As I was reading this eye-opening piece from The New York Times entitled, “Given A Shovel, Americans Dig Deeper Into Debt,” it occurred to me that credit cards are a lot like cigarettes.

The story notes that before credit cards made their big push a few decades ago, America was a nation of savers. But thanks in part to marketing campaigns that glamorize credit cards, we have become a nation of debtors.

It used to be that people were terrified of getting into debt. According to the story, credit-card companies knew this, and worked hard to help people get over that fear.

Eliminating negative feelings about indebtedness was the idea behind MasterCard's 'Priceless' campaign, the work of McCann-Erickson Worldwide Advertising, which came out in 1997.

'One of the tricks in the credit card business is that people have an inherent guilt with spending,' Jonathan B. Cranin, executive vice president and deputy creative director at the agency, said when the commercials began. 'What you want is to have people feel good about their purchases.'

Mortgage lenders can thank credit-card companies for helping Americans lose their inhibitions about going into debt. But now the pendulum has swung so far away from saving that millions of people will be digging themselves out of debt well into old age. In fact, they may never get out.

Anyway, back to the cigarettes. Cigarette companies, too, engaged in marketing campaigns that glamorized their products. The problem was, cigarettes were addictive, and they killed people. Ultimately, the marketing campaigns were outlawed, warning labels were placed on packages, and the cigarette companies had to fund anti-smoking public-awareness campaigns.

Credit cards are addictive, and they kill people’s finances. Maybe we can’t stop the ads, but what about putting warning labels on credit cards'

• “Warning: Credit Cards May Be Hazardous to Your Financial Well-Being.”
• “Warning: The Interest Rate on This Credit Card is 28 Percent Per Year.”
• “Warning: If You Make Only Minimum Payments, You Will Never Pay Off Your Balance.”
• “Warning: Credit-Card Debt Wrecks Marriages and Relationships.”
• “Warning: Credit-Card Debt Can Rob You of a Comfortable Retirement.”
• “Warning: Credit Cards Are Highly Addictive.”

Yes, I know all about personal responsibility. But if cigarette companies can be held accountable for the damage their products cause, why can’t credit-card companies'

To see MasterCard forced to sink money into a public-education campaign about the perils of consumer debt' Priceless.

Recent Redfin posts:
Starter Homes Under $550K in Silver Lake, Atwater and Echo Park
A Starter Home Near the Sunset Strip
Come On and Rescue Me

If you’re looking for a cheap single-family home in the Sunset Strip area, here’s one at 1640 N. Stanley Ave.:  a two-bedroom, two-bath in 1,314 square feet for $759,900, pictured above.

It’s listed as a bank-owned property, but the Redfin history lists only a 1988 sale for $280,000.  I went to take a picture of the place yesterday.  The location is great — walking distance to Runyon Canyon and the subway — and there are some nice fixed-up homes on the street.  And speaking of fixing up, that’s definitely what you’d be doing to this home.

Interestingly, a house a few doors down just sold:  1620 N. Stanley Ave.  This one had three bedrooms and one bath in 1,363 square feet; it fetched $754,000. And a few blocks away, at 1525 N. Sierra Bonita Ave., a charming 2+2, 1,747-square-foot bungalow went for $942,000. 

But most everything else in the neighborhood appears to be priced over $1 million.  The one exception is this place at 7659 Fountain Ave. for $699,000, if you don’t mind a busy street.

I recently had a reader ask about starter homes on the eastside - where are they and are they affordable' Well, as some of the listing below show, you can pick up a home for under $550 that a few years ago was selling in the $700,000 range. The listings below are some of the better ones in this price range. Most are on the small side, between a tight 700 square feet, up to about 1,200. They are also not in the prime areas of Silver Lake or Echo Park, but I picked places that are also not in bad areas. If you’re really in the market for a starter home, these are some good ones to check out just to get an idea of what’s out there. Here you go - next up, I’ll tackle Eagle Rock and Downtown.

• In Atwater, here’s a cute 2/1 Tudor that has languished on the market for 169 days. It’s listed at $549,000.
• This cute Spanish 2/1 is also in Atwater Village, on the other side of Glendale Blvd. (the Los Feliz Blvd. side) It’s listed at $499,000 and been on the market about a month.
• In Silver Lake - Echo Park (on Lemoyne), here’s a 1938 traditional that looks like a short sale. It’s listed at $499,000, but the last sale was for $558,000 and in 2007 it sold for $773,000. No joke.
• Not far away in Echo Park is this charming cabin-y, condo-alternative-type place for $484,500.
• Here’s a “bank says sell!” 2/2 in Silver Lake for $499,900. It last sold in 2007 for $587, 650.

Today’s LA Times has a great profile of developer Wayne Ratkovich, who has redone a number of architecturally-significant buildings downtown, including the Art Deco Wiltern Theater. Here’s a bit:

Ratkovich is regarded as one of the pioneers along with Yellin and Gene Summers, setting the tone for sophisticated restorations of historic buildings in L.A. starting in the 1980s, even when it wasn’t always profitable. Developer Tom Gilmore revved up the market again early in this decade with his successful conversions of old downtown office buildings to apartments……

Many of downtown’s older buildings had already been knocked down when Ratkovich bought the Oviatt Building in 1977 because they were considered obsolete. A similar fate was perhaps in store for the Oviatt, which the Los Angeles Archdiocese wanted to sell after receiving title in a parishioner’s will. Ratkovich acquired the former department store turned office tower for $450,000 and spent about $5 million to restore it before selling it for $13.5 million.

And here’s a bit of movie trivia hidden at the end of the piece:

One of the bigger risks was to put a top-drawer restaurant on the ground floor of the Oviatt. Yet Rex Il Ristorante was a glamorous success that lured limousines to a dodgy stretch of Olive Street. When the wealthy lawyer played by Richard Gere took Julia Roberts to a fancy dinner in 1990’s smash movie “Pretty Woman,” he took her to the Rex. More recently, scenes from the movie “Mr. & Mrs. Smith” and the television show “Mad Men” were filmed in the restaurant now known as Cicada.

The area around Cicada is still one of the rougher sections of downtown'it’s the 90014 zip and basically runs between 5th and 9th and Grand and San Pedro. I think its a tough sell right now because it’s not as hip as other parts of downtown, and still has a gritty, “where am I” feel to it. But two loft buildings have a number of lower-priced units for sale right now'part of Santee Village and the Bartlett Building, both renovations of older spaces. Here’s a sample of the listings:

• $379,900 in Santee Village, a corner unit with just under 700 square feet. On the market for 168 days.
• $499,00 in Santee Village (the Textile Building), with just under 900 square feet. On the market 290 days.
• $269,000' a short sale in the Bartlett Building. 736 square feet, and on the market 27 days.
• $399,000 in the Barlett Building. Hating the short seller right now, probably'this one has 650 square feet and has been on the market 244 days.
• $449,000 gets you the Bartlett Building penthouse'1,040 square feet with a giant deck.

