Sub-prime Meltdown Hits Thailand With Force

[cclub75]

I found a rather disturbing news (in my opinion). Friday, after the closing of the markets, the FED published a copy of a letter sent on august 20.

Basically : BOA and Citi banks can lend more... of your money... to their brookerage subsidiaries...

It means : the credit crunch is so severe, that now they have to play, more, with their deposits. I mean : your deposits.

Fed bends rules to help two big banks

If the Federal Reserve is waiving a fundamental principle in banking regulation, the credit crunch must still be sapping the strength of America's biggest banks. Fortune's Peter Eavis documents an unusual Fed move.

FORTUNE Magazine

By Peter Eavis, Fortune writer

August 24 2007: 5:09 PM EDT

NEW YORK (Fortune) -- In a clear sign that the credit crunch is still affecting the nation's largest financial institutions, the Federal Reserve agreed this week to bend key banking regulations to help out Citigroup (Charts, Fortune 500) and Bank of America (Charts, Fortune 500), according to documents posted Friday on the Fed's web site.

The Aug. 20 letters from the Fed to Citigroup and Bank of America state that the Fed, which regulates large parts of the U.S. financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally-insured banks can do with their brokerage affiliates. The exemption, which is temporary, means, for example, that Citigroup's Citibank entity can substantially increase funding to Citigroup Global Markets, its brokerage subsidiary. Citigroup and Bank of America requested the exemptions, according to the letters, to provide liquidity to those holding mortgage loans, mortgage-backed securities, and other securities.

To continue here

The letter on Fed's website

http://www.federalreserve.gov/boarddocs/le...a/20070820a.pdf

[Carmine6]

A little alarmist of that Fortune writer I think. The whole point of the discount rate cut was to make it competitive enough that those funds would get out in the market. But it does nothing if banks don't borrow the money and get it to those who need it. The short term lending is going to be oversecured and the money is going to go out short term. If it carries on a long time, then it'd be worrysome. The Fed is trying to get the most bang for their buck from the discount rate cut and get liquidity to where it is needed without using a broad brush.

The next step if it doesn't work is to quickly lower the Fed funds rate. That has economy wide implications and a could lead to higher inflation. It'd basically be fixing the liquidity situation by juicing the economy, instead of just fixing the liquidity problem. If the Fortune writer thinks this short term waiver can add nervousness to the market (last paragraph), what does he think of a rate cut before the next normally scheduled Fed meeting? That could send the signal that things are worse than people think.

Citibank and B of A are going to make some good interest income near term.

Here's the bank insder's opinion on the current situation:

Insiders' Buying by Banks, Insurers Rises to Highest Since 1995

By Daniel Hauck and Michael Patterson

Aug. 27 (Bloomberg) -- Not since 1995 have so many chief executive officers of so many financial firms and their insiders bought so many shares in their companies as in August, when the market swooned.

Stock purchases by executives at banks, consumer lenders and insurers in the Standard & Poor's 500 Index climbed this month to the highest in 12 years, data compiled by Bloomberg show. That's the strongest ``buy'' signal, according to analysts at Muzea Insider Consulting Services LLC and InsiderScore.com, which work for hedge funds tracking executive trading patterns. ..

remainder of article:

http://www.bloomberg.com/apps/news?pid=206...&refer=news

[cclub75]

A little alarmist of that Fortune writer I think. The whole point of the discount rate cut was to make it competitive enough that those funds would get out in the market. But it does nothing if banks don't borrow the money and get it to those who need it. The short term lending is going to be oversecured and the money is going to go out short term. If it carries on a long time, then it'd be worrysome. The Fed is trying to get the most bang for their buck from the discount rate cut and get liquidity to where it is needed without using a broad brush.

Sure. That's the optimistic interpretation.

However, I think there is one important point : we are talking about an authorization to increase the flows from retail bank (who used the so called "window of discount rate" of the FED) to.... their brookerage subsidiaries.

And we could note that, what a coincidence, the "rebound" on the markets started last week.

My point is : liquidity for what and for who ? That's the whole question. To provide loans and cash flows for the day to day normal business, or to just cover losses on the markets, or to intervene in the market by buying stocks ?

I mean : one important factor of the current crisis is confidence. I think it's fair to say that such move from the FED, a little bit behind the back, doesn't contribute to confidence.

Furthermore : how much BoA and City have actually borrowed from the FED with the discount rate ?

On one hand : they said that they took 500 millions USD. "We have no current plans to use the discount window beyond the $500 million announced earlier this week."

And the other hand, they now can lend up to 25 % of their capital to their subsidiaries. Total amount = 50 billions USD !

From my point of view, it's a total different level, as for the amount and as for the nature of the money.

The regulation was 10 % maximum. Let's say 10.01 % could have been enough to use the 500 millions of the FED. So why 25 % ?

[Carmine6]

A little alarmist of that Fortune writer I think. The whole point of the discount rate cut was to make it competitive enough that those funds would get out in the market. But it does nothing if banks don't borrow the money and get it to those who need it. The short term lending is going to be oversecured and the money is going to go out short term. If it carries on a long time, then it'd be worrysome. The Fed is trying to get the most bang for their buck from the discount rate cut and get liquidity to where it is needed without using a broad brush.

Sure. That's the optimistic interpretation.

However, I think there is one important point : we are talking about an authorization to increase the flows from retail bank (who used the so called "window of discount rate" of the FED) to.... their brookerage subsidiaries.

And we could note that, what a coincidence, the "rebound" on the markets started last week.

My point is : liquidity for what and for who ? That's the whole question. To provide loans and cash flows for the day to day normal business, or to just cover losses on the markets, or to intervene in the market by buying stocks ?

I mean : one important factor of the current crisis is confidence. I think it's fair to say that such move from the FED, a little bit behind the back, doesn't contribute to confidence.

Furthermore : how much BoA and City have actually borrowed from the FED with the discount rate ?

