses to have aside. A reserve is a wise thing in this economy today," Papasan said.
Amy Hoak is a MarketWatch reporter
Thursday, February 5, 2009
Geithner to Announce Financial-Rescue Plan Feb. 9
Geithner to Announce Financial-Rescue Plan Feb. 9
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3x1RI4a9BYY&refer=home
By Rebecca Christie and Robert Schmidt
Feb. 5 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner will in four days unveil the administration’s financial-recovery plan, aiming to shore up the nation’s banks and restart lending to households and businesses.
Geithner will make a speech Feb. 9 in Washington, a Treasury official said. Hours later, President Barack Obama will hold a news conference that will address the stimulus package Democratic leaders predict will win congressional approval.
Officials plan a combination of approaches for their overhaul of the $700 billion Troubled Asset Relief Program. Along with further injections of taxpayer funds into major financial firms, the strategy is likely to include guarantees for illiquid assets on banks’ balance sheets and possibly some form of a so-called bad bank that would purchase toxic investments, people familiar with the matter have said.
“Our agenda is to begin to shape the architecture of a financial recovery plan that’ll help get credit flowing again and help reinforce the recovery and reinvestment plan now working its way through the Congress,” Geithner said before a meeting of the President’s Working Group on Financial Markets.
The group includes Federal Reserve Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair.
January Job Cuts
Geithner’s announcement next week will come on the heels of indications that economists predict will show the U.S. recession is deepening.
A Labor Department report tomorrow may show the U.S. lost 540,000 jobs in January, according to the median estimate of economists surveyed by Bloomberg News. The unemployment rate may rise to 7.5 percent, a 16-year high.
The S&P 500 Financials Index has dropped for six straight months and fallen about 27 percent so far this year. Shares of Citigroup Inc. have plunged 87 percent from a year ago and Bank of America Corp. is down 89 percent.
Earlier today, Senate Banking Committee Chairman Christopher Dodd urged the Obama administration to redesign the financial-rescue program to ensure that banks receiving aid increase lending and restrict salaries.
“For the sake of our economy and the public’s confidence in our ability to address this crisis, we must see a sharp change in the direction of this program under new management,” Dodd, a Connecticut Democrat, said in an opening statement at a hearing in Washington.
Dodd also said he wants to see a long-term plan for using TARP funds, “stricter limits” on executive pay and bonuses, “clear guidelines” for banks to boost lending and a foreclosure prevention program.
To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net Robert Schmidt in Washington at rschmidt5@bloomberg.net. Last Updated: February 5, 2009
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3x1RI4a9BYY&refer=home
By Rebecca Christie and Robert Schmidt
Feb. 5 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner will in four days unveil the administration’s financial-recovery plan, aiming to shore up the nation’s banks and restart lending to households and businesses.
Geithner will make a speech Feb. 9 in Washington, a Treasury official said. Hours later, President Barack Obama will hold a news conference that will address the stimulus package Democratic leaders predict will win congressional approval.
Officials plan a combination of approaches for their overhaul of the $700 billion Troubled Asset Relief Program. Along with further injections of taxpayer funds into major financial firms, the strategy is likely to include guarantees for illiquid assets on banks’ balance sheets and possibly some form of a so-called bad bank that would purchase toxic investments, people familiar with the matter have said.
“Our agenda is to begin to shape the architecture of a financial recovery plan that’ll help get credit flowing again and help reinforce the recovery and reinvestment plan now working its way through the Congress,” Geithner said before a meeting of the President’s Working Group on Financial Markets.
The group includes Federal Reserve Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair.
January Job Cuts
Geithner’s announcement next week will come on the heels of indications that economists predict will show the U.S. recession is deepening.
A Labor Department report tomorrow may show the U.S. lost 540,000 jobs in January, according to the median estimate of economists surveyed by Bloomberg News. The unemployment rate may rise to 7.5 percent, a 16-year high.
The S&P 500 Financials Index has dropped for six straight months and fallen about 27 percent so far this year. Shares of Citigroup Inc. have plunged 87 percent from a year ago and Bank of America Corp. is down 89 percent.
Earlier today, Senate Banking Committee Chairman Christopher Dodd urged the Obama administration to redesign the financial-rescue program to ensure that banks receiving aid increase lending and restrict salaries.
“For the sake of our economy and the public’s confidence in our ability to address this crisis, we must see a sharp change in the direction of this program under new management,” Dodd, a Connecticut Democrat, said in an opening statement at a hearing in Washington.
Dodd also said he wants to see a long-term plan for using TARP funds, “stricter limits” on executive pay and bonuses, “clear guidelines” for banks to boost lending and a foreclosure prevention program.
To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net Robert Schmidt in Washington at rschmidt5@bloomberg.net. Last Updated: February 5, 2009
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