When people near retirement age, they often move to a smaller, more manageable space. That’s what Candy Spelling is doing.  Now that her husband, T.V. mogul Aaron Spelling, has passed away, and she’s apparently patched things up with daughter Tori, the 62-year-old is ready for a simpler lifestyle.

So, like many others in her situation, she went the condo route.  She purchased the top two floors of an under-construction upscale high-rise in Century City for a record $47 million, or $2,848 per square foot.

From the L.A. Times story:

[T]he 62-year-old heiress with a reputation for embracing opulence will be moving out of Los Angeles County’s largest home — a 123-room, 56,500-square-foot mansion on six acres in the Holmby Hills neighborhood off Sunset Boulevard.

Her new home will be less than a third the size of the old one — just 16,500 square feet — but with a killer 360-degree view spanning the horizon from downtown Los Angeles to Santa Catalina Island. The condominium building called the Century is going up next door to the Century Plaza Hotel on Avenue of the Stars and will be completed in late 2009.

Such a drastic downsizing means that Spelling may have to forgo some amenities she enjoyed at the Holmby Hills place — like the gift-wrapping room, perhaps — but the new pad will have some nice touches as well.

The lower floor will have a living room with two working fireplaces, a dining room for 25 guests, and staff quarters. The top floor will house the bedrooms, including a 4,000-square-foot master suite, a massage room, an exercise room, a conservatory complete with rose garden, and a swimming pool and deck.

Just like any other downsizing senior.

Sound the horns. The House passed a bill yesterday that will give $300 billion in housing aid. The funds will help out folks having trouble making their mortgage payments. There just needs to be one more approval - by the Senate - to make this bill a reality.

Assuming the Senate does pass the bill, up to two million homeowners may be able to stay afloat with new, more affordable fixed-rate loans. Here’s a rundown on who qualifies.

1. Applicants must live in their homes.

2. Applicants must be spending at least 40% of their gross monthly income on total household debt.

3. Applicants must have gotten loans between January 2005 and June 2007.

4. Applicant debt must not be more than 95% the appraised value of the home.

(Note: You can’t apply just to get a more affordable loan. Only those who are either in default or up-to-date, but in need qualify.)

Here’s a little snippet from CNNMoney.com.

This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the home’s current value. In areas where prices have plummeted by as much as 20%, that will mean a substantial loss for the lender.

But lenders won’t sign off on a workout unless they think that they’ll lose less money on that than they would by allowing a home to go through the costly foreclosure process.

Each loan will have to be underwritten by an FHA lender on a case-by-case basis. That means the banks will do a new appraisal to determine the home’s current value, as well as examine and verify income statements, bank accounts, job histories and credit scores.

To bring this article home, I thought I’d check up on how many homeowners in the LAX area have foreclosed and could have used some help from this upcoming bill. These stats are from the second quarter of 2008.

Playa Del Rey: 5 foreclosed homes

Playa Vista: 8 foreclosed homes

Westchester: 12 foreclosed homes

Oh, and here’s some music to help set the mood.

Along with a very depressing story about record foreclosures (which I’m going to let our other bloggers tackle while I remain uncompromisingly optimistic in the face of disaster), the LA Times has linked in their real estate data tool, which lets you search by zip or city to find median sale prices for the year, the amount it’s changed over last year, and current foreclosure data. Here’s an example from the 90027:

Median sale price: $870,000

Change from 2007: -22.7%

June 2008 sales: 15

Q2 Foreclosures: 7

Q2 2007 Foreclosures: 4

Percent change year-over-year: 75%

While I can’t put any kind of good spin on a 75% increase in foreclosures, I do like the tool. It’s a great, quick way to get a snapshot of a zip and see what kind of activity is going on.

The story also has a 16 photo spread of homes in foreclosure from “Glendale to Redondo Beach.” (the pic above is the first in the series, credited to Leo Nordine Realtors). It’s really interesting to take a look at it and get an idea of the breadth of homes that are in foreclosure. I truly feel sorry for people facing losing their home, regardless of the financial decisions that got them to this point. Whether its the banks fault, the borrowers fault, or some combination, it’s a tough place to be and I feel for them.

The big news on Tuesday was that California lenders issued a record number of notices of default — the first step in the foreclosure process — in the second quarter of ‘08, according to DataQuick Information Systems. From the DataQuick news release:

Mortgage servicers recorded 121,341 “notices of default” during the April-through-June period. That was up 6.6 percent from a revised 113,809 for this year’s first quarter, and up 124.9 percent from 53,943 in second-quarter 2007, according to DataQuick Information Systems.

Last quarter’s number of defaults was the highest in DataQuick’s statistics, which go back to 1992.

The only possible good news was the small increase from quarter to quarter, noted DataQuick president John Walsh:

“The small increase in defaults from the first to the second quarter may indicate that we’re nearing a plateau. We won’t know until the end of the year, but it may be that some lenders are starting to prioritize workouts with homeowners instead of grinding things through the foreclosure process. Of course, they may just be swamped and can’t handle processing any more paperwork,” he said.

Other tidbits:

– The median homeowner in default is five months behind on mortgage payments, with a median owed of $11,583 on a median $346,400 loan.
– The number of homes in default was about 3,000 less than the total number of defaults because some borrowers are defaulting on multiple loans.
– The default numbers represented a record in almost all counties, including Los Angeles County.
– Statewide, mortgages in San Francisco and Marin counties were least likely to go into default, and most likely in Merced and San Joaquin counties.

If you want to see how certain SoCal ZIP codes are faring on the foreclosure front, the L.A. Times has updated its list of home prices, sales and foreclosures to include the most recent numbers. You might be surprised which ZIPs recorded the biggest increases (hint:  Rancho Palos Verdes).   Click here.

Recent Redfin Posts:
Solar Loan Law Passes While Loan Bailout Debate Continues
Falling Fast on South Highland Avenue
An Uphill Walk:  Sales and Listings in Verdugo Woodlands 91208 

That word is, of course, SOLD!

I was walking the dogs in my new neighborhood the other day when I came across a house with a For Sale sign in front of it.  Right away I knew there was something different about it.  As I came closer, I saw the SOLD sign on top.

Memories came flooding back — of days when SOLD signs went up almost as fast as For Sale signs.  It seems like only yesterday, but it’s actually been more than two years since the big cooling-off began.  I couldn’t remember the last time I’d seen a SOLD sign.

There is no active MLS listing on the house (pictured above), which is at 826 S. Citrus Avenue, just southwest of the Hancock Park border.  But the Redfin database shows that it’s a two-bedroom, two-bath house in 1,910 square feet, last sold in 1976 for $64,500.  The agent created a Web site for the property (according to her listing, it has three bedrooms).

I’m sure when the home came on the market, but in May, it was reduced from $929,000 to $899,000.  That was its listing price when it went into escrow in late June.

We’ll have to wait until it closes to see what it actually went for.  But one thing is certain:  It needs a lot of updating. Had it already been updated, it might have fetched a higher price.