On one hand : they said that they took 500 millions USD. "We have no current plans to use the discount window beyond the $500 million announced earlier this week."

And the other hand, they now can lend up to 25 % of their capital to their subsidiaries. Total amount = 50 billions USD !

From my point of view, it's a total different level, as for the amount and as for the nature of the money.

The regulation was 10 % maximum. Let's say 10.01 % could have been enough to use the 500 millions of the FED. So why 25 % ?

I think the article used a misleading quote to make it seem more significant. The 10% maximum is to any one affiliate, but the total lending to all affiliates is limited to 20%. The new allowance of $25 billion is not all new lending, it is the total amount allowed including all existing lending. The $25billion each is less than 30% of capital for Citibank and B of A per the letters.

So if they both had a fair amount of lending to all their subsidiaries, the new lending is maybe $8 b to $10 b each. Not an increase from 10% to 30% as the article implies, but more like an increase from 20% to 30% of capital.

And a requirement in the letters is that the money has to be lent out of the brokerage arm under the exact same terms as the bank is lending to the brokerage arm. They can not lend to their brokerage subsidiary without a third party needing the money. It is effectively the same as the bank lending the money to third parties. As stated in the letters, for operational reasons the affiliated broker is acting as a conduit rather than the bank doing the transaction directly. The people who deal with these markets after all are in the brokerage arm, and I'd guess they're not so busy these days.

Additionally, the lending would take place as reverse repurchase agreements or securities borrowing transactions involving mortgage-backed and other asset-backed securities. This limits where the money goes to. This isn't worded as a requirement, but I doubt they're going to play fast and loose with this representation.

I really think this is a reporter exaggerating to get the headline.

[highdiver]

Don't think the Board of Bank Of America is happy with his interview (as they just made it public they've the intention to invest $ 2 Billion in Countrywide).

LaoPo

Reuters Before the Bell news mail.

August 24, 2007

"Countrywide, what have you done? Just hours after getting a big cash infusion from Bank of America, the mortgage lender's CEO [Angelo Mozilo] put the fear of God into Wall Street by saying the downturn in the housing market could drag us into a recession."

LaoPo

As I told you yesterday this is a win-win situation for B of A, if Countrywide goes up then they made an outstanding investment and if it goes down then they buy it out at a steal of a price! Apparently Reuters new service is not widely disseminated in the U.S. because as I sit here posting this the U.S. markets have been trading for over two hours now and all the averages are in the green. I have been familiar with Angelo Mozilo for many years, and while his achievements have been very impressive he has always been very outspoken to the point of being considered a bit of a flake by many, in any event he has certainly been a very successful maverick! By the way the U.S. new home sales figures came out today and new home sales were up nearly 4% ( it looks like Mr. Mozilos' recession may be a bit premature). Personally I am still holding on to the shares of Countrywide that I bought last week in the 16's, if it does drop below 19 then I will exit and lock in my profit.

I know VegasVic, I read my stuff

Good luck with your CW stocks, they're around $ 21 now, but I'm sure you keep an eye on them; if I were you I would stick to them, even below 19...and buy some more....but, that's me.

LaoPo

Thanks LaoPo! The SP seems to have solidified around $21/sh, so my feeling is that if it drops down through $19/sh there is a reason for it and it will likely be going lower (where I can reload). Its never a bad idea to lock in a profit!

well the predictions were right ...

U.S. Stocks Fall, Led by Financials; Countrywide, Exxon Drop

By Michael Patterson

Aug. 27 (Bloomberg) -- U.S. stocks declined after Lehman Brothers Holdings Inc. analysts reduced their earnings estimates for Countrywide Financial Corp. and traders pared bets that the Federal Reserve will lower its benchmark lending rate.

Financial stocks were the biggest drag on the Standard & Poor's 500 Index after Lehman cited ``extraordinary weakness'' in the secondary market for loans held by Countrywide, the biggest U.S. mortgage lender. Exxon Mobil Corp., the world's largest oil producer, led energy shares lower as fuel prices retreated.

The S&P 500 lost 8.93, or 0.6 percent, to 1,470.44 as of 12:29 p.m. in New York. The Dow Jones Industrial Average slipped 33.65, or 0.3 percent, to 13,345.22. The Nasdaq Composite Index fell 14.8, or 0.6 percent, to 2,561.89.

The S&P 500 has dropped 5.3 percent from a July 19 record amid concern defaults on mortgages will hurt earnings at lenders and slow the world's largest economy. A gauge of homebuilders in S&P indexes dropped to the lowest since August 2003 today after sales of previously owned houses fell in July for a fifth month and the glut of unsold properties climbed to a 16-year high.

``Residential real estate is having a real downturn,'' said Scott Minerd, who helps oversee about $24 billion as chief investment officer at Guggenheim Partners Asset Management in Santa Monica, California. ``Until the Fed does something to lower the cost of debt, this drag on the consumer will continue.''

U.S. stocks posted their biggest advance in five months last week and expectations of share volatility had their steepest weekly decline since at least 1990, helped by speculation the Fed will take steps to stem losses in credit markets.

Fed futures contracts today showed traders see a 28 percent chance the Fed will lower its target for overnight bank lending to 4.75 percent from 5.25 percent at its next meeting on Sept. 18, down from 42 percent odds on Aug. 24.

Countrywide Drops

Countrywide declined $1.04, or 5 percent, to $19.96 for the biggest slide in the S&P 500. Lehman analysts led by Bruce Harting reduced their 2007 earnings-per-share estimate to $1 from $2.80, according to a research note today. They lowered their 2008 estimate to $1.55 from $3.

Separately, Piper Jaffray & Co. downgraded Countrywide shares to ``market perform'' from ``outperform.''

Bank of America Corp., which last week bought $2 billion of preferred stock in Countrywide, slipped 62 cents to $51.25. Lehman, the biggest underwriter of U.S. bonds backed by mortgages, dropped $1.66 to $58.71.

