Tuesday, September 30, 2008

Bailout Vote Results - Graphic Presentation

The NYT has a color-coded map showing how the Bailout vote went yesterday.

Will the Senate still vote on Wednesday? Will there be a re-vote in the House?

To contact your Senator via phone/fax/email, find the information here.

To contact your Representative via phone/fax/email, find the information here.

Monday, September 29, 2008


CNN: Largest stock point drop in history: -777.68.

Dow off 7%, NASDAQ off 7%

S&P 500 off 8.75%: Investments, mutual funds, 401(k)s. People who have retirement plans invested with the market will lose money because of this drop, and continuing drops until the market "stabilizes."

How the Bailout failed.

Vote: Yea: 205, Nay 228. D: 140Y/95N. R: 65Y/133N. Here's the Rollcall.

House Republicans blame Pelosi's speech. But there were defections in both parties.

And: across the pond, the fear and chaos spreads: bank bailouts in Europe, including Britain, Belgium, Netherlands, Luxembourg.

UPDATE 4:50pm: Comrade Paulson speaks: "I will continue to work with our legislators to find a comprehensive plan. We've got much work to do."

"Businesses and families feel the credit crunch."

"Need to work as quickly as possible. As soon as possible."

"Our banking system is holding up well, considering the circumstances."

(BTW, he referred to Wachovia as a "failure" during remarks. Mistake?)

Comrade Paulson took five questions, and bailed himself. Lots of work to do.

1404 Westwood Road - Foreclosure - Was $315K, Now $278.9K

"The Housing correction will continue...and the impact of this credit crisis will be felt on our economy for some time," President Bush said this morning, when urging Congress to pass the Bailout as a start to reshaping the American Financial system.

Perhaps Comrade Paulson will authorize a purchase of 1404 Westwood Road, and millions like it, next week? It's been dragging down this bank's balance sheet for almost a year now, according to City records.

MLS #442361 (new MLS #, "new" listing)
1404 Westwood Road
4 bedrooms
1.5 baths
2600 sq. ft.

The Asking Price has "dropped" to $315K recently, which is $5K more than the bank paid for it. Why has this property been available for so long? Is it possible that buyers know something that the bank and the Realtor don't? Something about the pricing? A commenter updated the pricing the morning of the post: $278,900.00.

Sunday, September 28, 2008

"Emergency Economic Stabilization Act of 2008" - Draft Proposal for Housing Bailout

The draft proposal for the Bailout is available as a pdf here.

Many reasonable people feel this bill still gives too much unfettered power to Secretary of the Treasury Comrade Paulson, who will become Dictator Paulson. Additionally, it uses too much of taxpayers' money. It "rescues" Wall Street supposedly for the benefit of "Main Street." However, there's not enough financial penalty for the greedmongers that caused the problem, and the nationalization is too costly.

Read liberal view of Economist Paul Krugman, here.

Read the conservative view of Ben Stein, here.

*To contact your House of Representatives member by phone/fax/email, find the address here. The House is expected to vote on Monday.

To contact your Senator, find the phone/fax/email here. The Senate is expected to vote on Wednesday.

Meanwhile, even as we type this on Sunday night, there are banks going under, due to this crisis, across the Atlantic: B & B in Britain has been nationalized, and Fortis faces failure. Here iin the US, Wachovia may face seizure by the Fed, as WaMu did, if a buyer is not found.

WANT MORE INFO? Check out Barry Ritholtz's incredible "Bailout Linkfest" at The Big Picture, which includes articles, analysis, videos, interactives, Wall Street research, and so on.

What Makes People Vote...A Particular Way?

We're taking a Sunday break from our usual topics, the housing bubble and credit crisis.

It's a good time for a pause. To recap, Thursday p.m. brought the Largest Bank Failure Ever when Washington Mutual tanked, Friday a.m. saw Congress fail to reach consensus on a Housing Bailout Plan, and Friday
p.m. brought the First Presidential Debate.

By tomorrow, Monday a.m., a Bailout plan could be reached; and Wachovia, an important bank in our area, instead of failing may have reached an agreement with Citi to buy it.

Until then, here's a way to occupy your Sunday thoughts.

As we've mentioned in the past, we're a mixed blog: GOP, Dem, Independent.

We're very interested in what makes people tick in general, but in particular what's going to make them vote for McCain/
Palin v. Obama/Biden.