It hasn’t closed escrow yet, of course.  But other homes in the area have sold, even if we haven’t seen the signs.

812 S. Highland Ave.
Sold for $1,175,000 on June 27
4BR/3B/2,191 square feet
Notes:  One block over, and on a much busier street, this house must have been impressively remodeled to fetch such a high price.

639 S. Citrus Ave.
Sold for $1,005,000 on 4/11/08
3BR/2B/1,652 square feet
Notes:  This one is north of Wilshire.

936 S. Citrus Ave.
Sold for $970,000 on 6/24/08
2BR/1B/1,270 square feet
Notes:  As long as people pay a million bucks for tiny houses with one bathroom, there’s little hope for the rest of us.

California enacted a homeowner loan law this week, but it is not a loan bailout for homeowners upside down on their mortgages or behind in their payments. Proposals in these areas are going to have to clear many hurdles and are encountering a lot of opposition and resentment, concentrated in forums like stopthehousingbailout.com.

The new law described in the Los Angeles Times Greenspace blog allows cities and counties to make low-interest loans to homeowners for installation of solar panels and other energy efficiency improvements. Homeowners pass along the loan to a new owner if they sell, reducing their investment risk.

I’ve wondered when considering solar panels: how sustainable and environmentally friendly are the materials used to make them' A Pasadena Pundit post titled Solar Power is a Net Energy Sink, Not a Source, has an answer to that question from someone in Tasmania of all places (and you have to scroll down past the San Francisco Homeless post to find it).

What’s involved in installation' One blogger provided this detailed introduction, also mentioning she was employed by a commercial roofing corporation that can install solar panels along with other roof components.

What incentives do cities currently offer homeowners for installing solar systems' For Pasadena homeowners, they are listed here, along with links to more detailed information.

In Pasadena’s sunny Historic Highlands, there are many Craftsman-style homes with low-pitched roofs. I’m not a handyman or contractor, so I can’t say how easy solar retrofitting would be on any of these residences. Here are some sales and listing data from Redfin:

Sales data show 17 homes sold during the past three months in the immediate neighborhood at an average of $396 per sq.ft. This home, which sold for $520,000 and closest to the average on July 2, has 3 beds, 2 baths, and 1,293 square feet. The tax records show an assessment of $678 for the 2007 tax year, so it hadn’t changed owners in decades.

Active listings:

1255 E. Lexington Street
$755,000
3 bed/1.75 bath
2,136 sq.ft.
$363 per sq.ft.
On Redfin 44 days
This is a two-story bungalow built in 1913 with several recent upgrades.

1385 N. Hill Avenue
$625,000
5 bed/3 bath
2,176 sq.ft.
$276 per sq.ft.
On Redfin 102 days
This home was built in 1890 and sits on a large lot.

1100 E. New York Drive
$2,985,000
3 bed/3.5 bath
4,960 sq.ft.
$602 per sq.ft.
New Listing: on Redfin 1 day
This three-story 1905 Craftsman home last sold for $1,780,000 in 2006.

MLS #: MC6811928.

Prices continue to decline in the Washington, DC area as foreclosure activity increases, mortgage rates rise and the general economic situation declines. This housing bust is not over yet. Expect continued price declines over the coming years.

From our sister blog Investorazzi.com:

“Bill Gross And His Latest Investment Outlook”

'PIMCO estimates a total of 5 trillion dollars of mortgage loans are in risky asset categories and that nearly 1 trillion dollars of cumulative losses will finally mark the gravestone of this housing bubble.'

'Jim Rogers: Do As I Say, And As I Do'

'Rogers, who co-founded the Quantum Fund with legendary investor George Soros in the 1970s, has repeatedly said he believes China will be the next great country in the world.

'The best gift we can give our children is to let them learn Chinese and prepare them for the future'''

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Taking it down a few notches today, I enjoyed a nice cigar from the Dominican Republic this afternoon out on my balcony here in the Windy City. Kind of bummed out that one of my suppliers raised their prices, though. Too bad. I almost pulled a JFK and ordered a stockpile of cigars last year after Washington Democrats were looking to increase the tax cap from a nickel per cigar to $10 a stick— or 20,413%. Unbelievable. By the way, never heard of the JFK cigar story' Well, if you have time, I highly recommend you watch the following video (a little over 3 minutes long) of Pierre Salinger, JFK's secretary, telling the story (and other cigar-related ones)'

YouTube Video Link

While puffing away, I got the chance to listen to a portion of last weekend's “Financial Sense Newshour” broadcast. Jim Puplava and John Loeffler have been talking about a financial crisis window for a while now, which they expect to take place between 2009 and 2012. Puplava and Loeffler had this to say last weekend:

JOHN: So looking forward, say, 12 to 24 months, we would say, given where we're going, we can probably look towards higher gold and metals prices; there will be another money crisis ' another currency crisis ' and all it would seem like they're [Congress] doing right now is staving off the day of reckoning. Let's face it, we said that 2008, that's the ramp up to 2009 to 2012 ' it's accelerated a little more than I thought it would be and it's a little more violent than I thought it would be, but nevertheless we're still on that; and somewhere in that window, all of this stuff begins to fall apart and you can't tell what's going to trigger it, but it will go.

JIM: It's going to trigger. And I think that the thing that's scaring the heck out of them [Congress] is all of this is starting to unfold ' whether it's $4 gasoline at the pumps, headline inflation with foods, banks going under, stock market manipulation ' all of this ' and they're desperately just trying to buy time to get elected because you've got 535 people in Congress who are worried about keeping their jobs. And what I think is going to happen is as this worsens the country is going to lurch very hard to the left in the November election (we're going to get into this in the next segment) and then as a result of the policies that are going to put us in place, that is going to give us our great depression that I anticipate.

By 2010, the United States is going to be in a major depression.

And then, what is going to happen is we're going to lurch ' almost do a 180 degree turn ' and lurch very hard to the right as one disaster after another unfolds upon the country.

Great cigar, not so great forecast'

Source:

Financial Sense Newshour
3rd Hour, Part 2
FinancialSense.com, July 19, 2008

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Over the past several months, legendary investor Jim Rogers has made a few comments about a certain make of car— the Maserati. Now, it doesn't appear that Mr. Rogers dislikes Maseratis for any reason in particular. Rather, he's been mentioning the Italian manufacturer of racing and sports cars to make a point about how out of whack things have gotten down on Wall Street. Back on June 6, Rogers told Bloomberg in an interview:

You don't see any 29-year old cotton farmers driving around in Maseratis, but you do see a lot of 29-year olds on Wall Street driving around in Maseratis. This is not the way the world is supposed to work.

The CEO of Rogers Holdings said such a situation exists due to the tremendous excesses that have taken place in the financial communities over the past several years.

And it's not only Wall Street traders who have been associated with the exotic sports car. Investment bankers too. Yet, they almost came close to losing theirs a few months ago— if it weren't for their pals over at the Federal Reserve. Rogers told Bloomberg on March 17:

And here he [Fed Chair Ben Bernanke] goes and gives more of our money to Bear Stearns so these guys can continue to drive around in their Maseratis' The Federal Reserve is using taxpayer money to buy a bunch of Bear Stearns traders Maseratis.