Financial shares in the S&P 500 fell 0.7 percent as a group.

Energy Shares Drop

A gauge of energy shares in the S&P 500 dropped 1 percent after prices for crude oil, natural gas and gasoline fell in New York. Exxon declined 74 cents to $84.95. ConocoPhillips, the third-largest U.S. producer, lost 2 cents to $80.72.

Sales of previously owned homes declined 0.2 percent to an annual rate of 5.75 million, the National Association of Realtors said today in Washington. While the retreat was less than forecast, inventories of single-family homes rose to the equivalent of 9.2 months' supply and sales dropped 9 percent.

Fifteen of 16 homebuilders in S&P indexes fell. Lennar Corp., the largest U.S. builder by sales, dropped $1.23 to $28.67. D.R. Horton Inc., the second biggest, declined 59 cents to $15.42.

this is far from over...

[LaoPo]

this is far from over...

Yes, that's right, in the US and EU that is.

That's why investors are now discovering the differences in -Chinese-, New York-listed, stock prices versus the same in Hong Kong and to a lesser extend the Shanghai bourse and invest heavily in those stocks:

Chinese Shares Rise Most Since 2004 in U.S.; China Life Gains

This is also due to the fact that, for the first time -August 27th-, mainland Chinese (via the Bank of China) are allowed to buy the -much cheaper- Hong Kong listed H-shares and they did....the HK Hang Seng China stock index went up more than 6% whilst The Bank of New York Co.'s China ADR Index climbed 6.6 percent.

Some 'Blue Chips' stocks, both in HK and NY climbed fast, like Aluminium Corp. of China Ltd in HK, which went up 32%. Other giants like China Life insurance, China Mobile, Sinopec are also on the rise.

http://www.bloomberg.com/apps/news?pid=206...&refer=asia

LaoPo

[Carmine6]

Did you see this European bank getting taken out? Seems to be a small bank and the news was barely covered. Seems like they had an outsized amount of subprime debt.

Full article:

http://www.bloomberg.com/apps/news?pid=206...p;refer=germany

LBBW to Buy SachsenLB to Help Rescue State-Owned Bank (Update3)

By Aaron Kirchfeld and Jann Bettinga

Aug. 27 (Bloomberg) -- Landesbank Baden-Wuerttemberg, the largest German state-owned bank, agreed to buy Landesbank Sachsen Girozentrale following a 17.3 billion-euro ($23.7 billion) credit bailout because of investments in U.S. subprime debt.

LBBW will pay at least 300 million euros for the bank and immediately provide 250 million euros in cash for SachsenLB, whose finance affiliates have struggled to sell commercial paper amid a global credit crunch. A final purchase price will be set by the end of the year, LBBW said yesterday in Stuttgart. ...

[LaoPo]

BUT...in the meantime, further news on the US housing market:

US home sales decline yet further

Concern that US house prices could fall sharply has returned after a key survey showed that sales fell to a near five-year low in the year to July.

Sales of existing homes fell 0.2% to 5.75 million units in the year, the lowest since November 2002, said the National Association of Realtors (NAR).

It marks the first time that the US's main estate agent body had reported a decline in 12 consecutive months.

The figures caused the main US share indexes to end lower on Monday.

While the Dow Jones lost 58 points to 13,321, the Nasdaq slipped 15 points to 2,561.

Meanwhile, the Standard & Poor's 500 index shed 12 points to 1,467.

Last week a separate study said sales of new homes surprisingly rose in July, giving Wall Street a major boost on Friday.

'Downturn intensifying'

NAR added that the supply of unsold single-family homes has now hit its highest level in 16 years.

"This shows that the housing downturn continues to intensify," said Moody's economist Mark Zandi.

"It shows no sign of abating.

"It's a large amount of unsold homes, and it's really weighing on the market."

Concerns over the US housing sector, and the resulting market turmoil of recent weeks, centred on the so-called sub-prime mortgage sector.

This gives higher risk loans to people with poor credit histories.

Sub-prime default levels have risen to record highs over the past year in the face of higher US mortgage rates, raising fears that this could hamper credit availability in the broader market.

Investor confidence was further hit on Monday after Goldman Sachs analyst William Tanona cut his third-quarter earnings forecasts for three firms exposed to the sub-prime slump - Bear Stearns, Lehman Brothers and Morgan Stanley.

From: http://news.bbc.co.uk/2/hi/business/6965726.stm

LaoPo

[LaoPo]

Did you see this European bank getting taken out? Seems to be a small bank and the news was barely covered. Seems like they had an outsized amount of subprime debt.

Full article:

http://www.bloomberg.com/apps/news?pid=206...p;refer=germany

LBBW to Buy SachsenLB to Help Rescue State-Owned Bank (Update3)

By Aaron Kirchfeld and Jann Bettinga

Aug. 27 (Bloomberg) -- Landesbank Baden-Wuerttemberg, the largest German state-owned bank, agreed to buy Landesbank Sachsen Girozentrale following a 17.3 billion-euro ($23.7 billion) credit bailout because of investments in U.S. subprime debt.

LBBW will pay at least 300 million euros for the bank and immediately provide 250 million euros in cash for SachsenLB, whose finance affiliates have struggled to sell commercial paper amid a global credit crunch. A final purchase price will be set by the end of the year, LBBW said yesterday in Stuttgart. ...

No, to be honest, I didn't see that report.

But, as I said before: I'm afraid there's a lot of <deleted> 'out there'...still..... of which normal investors like us don't know about, yet... .

Only the -world wide- bankers/institutions/insurance companies, and others involved, know their own 'weak' sub prime related papers. Why they didn't tell yet...I don't know.

Maybe some of them managed to 'fix' their books, for the moment, but the truth will come out, sooner or, a little, later.

But, we'll know in the coming weeks and maybe even months to come.

LaoPo

[bingobongo]

[LaoPo]

this is far from over...

Yes, that's right, in the US and EU that is.