An essay by UVa prof Jonathan Haidt, Associate Professor of Psychology, got us thinking. Haidt poses a question from the get-go:

"What makes people vote Republican? Why in particular do working class and rural Americans usually vote for pro-business Republicans when their economic interests would seem better served by Democratic policies?"

Haidt does such a good job answering the question that we think he could be making big bucks serving as a pundit. For either party.

But here's a "real world" reason folks vote Republican: it's the GOP leading the outcry against taxpayer money being used for the Bailout. This is certainly something this blog can get behind, no matter which party supports it.

Jonathan Haidt does research on morality and emotion and how they vary across cultures. He is the author of the book The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom.

Read the essay "What Makes People Vote Republican?" here.

BTW? The NY Times still calls Virginia a toss-up for electoral votes.

Thursday, September 25, 2008

Did CAAR CEO Dave Phillips Mean the Fundamentals Are Strong?

President Bush addressed the United States at 9 pm on Wednesday night, in a further attempt to prevent the credit markets from freezing and causing additional global financial turmoil.

"Our entire economy is in danger," President Bush said.

Bush urged the American people and lawmakers to support his administration’s bailout plan, saying that a failure to do so could plunge the United States into “a long and painful recession.”

He outlined what has led up to the current financial crisis, and then said "the market is not functioning properly. There is a widespread loss of confidence. Without immediate action, America could slip into a financial panic."

Here in C'ville, a story on the the front page of the local newspaper told a different story just yesterday. It recognized that real estate sales are sluggish, but then went on to offer comments and prognostications from Dave Phillips, the CEO of CAAR, the Charlottesville-Albemarle Area Association of Realtors. These comments included the following:

"The turmoil on Wall Street will not affect Charlottesville’s housing market," Phillips said. “Unless you’re in the financial business, it’s not going to affect you,” he said.


"He also recommended ignoring what he sees as the media’s negative spin on the economy. 'You can’t believe anything they say,' he said. 'They’re trying to drag the economy down because that makes good news.'"

These statements inspired anger and disdain in the comments section after the story in the Daily Progress, as well as in the Comments section after our original post. Additionally, there were comments over at REALCentralVA.

Was Dave Phillips serious? Or is this a case of John McCain having to explain what he meant by "the fundamentals of our economy are still strong?"

If so, we're still listening. We invite Mr. Phillips to add further commentary to his remarks. We invite him to do it here, or on the CAAR blog, or in the comments section of The DP.

We'll keep an open mind.

[The entire transcript of the President's speech is here.]

Wednesday, September 24, 2008

Daily Progress: Home Prices & Sales Declining in Charlottesville/Albemarle: Supply v. Demand

The Daily Progress reports "Area's Housing Market Remains Cool." Their assessment? "A bit hellish."

The majority of information and quotes come from the President of CAAR, the Charlottesville-Albemarle Area Association of Realtors, Dave Phillips.

From the article: "In 2009...the region’s housing inventory will continue its gradual shift down to a more balanced level."

The area currently has over 14 months of inventory.
More houses are added every day. What's going to be so magic about 2009?

The article notes that this is the slowest market in 7 years. In other words, this is the slowest market since the beginning of the Housing Bubble.

Phillips blamed any economic concerns on the part of consumers not on actual facts, but on perception. From the article: 'He also recommended ignoring what he sees as the media’s negative spin on the economy. You can’t believe anything they say,” he said. “They’re trying to drag the economy down because that makes good news.”'

From the article: "The turmoil on Wall Street will not affect Charlottesville’s housing market," Phillips said. “Unless you’re in the financial business, it’s not going to affect you.”

This statement is so uninformed that it hardly needs additional commentary.
As any adult with a pulse knows, now is the time to pay attention to personal finances, when we're in the worst economic crisis since the Great Depression.

Experts disagree with Phillips.
Click around just a few of the links, below, to get an idea of the scope of the crisis, and what it means for "Main Street."

*Consider buying a house only if you'll stay in it 7 YEARS or longer, here.

*For some useful graphs and the math tools to figure out for yourself why Charlottesville/Albemarle's average 70%+ 5-year increase in house prices is now declining, go here.

*For accurate information on national housing prices, go here.

*For info on how the credit crisis may affect you and loved ones, click here.