Looks like Jim was right about Maserati being the vehicle of choice down on Wall Street. While surfing the web yesterday, I happened to notice that Bloomberg.com had posted a review of the $115,000 Maserati GranTurismo on their site. Bloomberg's Jason Harper wrote:

The Maserati GranTurismo delivers on a quality increasingly rare in the auto world: beauty. Put it against any dozen modern cars and the GT's supple lines, perfect swells and ideal dimensions will outshine them all.

At $115,000 it's not exactly a drop in the bucket, yet those exotic looks leave most people thinking it's as expensive as a Ferrari.

Don't fret, Wall Streeters. A few more taxpayer bailouts here, and some government interference/market manipulations there, and you'll have enough of Main Street's hard-earned cash to finally afford that Ferrari'

Jamiroquai, 'Cosmic Girl' (1996)
YouTube Video Link

Sources:

Jim Rogers Interview
Bloomberg News Video
Bloomberg, June 6, 2008

Jim Rogers Interview
Bloomberg News Video
Bloomberg, March 17, 2008

'Maserati GT, $115,000, Evokes Classic Beauty of Italian Coupes'
Jason H. Harper
Bloomberg, July 23, 2008

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Last Sunday, Kevin Hall from McClatchy Newspapers (the third largest newspaper company in the United States) talked about the direction of the U.S. housing market. He wrote:

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have suggested over the past year that an end is in sight. But with each prediction, things have grown worse. For many homeowners, the deep housing slump feels like a drop off a skyscraper. Every time another 15 floors have passed, there seems to be more room to fall.

Most of Hall's piece focused on research by Mark Vitner, a senior economist for Wachovia, and Mark Zandi, chief economist for Moody's Economy.com. Vitner told Hall:

I don't think we get strengthening in the housing market until late 2011 or 2012' I think we're somewhere between halfway and two-thirds of the way through the correction.

The Wachovia economist, who closely studies U.S. home price trends/sales and released a report back on July 14 entitled 'How Far Will Housing Prices Fall,' predicts that prices will fall 22% to 29% on average from their peak before a bottoming out occurs. The median home price has lost about 11% since peaking in October 2005.

The housing forecast from Mark Zandi, chief economist for Moody's Economy.com, is not much better. Zandi said:

My view is that we are two-thirds through the housing downturn, at least as measured by house price declines. The price declines began in late spring 2006 and will more or less come to an end in late spring 2009. The Fannie-Freddie debacle may push this out into the summer or even fall of 2009.

Zandi believes that unless the chaos in the financial sector is resolved, his forecast of a bottom in 2009 'will prove too bright.'

Identifying the bottom is even more trickier when historical trends no longer apply to a housing market that's experiencing an unprecedented decline. Hall wrote:

Until the current downturn, median home prices had declined more than two months in a row only once, in 1990. But the decline now has lasted 22 straight months.

Don't hold your breath though. Someone will be waiting in the wings ready to give anyone who'll listen an unhealthy dose of jawboning about how a housing recovery is just around the corner.

Source:

'Housing prices haven't hit bottom yet'
Kevin G. Hall
McClatchy Newspapers, July 20, 2008

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I know CNBC has the reputation of being a cheerleader for stocks, but really now. The following appeared on the CNBC website this morning:

U.S. crude oil inventories fell much more than expected last week, keeping downward pressure on already weak oil prices.

Crude inventories fell by 1.6 million barrels for the week ended July 19, the Energy Information Administration reported' On average, analysts were predicting crude inventories to have fallen by 700,000 barrels.

So, when did declining supply ever put 'downward pressure' on the price of oil, or any other commodity'

To be fair, I can't directly fault CNBC for this. Their source for the material was Reuters.

Probably just a typo then, right. Right'

Source:

'Oil Hovers Near $126 after Big Drop in Crude Inventories'
CNBC/Reuters, July 23, 2008

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Yesterday, I noted in part 1 that Senate Democrats, led by Senators Byron Dorgan and Harry Reid, rolled out the 'Stop Excessive Speculation Act' Tuesday morning to scare off crude oil speculators, who they blame for high prices.

Crude for August delivery, scheduled to expire Tuesday, dropped $3.09, or 2.3%, to settle at $127.95 a barrel on the New York Mercantile Exchange, the lowest close since June 5.

Ironically, later in the day a task force chaired by the Commodities Futures Trading Commission (the agency assigned with investigating/punishing speculators in the bill) found that fundamental supply-and-demand factors, rather than speculators (as the politicians claimed), were most likely to blame for the high prices.

CNN Money picked up on the findings, which you can watch here. The segment lasts 1 minute 46 seconds.

Source:

'CFTC: No oil market manipulation'
Video
CNN Money, July 23, 2008

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From all the action coming out of the nation's capital today, you'd almost think the various government entities in Washington coordinated efforts against the oil, dollar, and housing bears. Almost.

First, it was crude oil. Senate Democrats, led by Senators Byron Dorgan and Harry Reid, rolled out the 'Stop Excessive Speculation Act' to scare off oil speculators, who they blame for high prices.

Crude for August delivery, scheduled to expire Tuesday, dropped $3.09, or 2.3%, to settle at $127.95 a barrel on the New York Mercantile Exchange, the lowest close since June 5.

Ironically, later in the day a task force chaired by the Commodities Futures Trading Commission (the agency assigned with investigating/punishing speculators in the bill) found that fundamental supply-and-demand factors, rather than speculators (as the politicians claimed), were most likely to blame for the high prices. Doh!

Next, dollar bears were targeted. Reuters reported:

The dollar rallied Tuesday, after a Federal Reserve official suggested that U.S. rates may have to rise to stem inflation and a top Treasury official repeated that a strong currency is in the interest of the country.

Treasury Secretary Henry Paulson reiterated on Tuesday that a strong dollar is important to U.S. interests and the underlying strength of the economy, as well as policies aimed at shoring up confidence, would be reflected in currency markets. At the same time, Philadelphia Fed President Charles Plosser said rising inflation could force the Fed to start raising interest rates even before labor and financial markets recover.

Gold for August delivery dropped $15.20 to end at $948.50 an ounce on the New York Mercantile Exchange.

Rising interest rates' Strong dollar policy' Looks a lot like jawboning to me. But don't take my word for it. On July 15, Reuters ran a piece about legendary investor George Soros. From the interview:

All told, Soros said Ben Bernanke, chairman of the Federal Reserve, is in a bind.

'When he recognized the seriousness of the credit crisis, he acted very radically lowering interest rates and he used the tools that are at his disposal,' Soros said. However, now the 'armory' is depleted, he said adding that Bernanke can't lower interest rates because of the effect it would have on the dollar and he can't raise interest rates because of the looming recession. Soros said.

'Therefore, his options are limited ' he is boxed in.'