That's why investors are now discovering the differences in -Chinese-, New York-listed, stock prices versus the same in Hong Kong and to a lesser extend the Shanghai bourse and invest heavily in those stocks:

Chinese Shares Rise Most Since 2004 in U.S.; China Life Gains

This is also due to the fact that, for the first time -August 27th-, mainland Chinese (via the Bank of China) are allowed to buy the -much cheaper- Hong Kong listed H-shares and they did....the HK Hang Seng China stock index went up more than 6% whilst The Bank of New York Co.'s China ADR Index climbed 6.6 percent.

Some 'Blue Chips' stocks, both in HK and NY climbed fast, like Aluminium Corp. of China Ltd in HK, which went up 32%. Other giants like China Life insurance, China Mobile, Sinopec are also on the rise.

http://www.bloomberg.com/apps/news?pid=206...&refer=asia

LaoPo

Latest -unconfirmed- news:

China Plan for Hong Kong Stock Investment Stalls, Standard Says

According to the Hong Kong Standard newspaper, Chinese authorities have halted the possibility for Chinese investors to invest on the Hong Kong stock market:

http://www.bloomberg.com/apps/news?pid=206...amp;refer=china

LaoPo

[LaoPo]

Reuters Before the Bell news mail.

Wall Street remains in free-fall mode on reports of more problems at financial service companies, which in the meantime are tripping over themselves to say pessimistic things about each other. Stock futures are pointing down.

And there's more data that could reinforce the market's bad attitude. A report on home pricing is coming before the bell, and consumer confidence figures are due shortly afterward. There will also be minutes from the last Fed meeting.

U.S. Treasuries are higher. The dollar is down against the yen and up against the euro.

Oil prices are steady, with U.S. crude around $72 a barrel, as refinery shutdowns revive concerns about supplies.

The Times of London says State Street Corp. faces $22 billion in exposure to loan packages that have caused problems for rivals in recent weeks. Meanwhile, Barclays is denying a Financial Times report that it's left with several hundred million dollars of exposure to failed debt vehicles structured by its investment banking arm.

Merrill Lynch has downgraded Bear Stearns, Lehman and Citigroup. Goldman cut its quarterly earnings forecasts for Bear, Lehman and Morgan Stanley.

From: Reuters

LaoPo

[Mid]

U.S. Economy: Confidence Weakens by Most in Two Years (Update2)

By Bob Willis

Aug. 28 (Bloomberg) -- Americans' confidence dropped by the most since Hurricane Katrina two years ago, in the first report to reflect August's credit-market turmoil.

The survey underscores the Federal Reserve's concern that risks to the six-year economic expansion have ``increased appreciably.'' Separate figures showed home prices suffered the biggest decline since at least 2001.

snip

bloomberg.com

[LaoPo]

All European markets dropped Tuesday, August 28th.

Some Asian markets as well, including the SET of Thailand by -0.37% but not too serious.

More serious was the drop on North and South American stock markets.

Dow Jones IA by -2.10%

S&P500 Index by -2.35%

Nasdaq by -2.37%

U.S. Stocks Fall Most in Three Weeks; Lehman Leads Banks Lower

Aug. 28 (Bloomberg) -- U.S. stocks posted their biggest drop in three weeks on weaker consumer confidence and speculation tighter credit markets will hurt bank earnings.

Citigroup Inc., Lehman Brothers Holdings Inc. and Bear Stearns Cos. led all 93 financial companies in the Standard & Poor's 500 Index lower after Merrill Lynch & Co. reduced its recommendation on the shares. Lennar Corp. and D.R. Horton Inc. sent homebuilders to the lowest level since May 2003.

http://www.bloomberg.com/apps/news?pid=206...&refer=news

LaoPo

[Carmine6]

All European markets dropped Tuesday, August 28th.

Some Asian markets as well, including the SET of Thailand by -0.37% but not too serious.

More serious was the drop on North and South American stock markets.

Dow Jones IA by -2.10%

S&P500 Index by -2.35%

Nasdaq by -2.37%

U.S. Stocks Fall Most in Three Weeks; Lehman Leads Banks Lower

Aug. 28 (Bloomberg) -- U.S. stocks posted their biggest drop in three weeks on weaker consumer confidence and speculation tighter credit markets will hurt bank earnings.

Citigroup Inc., Lehman Brothers Holdings Inc. and Bear Stearns Cos. led all 93 financial companies in the Standard & Poor's 500 Index lower after Merrill Lynch & Co. reduced its recommendation on the shares. Lennar Corp. and D.R. Horton Inc. sent homebuilders to the lowest level since May 2003.

http://www.bloomberg.com/apps/news?pid=206...&refer=news

LaoPo

Down at the open and was just starting to show some life when the Fed minutes from the early August meeting came out. Rallied for half an hour then nothing but selling after that. Crazy because that meeting was before the market tanked and before they acted.

[LaoPo]

Down at the open and was just starting to show some life when the Fed minutes from the early August meeting came out. Rallied for half an hour then nothing but selling after that.

Crazy because that meeting was before the market tanked and before they acted.

Maybe so but I think the markets found no longer 'security' in the FED's released minutes and steps because -rightly so I think-:

Fed Put Inflation Skepticism Above Credit Concern

excerpt:

Policy makers underestimated the contagion from sub prime credit markets to less risky borrowers, the minutes showed.

and:

Minutes of the FOMC's Aug. 16 video conference will be included in records of the Sept. 18 meeting, to be released Oct. 9. The Board of Governors' separate decision to cut the discount- lending rate to 5.75 percent from 6.25 percent will be detailed in another report, around Oct. 16.

http://www.bloomberg.com/apps/news?pid=206...&refer=news

But there's more 'nervous' news in the press:

Stocks tumble on economy worries

The transcript showed growing concern among Fed officials about the housing market and its effect on consumers even before credit market turmoil picked up speed.

http://today.reuters.com/news/articlenews....ness+NewsNews-2

and:

Economy, credit worries drive Wall St down sharply

Adding to home builders' woes, a survey by the National Association of Home Builders showed tighter lending standards in recent months have hurt business at two-thirds of the nation's home builders that were already suffering from burgeoning inventories.

http://today.reuters.com/news/articlenews....C1-ArticlePage1

and:

House prices suffer worst fall in index history

NEW YORK (Reuters) - An index measuring U.S. house prices suffered its worst decline since its creation 20 years ago, and there is no sign of a bottom for the market, according to a report compiled by Standard and Poor's and economist Robert Shiller.

http://today.reuters.com/news/articlenews....usbusinessclose

Fasten your seat belts...