And how many times have we heard about this supposed 'strong dollar policy' of ours' Actions speak louder than words, right' Back on March 17, Soros' former partner, Jim Rogers, said during a Bloomberg Television interview:

Now, please, do we even bother reporting that anymore' Poor Hank Paulson, had a reasonable education, and a reasonably-good career, head of Goldman Sachs, now he goes around the world making a fool out of himself. Goes around saying we want a strong dollar, the next day he goes to China and says we want a weak dollar, and then he goes to Japan and says we want a weak dollar. I mean, you have to feel sorry for the guy. At least, I do.

Finally, it was housing naysayers who fell under the gun. From the CNBC website this afternoon:

Treasury Secretary Henry Paulson said America's housing market could turn a corner and begin recovering within months, but it will take longer to resolve all housing-related problems.

'Obviously, it will go on beyond months with some of the issues in the housing market, but I believe we can get to the point within months where we turn the corner on housing,' Paulson said in a televised interview with Fox Business Network.

Sound familiar to anyone' From my post 'Paulson Weighs In On Housing' from July 2, 2007:

Today, U.S. Treasury Secretary Henry Paulson spoke to Reuters about a number of economic issues, including housing. Paulson said the U.S. economy is healthy, despite problems with the subprime mortgage sector. The former chairman of Goldman Sachs stated that the downturn in the housing market is 'at or near the bottom. It's had a significant impact on the economy. No one is forecasting when, with any degree of clarity, that the upturn is going to come other than it's at or near the bottom.' Beyond subprime mortgage woes, Paulson declared that the financial markets looked sound. He said, 'Markets are volatile. I haven't seen a single thing that surprises me ' it's hard to surprise me.'

DJIA down 1,933 points since then, S&P 500 down 243 points, global credit crunch, $453 billion of write-downs, Bear Stearns, IndyMac, Fannie Mae, Freddie Mac' surprise!

Sources:

'Dollar Jumps on Paulson, Plosser Comments'
Reuters, July 22, 2008

'Soros says Fannie, Freddie crisis not the last'
Jennifer Ablan
Reuters, July 15, 2008

Jim Rogers Interview
Bloomberg News Video
Bloomberg, March 17, 2008

'Paulson: Housing Market Could Turn Corner Soon'
CNBC, July 22, 2008

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Earlier today, CNN Money's Scott Anderson wrote about new legislation introduced by Senate Democrats that is meant to 'crack down' on oil speculators, who they claim are responsible for high crude oil prices. The bill, known as the 'Stop Excessive Speculation Act,' is sponsored by Senator Byron Dorgan (D-ND) and Senate Majority Leader Harry Reid (D-NV), along with other Democrats. According to Anderson:

It would provide more resources and authority to the Commodities Futures Trading Commission to detect and punish speculation, stop speculators from using foreign markets to manipulate the price of oil in the United States, require more transparency in oil markets and limit the trading of market players who do not intend to take delivery of the oil they purchase.

In particular, the bill will give the CFTC greater power to regulate the 'swap' market for futures and differentiate between 'legitimate' and 'illegitimate' hedge trading that, the Democrats say, has lead to increased prices.

Well, a test vote on the legislation took place today, with the result being 94-0 in favor of. At this point, it’s not clear when a final vote would take place. Senator Dorgan remarked:

First things first. If you are running a race with hurdles, jump the first hurdle first. The reason we have oil at $130, $140, $145 a barrel - like a roman candle going up, up, up - is because we have excessive, relentless speculation in these markets' Nothing in supply and demand in the last year justifies the price of oil.

Now, here's where it gets funny'

From the Associated Press Tuesday afternoon:

A federal task force set up to examine the sharp run-up in oil prices says in an interim report that fundamental supply-and-demand factors are most likely to blame…

The Interagency Task Force on Commodity Markets, chaired by the Commodity Futures Trading Commission, was formed last month to examine investment practices and fundamental market factors.

I recall something that Jim Puplava said this past weekend on his show 'Financial Sense Newshour.' He said:

We're posturing here, rather than dealing, and that's why we're going to be heading into a crisis. Instead of trying to solve the crisis, it's like Matt [Simmons] said- they're on a witch hunt. You've seen it. They've tried to blame it on the weather, the war, the dollar, the oil companies, and now, the latest witch hunt is speculators. And, instead of solving the problem, they're just making the problem worse, which is why we see a full-blown crisis in the year ahead.

Maybe Congress should focus on something they're good at, like conducting hearings on steroids in Major League Baseball'

Sources:

'Democrats: Crackdown on oil speculators'
Scott Anderson
CNN Money, July 22, 2008

'Fundamentals led to $130 oil ' report'
Associated Press, July 22, 2008

Financial Sense Newshour
3rd Hour, Part 1
FinancialSense.com, July 19, 2008

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Yup. You heard right. The U.S. government is $53 trillion in debt, factoring in long-term liabilities. This translates to $455,000 per U.S. household. The San Francisco Chronicle's Carolyn Lochhead wrote last Thursday:

As the Bush administration proposes backstopping mortgage giants Fannie Mae and Freddie Mac with a $300 billion line of credit and Congress contemplates another economic stimulus, the question is who will bail out the government'

'People seem to think the government has money,' said former U.S. Comptroller General David Walker. 'The government doesn't have any money.'

A rare consensus has developed across the political spectrum that the government's own fiscal affairs are precarious, with an astonishing $53 trillion in long-term liabilities, according to the Government Accountability Office.

To put that number in human terms, the debt has reached $455,000 per U.S. household. As that debt grows, the United States increasingly relies on foreigners, including China and Middle East oil producers, for financing.

'The factors that contributed to our mortgage-based subprime crisis exist with regard to our federal government's finances,' said Walker, now head of the Peter G. Peterson Foundation, a group established to raise alarms about the nation's budget. 'The difference is that the magnitude of the federal government's financial situation is at least 25 times greater.'

According to Lochhead, the federal government's finances are in worse shape than annual budgets show. This is due to the U.S. government not being required to state its long-term obligations. And the situation is about to become a crisis. She wrote:

This year's presidential election coincides with the first retirements of the 78 million people born between 1946 and 1964. The first of this Baby Boom generation may now collect Social Security. In three years, they will join Medicare, the giant health care program whose finances are commonly described as out of control. Medicare accounts for the bulk of the nation's long-term liabilities.

According to the Chronicle, current liabilities total $6.7 million for Social Security and $34.1 trillion for Medicare.

When will the financial meltdown occur' According to Kent Smetters, an economist at the Wharton School of Business at the University of Pennsylvania and a former Bush Treasury official:

I believe we could have a financial crisis like we've seen in South America or Asia. It could easily happen, and under current policy will happen in the United States. People say, 'Gee, give me a date.' Obviously, that's impossible, but the longer we wait, the higher the probability. Could it happen in the next decade' Absolutely.

In 1802, President Thomas Jefferson said to Treasury Secretary Albert Gallatin:

We might hope to see the finances of the Union as clear and intelligible as a merchant’s books, so that every member of Congress and every man of any mind in the Union should be able to comprehend them, to investigate abuses, and consequently to control them.

Is it just me, or are we doing a lot of things these days the Founding Fathers warned against'

Source:

'Concern grows over a fiscal crisis for U.S.'
Carolyn Lochhead
San Francisco Chronicle, July 17, 2008

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We must be nearing the end. Earlier tonight, I was watching a local news station here in Chicago when they did a segment on the new Black Canary Barbie Doll that is scheduled to be released in September. And just why is a grown man talking about Barbie dolls' Well, take a look for yourself'

Definitely not the same Barbie the girls were playing with when I was young. According to BarbieCollector.com:

DC Comics super heroine Black Canary is known for her martial-arts skills and her 'Canary Cry' ' a high powered, sonic scream with the ability to shatter objects and incapacitate villains. Barbie doll captures this super heroine's essence, wearing her signature black 'leather' bodysuit and jacket, patterned tights, and black boots with 'golden' details. Long honey blond hair with bangs and black gloves with 'golden' details complete the look.

Tights' Try fishnets. The station's affiliate in Southern California interviewed a few people about Barbie's new look. The words 'tramp,' 'Goth,' and 'S&M' came to mind. One woman mentioned that the toy company was trying to get the young 'handlers' of Barbie to grow up too soon.

What's next for the product line' Transvestite Barbie'

Dr. Frank-N-Furter
'Rocky Horror Picture Show' (1975)

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Does anyone still believe in the economic data being churned out by the federal government' From MarketWatch last Thursday:

Brian Pretti, chief investment strategist for East Bay-based Mechanics Bank, has one word for those who keep saying the nation is not yet in a recession: 'Bunk.'

'We are still wringing out the excesses of the financial sector,' Pretti says, 'and not only is the period of reconciliation–or deleveraging–not over, but we will be living with it for some time to come. We're in a recession; there's no other word for it.”

Then why don't the numbers tell the story'

'Officially, a recession is defined as two consecutive quarters of negative, inflation-adjusted, gross domestic product (GDP) growth. But if you use the wrong inflation assumptions (called the deflator in the GDP reports), the conclusions are wrong, too.'

To illustrate, Pretti points to recent deflator factors used by the Fed to estimate GDP. 'For the first quarter 2008, it was 2.7%, for the fourth quarter 2007, 2.4%, and 1% for third quarter 2007,' he says. 'Where did the government come up with those numbers that are quite different than the CPI numbers' Since September 2007, the price of crude oil is up 100%; retail gasoline up 69%; natural gas 95%; and the Commodity Research Bureau index for foodstuffs is up 27%. The true nature of inflation in the US has been anywhere between 4-5%, and that means we've already been in a recession for a number of quarters.'

The year-over-year inflation as measured by the Consumer Price Index rests at 4.9% as of the June report, which was released yesterday. It highlights Pretti's point–and calls into question the prior figures that have been used. 'No wonder the financial markets aren't buying the idea that the economy is 'holding up,'' Pretti says. 'Their negative behavior is telling us headline GDP numbers may not exactly be reflecting reality!'

Source:

'Wishful Thinking Aside, It's a Recession, Folks'
MarketWatch, July 17, 2008

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From Ben Stein, a Yahoo! Personal Finance 'Financial Advice Expert,' this past Friday:

Now that the three major U.S. stock indexes have hit bear market levels what shall we do' Well, let's ponder….

First of all I never thought things would get this bad, and I still think the market's reaction is overdone, to put it mildly.

The aggregate losses in the U.S. stock market since the peak last October have totaled roughly $3.5 trillion dollars. Not billion. TRILLION. That is, the speculators and traders have knocked roughly $3.5 trillion off of the value of all publicly-traded stocks in this country'

Another go as a teacher in Ferris Bueller 2 probably doesn't sound too bad right now, does it'

Art Insitute Of Chicago Scene
“Ferris Bueller’s Day Off” (1986)

Source:

'Bear Market Advice'
Ben Stein
Yahoo! Finance, July 18, 2008

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This morning, I read a piece by Marshall Eckblad of the Dow Jones Newswires on the CNN Money website. Bank of America Corp. Chief Executive Ken Lewis shared his outlook on the U.S. economy and housing market earlier today, after which Eckblad wrote:

Chief Executive Ken Lewis said Monday that the U.S. economy would see 'sluggishness' through the rest of 2008 but eventually would stabilize this year and then begin its recovery in the early part of next year. Lewis made the comments during a conference call with analysts to explain the bank's second-quarter earnings results'

Lewis said one component of those optimistic forecasts is his projection that the peak of the housing crisis is growing closer. 'We see housing price depreciation being mostly over this year, maybe going into next year,' Lewis said.

Sound familiar' It should. Consider the following from Mr. Lewis:

In an interview with Bloomberg on Tuesday, Bank of America's Chief Executive Officer Kenneth Lewis said the U.S. economy will pick up speed due to a recovery in the housing sector. Lewis predicted, 'You'll see the economy begin to pick up in the third and fourth quarters,' and the slowdown in homes sales is 'just about to be over.' He went on to say that the housing market will begin to improve in the next month or two, forestalling a recession, according to Bloomberg. Lewis believes that job growth will lift home prices and reinvigorate construction by early 2008.

I wrote this over a year ago on June 21, 2007.

The Wall Street Journal's Mark Gongloff pointed out yesterday that some individuals keep calling for a turnaround in the economy, housing market, what have you, only to be proven wrong time and time again. Gongloff said:

Like Chicago Cubs fans always looking to the next season, there are analysts who have been calling for a turnaround for months despite evidence to the contrary, yelling their hearts out for what so far has been a losing cause.

According to their theory, this has all been a fever dream, a midcycle slowdown like the one the economy suffered in 1998, when stocks briefly swooned, but the technology bubble quickly went right back to inflating. This is the same crowd who dismissed the collapse of the housing market because it's just a small part of gross domestic product and who said the subprime mortgage meltdown would be no big deal.

And now, $400 billion in losses and one bear market later, they're still calling for the rosy outcome'

Maybe these individuals should pay closer attention to the evidence. Or use better evidence. Take FOXBusiness.com's Brian Sullivan for example. This morning, he wrote 'Still Looking for the Recession' morning and said:

I went to Atlantic City this weekend for my birthday and stayed at the new Water Club by Borgata'

Whoa! You lost me at Water Club by Borgata. Atlantic City's first cosmopolitan hotel, which bills itself as 'the ultimate resort destination,' charges $479 a room on Fridays and $529 on Saturdays during the summer.

Two problems with this piece of 'evidence.' One, the place is new. A good number of East Coasters, like their counterparts along the Pacific, have a reputation for being trend-followers. Let me guess, the place was probably packed, right'

Two. If you can afford room rates like these, it would probably require a great deal more economic pain to cancel your stay, as opposed to what Joe Six-Pack and Suzy Soccer Mom could tolerate. I don't think we're at that point (yet).