LaoPo

[LaoPo]

USA Subprime mortgages: State-by-state:

This is a 2005 picture; it shows the %'s of subprime mortgages in various States.

Hove over your mouse to see the % per state.

I find it alarming that even in the 'white' states (in the picture) the %'s of subprime mortgages are high...ranging from 16 to 28% in Michigan.

http://money.cnn.com/magazines/fortune/sto...e_statebystate/

Of course this pic is not up to date as most sub prime mortgages -according to 'Fortune magazine'- started in 2005 and onwards.

SO: the real %'s could be, and will be, higher than in the picture of the link, above.

Fortune claims that the worst is to come in the first half of 2008 when US$ 850 Billion (!) worth of mortgages will come into the danger zone, fearing that people can't afford to pay any longer the rising mortgage rates, up from a -than- low 4% up to 8% in 2008.

Ouch!

LaoPo

[LaoPo]

[uS] Business Bankruptcy Rates Continue to Rise in 2007

"A 45% increase for the first half of 2007 in comparison to the first half of 2006"

"According to the Euler Hermes* business failures forecast, a return to 30,000 business bankruptcies is expected in 2007. This follows a spectacular, but one-off, reduction in business failures in 2006, when the number of corporate insolvencies dropped by 50% due to a 2005 change in U.S. bankruptcy legislation."

http://www.prnewswire.com/cgi-bin/stories....+2007,+12:50+PM

* Euler Hermes ACI is North America's oldest and largest provider of

trade credit insurance and accounts receivable management solutions and is

the US subsidiary of the Euler Hermes Group. Headquartered in Owings Mills,

MD, the company protects and insures more than $150 billion in US trade

transactions annually.

LaoPo

[Carmine6]

USA Subprime mortgages: State-by-state:

This is a 2005 picture; it shows the %'s of subprime mortgages in various States.

Hove over your mouse to see the % per state.

I find it alarming that even in the 'white' states (in the picture) the %'s of subprime mortgages are high...ranging from 16 to 28% in Michigan.

http://money.cnn.com/magazines/fortune/sto...e_statebystate/

Of course this pic is not up to date as most sub prime mortgages -according to 'Fortune magazine'- started in 2005 and onwards.

SO: the real %'s could be, and will be, higher than in the picture of the link, above.

Fortune claims that the worst is to come in the first half of 2008 when US$ 850 Billion (!) worth of mortgages will come into the danger zone, fearing that people can't afford to pay any longer the rising mortgage rates, up from a -than- low 4% up to 8% in 2008.

Ouch!

LaoPo

Those are percentages of new loans. As a percentage of total mortgages, the amount is in the low teens. But most subprime loans are fixed rate, not ARMs, so the actual % of loans that are subprime ARMs is less than 5%.

Still, those figures were pretty surprising on the map and would have been a good sign of the top of the market. 2006 probably had an even higher share of subprime mortgages.

This U of Michigan professor's blog puts the amount of subprime ARMs in perspective:

http://mjperry.blogspot.com/2007/08/why-co...e-loans-is.html

Click through his link to the Mortgage Bankers Association for a interesting read of a letter from them to the Board of Governors of the Federal Reserve. That's where he gets his data.

Not going to be pretty working through the mess, but we've seen worse.

[bangsue]

A lot of sub-prime loans are taken out on short term fixed rates or 'teaser' rates, usually for only the first couple of years of the loan.

A large number of these loans are due to reset to ARM over the next year or two, reaching a peak in March '08 (as said above, could be approaching a trillion USD worth). With the interest rate rises recently, a lot of people are going to see their monthly repayments double or worse.

Credit has been tightened and it will be very difficult for a lot of these loans to be re-financed on to better rates. Nobody will want to take these borrowers on and therefore foreclosure looks inevitable for many.

us ARM resets

Edited August 29, 2007 by bangsue

[bingobongo]

[Carmine6]

A lot of sub-prime loans are taken out on short term fixed rates or 'teaser' rates, usually for only the first couple of years of the loan.

A large number of these loans are due to reset to ARM over the next year or two, reaching a peak in March '08 (as said above, could be approaching a trillion USD worth). With the interest rate rises recently, a lot of people are going to see their monthly repayments double or worse.

Credit has been tightened and it will be very difficult for a lot of these loans to be re-financed on to better rates. Nobody will want to take these borrowers on and therefore foreclosure looks inevitable for many.

us ARM resets

That graph is unfortunately too old. In the CNBC interview with Angelo Mozilo, he said 65% of the loans that Countrywide had in that data were already refinanced. It's not clear if they went fixed or rolled over into another ARM. Also the chart doesn't include 7 months worth of new loans. That whole pile was likely shifted to the right and March '08 may not be the peak.

No doubt there are going to be a lot of repossessions. The rough estimates of $100 billion to $150 billion in losses on subprime loans seem about right.

[bangsue]

the age of the graph doesn't really matter too much, the resets in 07, 08 are for mortgages handed out in 05, 06. Mortgages handed out in 07 would just make the 09 columns higher.

[kat]

Hmm, although things in the mortgage & credit/equity markets don't look rather appetizing, a few (e.g. John Crudele of NY Post) ask the question that seems not to have occurred to anyone else on Wall Street: With delinquencies and chargeoffs surging in the subprime mortgage market, why hasn’t credit quality of credit card issues deteriorated as well?