From the reports I've been getting, wealthy Americans have been doing okay when it comes to spending and buying homes. As a matter of fact, I for one believe the purchase of high-end properties by the rich is what's been skewing median prices upwards in some areas across the country. It's not that the housing market is getting any better— it's just that the rich are buying (what they see as) bargain-priced properties.

One more thing. $1,008 a weekend for a hotel room' As long-time announcer Harry Caray of the Chicago Cubs used to say, “Holy Cow!”

Sources:

'2nd UPDATE: Bank of America CEO Sees Economy Rebound In 2009'
Marshall Eckblad
CNN Money, July 21, 2008

'The Economy: How Bad Can It Get''
Mark Gongloff
Wall Street Jorunal, July 20, 2008

'Still Looking for the Recession'
Brian Sullivan
FOXBusiness, July 21, 2008

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From our sister blog Investorazzi.com this morning:

'Marc Faber Says Global Economic Expansion Coming To End'

Bloomberg caught up with Marc Faber, aka 'Dr. Doom,' in Sydney earlier today. The editor of The Gloom Boom & Doom Report said that the global economy has experienced a synchronized boom since 2001, which is most unusual. When it comes to an end Dr. Faber predicts the bust will affect all countries… as well as commodity prices.

'Jim Rogers Warns Of ‘Perilous Times’ In The Economy'

'I'm afraid, things are going to be better outside of America than inside America. I don't particularly like saying that, but one has to accept facts, and face facts, if one's going to survive.'

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More on the foreclosure front- a lot more: [Thanks G!]

July 25 (Bloomberg) — U.S. foreclosure filings more than doubled in the second quarter from a year earlier as falling home prices left borrowers owing more on mortgages than their properties were worth.

One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That was an increase of 121 percent from a year earlier and 14 percent from the first quarter, RealtyTrac Inc. said today in a statement. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005.

“Rising foreclosures are putting downward pressure on prices, increasing the possibility that homeowners will go upside- down on their mortgages,” said Sheryl King, chief U.S. economist at Merrill Lynch & Co. in New York. “That will cause more losses in mortgage portfolios and less willingness from investors to securitize mortgages and therefore fewer mortgages.”

Which would mean more foreclosures.  The cycle continues.

Today we turn to CNBC’s Jim Cramer for our morning dose of twisted logic:

The Federal Housing Authority will put $300 billion to work to help homeowners with exotic loans and that will put a bottom in housing. “I was the first guy that said torch your house for the insurance money. I am now telling you that between now and the next six months you have to buy a house.”

Anyone ready to pull the trigger'

It’s Friday.  Yesterday financials had their largest decline in eight years, tomorrow the Senate votes on the housing bill, and today we try and make sense of it all.  Personally, I thought the most sensible thing I heard all week was Elizabeth McDonald of Fox Business quoting Ronald Reagan:

“In this present crisis, government is not the solution to our problem, government is the problem… It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government.” – Ronald Reagan, Inaugural Address, January 20, 1981

Anything else make sense this week'  Any new we should be aware of'  Insights' Links'

This is an open thread- so let’s see what you’ve got.

Whatever you think of Ron Paul, I think you’ll find this interesting: [Thanks L!]

Thank you Metro for forwarding this unbelievably sad story:

Police said that Carlene Balderrama used her husband’s high-powered rifle to kill herself Tuesday afternoon, shortly after faxing the letter at 2:30 p.m.

The mortgage company called police, who found Balderrama’s body at 3:30 p.m. The auction was scheduled to start at 5 p.m. and interested buyers arrived at the property in Taunton, about 35 miles south of Boston, while Balderrama’s body was still inside, according to Taunton police chief Raymond O’Berg.

Police did not immediately release the name of the mortgage company. O’Berg said Balderrama’s fax read, in part, "By the time you foreclose on my house I’ll be dead."

O’Berg also said a suicide note found next to Balderrama told her husband, John, and 24-year-old son to "take the (life) insurance money and pay for the house."

The article goes on to say that the mortgage hadn’t been paid for 42 months, and her husband had no idea- she had been shredding all the correspondence from the lender.

We’ve had a long running discussion on Doom about the morality of walking away.  If ever there was a time to walk, this was it.  I know I’d rather have all my family under a freeway overpass somewhere than lose a loved one trying to save the house. I suspect Mr. Balderrama feels the same.

Back in 2006, when housing was really starting to cool in Phoenix, a lot of construction shifted from residential to commercial.  Many people in real estate assured us that commercial projects would not take the hits that we were seeing in the residential market.    Since then, we’ve watched as a large number of commercial/office projects have gone in, including many that were planned to serve developments that have been cancelled or never filled in.  Now commercial and office rents are starting to suffer: [Thanks L!]

Soaring home-foreclosure rates, abandoned suburban development tracts and slumping home prices have made Phoenix a symbol of the nation’s housing crisis. Now, the Valley of the Sun also can claim a commercial real-estate market that is one of the most badly burned by the residential flameout.

This year, the Phoenix metropolitan area’s average annual office rents are expected to fall 5.6% from 2007 while retail rents will drop 6%, the steepest percentage declines of the 54 markets surveyed by Property & Portfolio Research Inc., a Boston-based real-estate research firm. The warehouse and apartment sectors are expected to log the second-worst rent declines. All sectors will have to absorb a slew of newly completed buildings before the supply begins to taper off significantly next year.

I disagree with the statement that these buildings will "have to be absorbed". These excess buildings can stand around "unabsorbed" like the housing inventory–taking up space and driving down prices.

This ought to be way off-topic for us, but since this strange provision got slipped into the housing bill, we are going to ask "Why"'

Here’s the Senate summary: [The wording is going to make your eyes glaze over, but honest, this is worth staying awake for]

Revenue Provisions

Payment Card and Third Party Network Information Reporting. The proposal requires information reporting on payment card and third party network transactions. Payment settlement entities, including merchant acquiring banks and third party settlement organizations, or third party payment facilitators acting on their behalf, will be required to report the annual gross amount of reportable transactions to the IRS and to the participating payee. Reportable transactions include any payment card transaction and any third party network transaction. Participating payees include persons who accept a payment card as payment and third party networks who accept payment from a third party settlement organization in settlement of transactions. A payment card means any card issued pursuant to an agreement or arrangement which provides for standards and mechanisms for settling the transactions. Use of an account number or other indicia associated with a payment card will be treated in the same manner as a payment card. A de minimis exception for transactions of $10,000 or less and 200 transactions or less applies to payments by third party settlement organizations. The proposal applies to returns for calendar years beginning after December 31, 2010. Back-up withholding provisions apply to amounts paid after December 31, 2011. This proposal is estimated to raise $9.802 billion over ten years.

A more intelligible summary is here from William Johnson, who runs the Voice of San Diego Real Estate blog, referring to HR 3221:

This bill has a provision that reporting would be required by credit card companies and electronic payment processors, such as PayPal, to file aggregate transaction reports with the IRS listing their total annual payments to individual merchants who receive more than $10,000 and that conduct more than 200 transactions each year. ***

The Bill requires  transactions be reported including the reporting of the identity of the receiving party and their taxpayer number.  This burdens banks, credit card companies and any financial arrangement company, will be more than onerous and likely to cause an increase in every online purchase. That is going to translate to higher costs on everything- aside from the issue of gathering all the consumer purchasing history.