After all, one would think that a distressed borrower would default on just about all his other debts before getting behind on his mortgage. It’s one thing to get a black mark on your credit report by being late defaulting on your credit card, after all, but it’s another thing entirely to default on your mortgage and lose your house. Why are the U.S. consumers like that?

http://www.nypost.com/seven/08212007/busin...se_of_cards.htm

uhm, duh, The New York Post is not a font of objective information and educated thinking. It is a conservative tabloid rag that specializes in conservative rants packaged for the working-class. If you rely on it for your arguments and perspective, they are naturally going to be warped, just like the paper's.

In simple terms: a large bulk of the debtors in the sub-prime market had bad credit to begin with, and most likely were cut out of the credit card industry a while ago or never in.

World wealth isn't growing, world DEBTS are growing and the place they are growing the fastest is the US which is the sole terminus of world trade at this point. The biggest growth industry today is selling debt instruments. The entire existence of hedge funds, for example, is to funnel profits from uneven trade with the US back into the US via dumping debts onto the backs of any corporations that can run up more debts!

Currently, the US gobbles up two-thirds of the world's credit each year with no conceivable way of paying it back. That won't last much longer.

The bottom line is that US is buried beneath a $9 trillion mountain of debt and there's no way to dig out. If there's a break in the liquidity-flows to US stock market — stocks will crash, unemployment will soar, and the US be pulled into a deflationary downspin draging the whole world after.

The name of the game now amongst the “don't worry, be happy” crowd is to keep the stock market flying-high for as long as possible while the transfer of wealth continues unabated. That means the hucksters on Wall Street will have to devise even better scams for expanding debt — increasing margin limits, escalating derivatives trading, loosening accounting standards, inflating the booming hedge fund industry, and — the new darling of Wall Street — increasing the mega-mergers, the biggest swindle of all.

These over-leveraged mergers create boatloads of new credit, but add nothing to GDP. They reflect the basic disconnect between the stock market and the real economy.

Markets are self-correcting. Eventually the overleveraged debt-instruments, which pushed the Dow to historic highs, will be expelled from the system, but not without considerable pain for everyone involved. At the end of the day we will all pay a dear price for the American way of life...

This isn't entirely the American way of life. This is the result of new underwriting products and greedy, fly-by-night mortgage companies that knowingly preyed on the low income and uneducated, and segments of the population who for one reason or another could not get prime mortgages. Many of the Americans affected by the sub-prime scandal will be paying a lot more dearly than you, I can assure you. And, by the way, they're not all Americans, either.

There are many multiplying effects to this on low-income homeowners, low-income communities, and finally low income renters of multi-family units that have been financed by sub-prime. Many others are speculators and flippers, many from outside the county.

Hmm, although things in the mortgage & credit/equity markets don't look rather appetizing, a few (e.g. John Crudele of NY Post) ask the question that seems not to have occurred to anyone else on Wall Street: With delinquencies and chargeoffs surging in the subprime mortgage market, why hasn’t credit quality of credit card issues deteriorated as well?

After all, one would think that a distressed borrower would default on just about all his other debts before getting behind on his mortgage. It’s one thing to get a black mark on your credit report by being late defaulting on your credit card, after all, but it’s another thing entirely to default on your mortgage and lose your house. Why are the U.S. consumers like that?

http://www.nypost.com/seven/08212007/busin...se_of_cards.htm

If they expect to keep the house that is generally the case. However, unlike typical default situations, it's not that people are losing their jobs and defaulting, it's that they were given loans they couldn't afford. In the former situation you think you'll be able to keep the house as soon as you get another job. In the latter you know you it's just a matter of time until you're kicked out.

Since the last folks in with subprime 100% loans had negative equity as soon as their house values declined, they don't have a lot of incentive to pay. All the money they're paying for property taxes, mortgage insurance, principal, homeowners insurance, and interest only helps the bank. When they're kicked out they'll get none of it back. Instead, they'll just live in the house 3 months rent free during foreclosure, then turn in the keys. Meanwhile they'll save up the money so they can go back to renting. Their already low credit score gets dinged? Well its not any different if you pay a lot of money before the foreclosure or pay nothing before the foreclosure. Supposedly some 2006 loans never had any payments made.

If they keep paying credit card and other companies, they'll be able to get credit much sooner. Not a home loan but they were really renters to begin with. They'll get the consumer credit that they really use. Not at cheap rates, but they'll get it. I worked at a finance company back in the early 90's when the last housing problems happened in California. It was surprisingly easy to overlook a repossession if everything else had been paid as agreed. But a foreclosure and other things behind we never touched.

I posted similiar thoughts on another thread last week, basically most of these loans going bad are falling into two catagories. The first catagory is the largest one and that is the non home owners (renters) prior to 2004 who were made to believe that they could not only now get a loan and own a home but that they could get more home than they could ever have dreamed of (of course as we now see there are not any free lunches). These folks basically were thrown into some very creative financing instuments with no money down, and now that they see there ARM's adjusting they simply stop making payments and live in the house for free for 3-6 months and then go back the their former apartments no worse for the wear except for the hit on their credit rating that you pointed out (most of these folks didn't have very good credit in the first place so it doesn't bother them much). These people still have their jobs and their payments in their new apartments are less than their home payments were so in fact they have more disposable income to put into the economy now then when they were making the house payments. The second group is the flippers(many of whom are from overseas) who got caught late in the cycle, and all I can say here is that these folks along with some of the hedge funds will be getting exactly what they deserve One last note, you will notice that you don't see Wells Fargo in the same position that Countrywide is in and that is because they didn't underwrite these ridiculous loans like Countrywide did, I do find Mr. Mozilos' comments rather odd since he and his company was one of the primary movers that led to this crisis

Yes, this is the most realistic and accurate version of what is actually happening, except that it is not so easy as them just skipping back to work or renting. Affordable rental housing is also becoming a scarce commodity at a crisis point, and with the housing glut and possible recession rental prices will increase. The flip side of this is that people that were locked out of the homeownership market because of the ridiculous escalation in prices can probably enter with better deals and more secure financing once the tidal wave of foreclosures picks up momentum.

Edited August 29, 2007 by kat

[LaoPo]

Some positive news for a change:

Techs lead Wall Street rebound as oil soars

NEW YORK (Reuters) - U.S. stocks rebounded on Wednesday, pushing the Nasdaq to its best day in more than a year, as investors snapped up beaten down technology shares, while the energy sector benefited from a surge in oil prices.

A letter from Federal Reserve Chairman Ben Bernanke, in which he said the Fed was "prepared to act as needed" to ensure credit market troubles do not adversely affect the economy, added to investor speculation for a much hoped-for interest rate cut.

Both the Nasdaq and the S&P 500 rose more than 2 percent. Apple Inc. (AAPL.O: Quote, Profile , Research) set the positive tone, rising 5.7 percent on buzz surrounding the expected launch of new iPods.

Shares of energy companies such as Exxon Mobil XOM.N soared as oil prices <CLc1> rocketed to $73.53 a barrel after a sharp drop in U.S. crude and gasoline stockpiles revived supply concerns.

The New York Stock Exchange imposed restrictions on certain automated trading programs 30 minutes before the market close as shares surged, but trading was thin ahead of the long Labor Day weekend.

"Anytime you hear something out of the Fed that it is monitoring the situation, that is reassuring as the thought is that they are leaning towards a rate cut," said Bennett Gaeger, managing director at Stifel Nicolaus in Baltimore.

The Dow Jones industrial average <.DJI> was up 247.44 points, or +1.90 percent, at 13,289.29. The Standard & Poor's 500 Index <.SPX> was up 31.40 points, or+2.19 percent, at 1,463.76. The Nasdaq Composite Index <.IXIC> was up 62.52 points, or +2.50 percent, at 2,563.16 -- its best day since June 29, 2006.

Rest of article:

http://today.reuters.com/news/articlenews....usbusinessclose

and:

U.S. Stocks Rally

Aug. 29 (Bloomberg) -- Technology shares rallied, helping the U.S. stock market recover from the steepest decline in three weeks and sending the Nasdaq Composite Index to its biggest advance in a year.

Intel Corp., Oracle Corp. and Dell Inc. led gains after Seagate Technology, the world's largest maker of hard-disk drives, boosted its profit and revenue forecast. Apple Inc. rose on speculation it will start selling new versions of the iPod. Exxon Mobil Corp. led 31 of 32 energy companies in the S&P 500 higher after crude oil prices reached a three-week peak.

The Standard & Poor's 500 Index climbed 31.4, or 2.2 percent, to 1,463.76. The Dow Jones Industrial Average increased 247.44, or 1.9 percent, to 13,289.29. The Nasdaq added 62.52, or 2.5 percent, to 2,563.16, its largest rally since June 2006.

http://www.bloomberg.com/apps/news?pid=206...&refer=news

LaoPo

[bingobongo]

yawn.....the trend is down with violent fluctuations along the way

for those who do not want to go short in their account or do not wnat to buy puts (of which i am in CFC-Countryfried and IMB-Indymac) but want to make money on the way down, buy the following short ETFs for the financials and REITs as they go down in flames and come back in the autumn

symbol on AMEX: SRS - Ultrashort real estate fund

symbol on AMEX: SKF - Ultrashort financials fund

Edited August 29, 2007 by bingobongo

[LaoPo]

yawn.....the trend is down with violent fluctuations along the way

We all know that Bingo...but sometimes good news is also news; it gives a better appetite at breakfast...

LaoPo

[Carmine6]

the age of the graph doesn't really matter too much, the resets in 07, 08 are for mortgages handed out in 05, 06. Mortgages handed out in 07 would just make the 09 columns higher.

2 Weeks ago, Angelo Mozilo of Countrywide said that about 65% of their loans that were going to reset in 2007 and 2008 have already been refinanced. Everything that was refinanced in the last 7 months would disappear from the 2007 and 2008 figures. If they changed to fixed rates or regular ARMs they disappear completely. If they roll into another ARM with a teaser, they'd show up in later years.

[Mid]

Turning the economy around

Alan E. Moses

August 30, 2007

It is a shame that our economy is all about the worst thing and that is debt. This entire society is based on going into debt. Bank cards, Auto loans, Mortgages, Just life as we are living it today. Borrow and borrow that is our life? Every time you use a credit card or common bank card including debit cards you are paying the true price. Cash means that you are paying a higher rate as your money is much more profitable.

snip

The billions wasted on supporting other nations such as Egypt, Thailand, Pakistan, Iraq, Israel, The United Kingdom etc. How many billions are spent on others? We have forgotten ourselves. Turn the economy around? Allow Americans to be free as our claims are about the world. Lessen the power of bankers and the market. Every Great Empire falls as ours is beginning to.

snip

americanchronicle.com

[j_cheung]

Hmm, although things in the mortgage & credit/equity markets don't look rather appetizing, a few (e.g. John Crudele of NY Post) ask the question that seems not to have occurred to anyone else on Wall Street: With delinquencies and chargeoffs surging in the subprime mortgage market, why hasn’t credit quality of credit card issues deteriorated as well?

After all, one would think that a distressed borrower would default on just about all his other debts before getting behind on his mortgage. It’s one thing to get a black mark on your credit report by being late defaulting on your credit card, after all, but it’s another thing entirely to default on your mortgage and lose your house. Why are the U.S. consumers like that?

http://www.nypost.com/seven/08212007/busin...se_of_cards.htm

uhm, duh, The New York Post is not a font of objective information and educated thinking. It is a conservative tabloid rag that specializes in conservative rants packaged for the working-class. If you rely on it for your arguments and perspective, they are naturally going to be warped, just like the paper's.