It will be interesting to see what lobbies come forth to oppose this inclusion and if they will be successful in removing this provision from the final bill before passage. I scratch my head in wonder as I ponder what this sort of information acquiring has to do with foreclosures and the attempt to minimize them- which was supposedly the intent of the bill. I would also love to know who proposed such a thing in the first place. Getting that legislator some well deserved publicity would be interesting as well. If this sort of thing is so desirable for passage, it should be in a stand alone bill, then debated and passed or not passed on its merits. Hiding it in another bill should not be allowed.

[***Note:  Johnson's original post stated that all online purchases would be reported, which is incorrect.  He has edited his post, and this has been edited accordingly.]

I agree 100% with Johnson. This provision has no place in a housing bill. [Or any bill, for that matter-- but I digress.]

It’s bad enough that Congress is rushing to put this lender bailout bill into law, without taking away our rights against unlawful search while they are at it.

If you didn’t see a reason to oppose this bill before, maybe you do now.

As had been expected, the death of Scott Coles, who until his death was the CEO of Mortgage Ltd., has been ruled a suicide by the Maricopa County Medical Examiner:

Coles overdosed on a combination of alcohol, opiate Oxycodone and the sleep prescription drug Ambien, according to the report. His blood alcohol level was 0.24 percent.

Coles, 48, was found in the master bedroom of his home in the Arcadia-area of Phoenix during the afternoon of Monday, June 2. He was found lying in bed, wearing a black tuxedo complete with cufflinks, a white tie, black socks but no shoes, a watch and his wedding ring. He had a cardboard picture of his wife Ashley Coles next to him. There was also a copy of an email with a Shakespeare quote found on the bed

Mortgages Ltd. used investors’ money to make loans at high interest rates to commercial real-estate developers. Developers who took out loans had often been turned down by banks or needed cash quickly for a project and were willing to pay the higher interest rates.

Mortgages Ltd. was forced into bankruptcy by some of its creditors three weeks after Cole’s suicide. Several high-profile developments in the Valley that relied on Mortgages Ltd. loans are now on hold, and thousands of Mortgages Ltd. investors are fighting to get their money back.

I thought I had done my last post for the day, but I had to post this one:

I don’t think Wall Street was drinking alone.

For those of us who took comfort in a presidential veto for the new housing bill- we can start feeling uncomfortable: [Thanks L!]

WASHINGTON (AP) — President Bush dropped his opposition Wednesday to legislation aiming to calm the chaotic housing market despite his objections to a $3.9 billion provision. The House was expected to vote on the bill Wednesday, and it could become law as early as this week.

Under the bill, the government would help struggling homeowners get new, cheaper loans and would be allowed to offer troubled mortgage giants Fannie Mae and Freddie Mac a cash infusion.

The Bush administration and lawmakers in both parties teamed to negotiate the measure, which pairs Democrats’ top priorities — federal help for homeowners facing foreclosure and $3.9 billion for neighborhoods hit hardest by the housing crisis — with Republicans’ goal of reining in mortgage giants Fannie Mae and Freddie Mac while reassuring financial markets of their stability.

Bush had objected to the $3.9 billion provision in the measure, saying that it was aimed at helping bankers and lenders, not homeowners who are in trouble.

Taxpayers- get out your checkbooks and find your pens.  This is about to get expensive:

It hands the Treasury Department the power to extend the government-sponsored mortgage companies an unlimited line of credit and buy an unspecified amount of their stock, if necessary, to prop up Fannie Mae and Freddie Mac, two companies chartered by Congress. The two companies back or own $5 trillion in U.S. mortgages — nearly half the nation’s total.

"The positive aspects of the bill are needed now to increase confidence and stability in the housing and financial markets," Perino said. "While we have concerns with other aspects of the bill, it is important that the new authorities are put in place promptly. And so President Bush will accept Secretary (Henry) Paulson’s recommendation to sign the bill."

Sigh.

However hard it is for builders to sell a condominium these days, it gets a heck of a lot harder when the development isn’t finished.  More  developers are seeing their funding yanked in the middle of a project- and they are suing their lenders:  [Thanks L!]

The love affair between banks and builders during the housing boom has deteriorated into a series of divorces now spilling into the courts.

As lenders rush to curtail their real-estate exposure and preserve sorely needed capital, they are triggering lawsuits from builders that say the banks have unfairly cut off their construction financing, stopped their projects midstream and forced their companies to the brink of bankruptcy.

"Lender-liability lawsuits are coming. It’s only just beginning," says Michael Hackard, a lawyer in Sacramento, Calif., who focuses on real-estate law. "There are going to be builders who argue that the lender forced me into insolvency by not acting in good faith."

Certainly how viable some projects are, even after completion, is questionable. Lenders are under pressure to cut their losses, and are probably trying to avoid "good money after bad". In other instances, lenders lost the wherewithal to continue promised funding.

Whatever the lenders reasons may be, expect more of them to be pursued by developers in court.

With so many lenders looking shaky these days, it brings up the question of how well prepared the FDIC is to deal with lender failures.

That was a question that I asked, and posted on, back in July of 2006.  I noted at the time that an FDIC paper written in 2004 showed only a mild concern with the risks of falling home prices, but a surprisingly positive attitude towards lenders encouraging borrowers to borrow the maximum amount possible.  Apparently the wave of refinancing that occurred after interest rates lowered was nearing an end, and lenders were looking for new ways to increase profitability.

I don’t believe the FDIC prepared adequately for a risk they didn’t see coming.

I rarely recycle a post, but I thought this one bears repeating. [Be sure and check out John's comment #1!]

************************************************

How Vulnerable is the FDIC (and the US Taxpayer) Today' [Originally posted July 5, 2006]

In a fascinating report "Focus This Quarter" for Winter 2004, the FDIC looked in their crystal ball and saw 2006.  It would have been comforting to see the FDIC accurately assess the difficulties, had they not appeared to encourage risky loan practices. The report specifically delt with HELOC concerns (Home Equity Line of Credit), but adressed concerns with the mortgage industry in general as well.  They began the report with:

As a component of the mortgage lending business, home equity lending has traditionally been characterized by low credit losses. However, recent trends reveal a rapidly changing landscape in the way that home equity lines of credit (HELOCs) are used by household borrowers and structured by mortgage lenders. Home equity debt is rapidly growing as a percentage of total household indebtedness, in part as a result of new loan programs that make HELOCs more accessible to borrowers, including groups of people who previously would not have had access to this product.

Amid these longer term changes in the marketplace, the current environment offers the additional challenges of rising short-term interest rates and the likelihood that home price gains will eventually level off in some of the nation’s pricier home markets.  As a result of these trends, it is increasingly uncertain whether the