In simple terms: a large bulk of the debtors in the sub-prime market had bad credit to begin with, and most likely were cut out of the credit card industry a while ago or never in.

World wealth isn't growing, world DEBTS are growing and the place they are growing the fastest is the US which is the sole terminus of world trade at this point. The biggest growth industry today is selling debt instruments. The entire existence of hedge funds, for example, is to funnel profits from uneven trade with the US back into the US via dumping debts onto the backs of any corporations that can run up more debts!

Currently, the US gobbles up two-thirds of the world's credit each year with no conceivable way of paying it back. That won't last much longer.

The bottom line is that US is buried beneath a $9 trillion mountain of debt and there's no way to dig out. If there's a break in the liquidity-flows to US stock market — stocks will crash, unemployment will soar, and the US be pulled into a deflationary downspin draging the whole world after.

The name of the game now amongst the “don't worry, be happy” crowd is to keep the stock market flying-high for as long as possible while the transfer of wealth continues unabated. That means the hucksters on Wall Street will have to devise even better scams for expanding debt — increasing margin limits, escalating derivatives trading, loosening accounting standards, inflating the booming hedge fund industry, and — the new darling of Wall Street — increasing the mega-mergers, the biggest swindle of all.

These over-leveraged mergers create boatloads of new credit, but add nothing to GDP. They reflect the basic disconnect between the stock market and the real economy.

Markets are self-correcting. Eventually the overleveraged debt-instruments, which pushed the Dow to historic highs, will be expelled from the system, but not without considerable pain for everyone involved. At the end of the day we will all pay a dear price for the American way of life...

This isn't entirely the American way of life. This is the result of new underwriting products and greedy, fly-by-night mortgage companies that knowingly preyed on the low income and uneducated, and segments of the population who for one reason or another could not get prime mortgages. Many of the Americans affected by the sub-prime scandal will be paying a lot more dearly than you, I can assure you. And, by the way, they're not all Americans, either.

There are many multiplying effects to this on low-income homeowners, low-income communities, and finally low income renters of multi-family units that have been financed by sub-prime. Many others are speculators and flippers, many from outside the county.

Hmm, although things in the mortgage & credit/equity markets don't look rather appetizing, a few (e.g. John Crudele of NY Post) ask the question that seems not to have occurred to anyone else on Wall Street: With delinquencies and chargeoffs surging in the subprime mortgage market, why hasn’t credit quality of credit card issues deteriorated as well?

After all, one would think that a distressed borrower would default on just about all his other debts before getting behind on his mortgage. It’s one thing to get a black mark on your credit report by being late defaulting on your credit card, after all, but it’s another thing entirely to default on your mortgage and lose your house. Why are the U.S. consumers like that?

http://www.nypost.com/seven/08212007/busin...se_of_cards.htm

If they expect to keep the house that is generally the case. However, unlike typical default situations, it's not that people are losing their jobs and defaulting, it's that they were given loans they couldn't afford. In the former situation you think you'll be able to keep the house as soon as you get another job. In the latter you know you it's just a matter of time until you're kicked out.

Since the last folks in with subprime 100% loans had negative equity as soon as their house values declined, they don't have a lot of incentive to pay. All the money they're paying for property taxes, mortgage insurance, principal, homeowners insurance, and interest only helps the bank. When they're kicked out they'll get none of it back. Instead, they'll just live in the house 3 months rent free during foreclosure, then turn in the keys. Meanwhile they'll save up the money so they can go back to renting. Their already low credit score gets dinged? Well its not any different if you pay a lot of money before the foreclosure or pay nothing before the foreclosure. Supposedly some 2006 loans never had any payments made.

If they keep paying credit card and other companies, they'll be able to get credit much sooner. Not a home loan but they were really renters to begin with. They'll get the consumer credit that they really use. Not at cheap rates, but they'll get it. I worked at a finance company back in the early 90's when the last housing problems happened in California. It was surprisingly easy to overlook a repossession if everything else had been paid as agreed. But a foreclosure and other things behind we never touched.

I posted similiar thoughts on another thread last week, basically most of these loans going bad are falling into two catagories. The first catagory is the largest one and that is the non home owners (renters) prior to 2004 who were made to believe that they could not only now get a loan and own a home but that they could get more home than they could ever have dreamed of (of course as we now see there are not any free lunches). These folks basically were thrown into some very creative financing instuments with no money down, and now that they see there ARM's adjusting they simply stop making payments and live in the house for free for 3-6 months and then go back the their former apartments no worse for the wear except for the hit on their credit rating that you pointed out (most of these folks didn't have very good credit in the first place so it doesn't bother them much). These people still have their jobs and their payments in their new apartments are less than their home payments were so in fact they have more disposable income to put into the economy now then when they were making the house payments. The second group is the flippers(many of whom are from overseas) who got caught late in the cycle, and all I can say here is that these folks along with some of the hedge funds will be getting exactly what they deserve One last note, you will notice that you don't see Wells Fargo in the same position that Countrywide is in and that is because they didn't underwrite these ridiculous loans like Countrywide did, I do find Mr. Mozilos' comments rather odd since he and his company was one of the primary movers that led to this crisis

Yes, this is the most realistic and accurate version of what is actually happening, except that it is not so easy as them just skipping back to work or renting. Affordable rental housing is also becoming a scarce commodity at a crisis point, and with the housing glut and possible recession rental prices will increase. The flip side of this is that people that were locked out of the homeownership market because of the ridiculous escalation in prices can probably enter with better deals and more secure financing once the tidal wave of foreclosures picks up momentum.

Kat, my inquiry on the lagging rise in credit card delinquencies as opposed to surging mortgage foreclosures is just that - an INQUIRY, not a selective judgment on the socio-political views of the author and his publisher. Ironically, the conservative hawks & so-called "free market" cheerleaders on CNBC & such that had been harping on the Fed to cut rates and to bail out Wall Street ...

Thanks to Carmine6 & the rest for clarifying the issue.