*For answers to questions about your Money Markets, IRAs, 401(k), mortgage, savings, CDs, etc., go here.

*For additional accurate information on this credit crisis, open any national newspaper.

*To read The Daily Progress story, click here.

FBI Investigating; Congress Questioning Bailout

*WSJ: FBI Probes Companies at Center of Crisis

"The Federal Bureau of Investigation's preliminary inquiries are focusing on whether fraud helped cause some of the troubles at Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc. and American International Group Inc., according to senior law-enforcement officials."

Lehman was allowed to go into bankruptcy, while F & F were bailed out on September 8, and AIG rescued on September 18. More here.

*Meanwhile, Morgan-Stanley and Goldman Sachs, the two remaining Wall Street Investment banks are no longer: they'll become bank holding companies, ending an era on Wall Street. Goldman, which was formerly headed by current Treasury Secretary Comrade Paulson, is seeking to raise $7.5B in Capital. They've gotten a gigantic boost from Warren Buffett, the Oracle of Omaha, who will give $5B. The market goes where Buffett goes in times past. But this $5B ain't cheap. Read more here.

*NYT: Buyout Plan for Wall Street Is a Hard Sell on Capitol Hill

"What they have sent us is not acceptable,” the Banking committee chairman, Senator Christopher J. Dodd, Democrat of Connecticut, told The Associated Press.

The panel’s ranking Republican agreed. “We have to look at some alternatives,” Senator Richard C. Shelby of Alabama told The A.P.

The text of Treasury Secretary Comrade Hank Paulson's remarks is here.
The text of Federal Reserve Chairman Comrade Ben Bernanke's remarks is here.

Both of these texts give background on the crisis, as if the members of Congress need to once again be briefed. Perhaps they do.

*Why is Congress dubious? Perhaps they've read the 14 Questions for Paulson & Bernanke over at The Big Picture.

*NYT: Housing Experts Say Bailout Proposal May Do Little for Homeowners

"The Treasury secretary has put top priority on bailing out financial institutions by buying up soured mortgages and mortgage-backed securities, so banks and other lenders can clean up their balance sheets and get back to normal lending."

"But Democrats are insisting that the Treasury Department also help restructure many of those loans, by lowering the interest rate or the loan amount, to make the mortgages affordable and reduce the number of people who lose their homes through foreclosure." Read more here.

*Bloomberg News: Paulson Says Credit Crisis Spreads, Hurting Economy

"Paulson acknowledged the burden taxpayers would bear from bailing out banks, while arguing inaction would make things worse. His proposal calls for increasing the U.S. debt ceiling to $11.315 trillion from $10.615 trillion." "Debt ceiling" is the national deficit that will be left behind by W.

Additionally, Paulson says it would be "a grave mistake" for Congress to act slowly, or to give him and Comrade Bernanke less than the $700B they have requested. Read more.

"You ask me about whether taxpayers being on the hook,'' he said. "Guess what, they're already on the hook.''

*Home Prices Declining:
More on this in a forthcoming post, with some easy math, some handy-dandy charts, and some chilling percentages.

Monday, September 22, 2008

The Bailouts: Some Quick References

Hello, Comrades. Here are some links explaining what happened on last week, when the responsibility for the greed and bad financial decisionmaking of some was suddenly Socialized and given to us all.

"The Week That Changed American Capitalism," here. Barry Ritholtz's The Big Picture explains via graphics what-the-eff happened last week.

"Bubblenomics," here. Economics writer David Leonhardt explains how crazy the stock market is--and has been for the past 20 years--by giving examples of pricing and percentages of profits. Written for the non-pro. A chilling point:

"Traders sliced mortgages into so many little pieces that they forgot what they were really trading: contracts based on increasingly shaky loans. As the crisis has spread, other loans have started going bad as well. Hyun Song Shin, an economist at Princeton, estimates that banks have thus far absorbed only about one-third to one-half of the losses they will eventually be forced to take."

We all own bad mortgage-backed securities now.

"$700B Bailout for Wall Street," here. NYT article on historic move by President Bush, Treas Sec. Comrade Paulson, Fed Chair Comrade Bernanke.

"Text of Bush's Radio Address," here. W suddenly emerges to discuss the greatest financial crisis since the Great Depression.

"Text of Draft Proposal for Bailout," here. The blank check, exposed.

"A Rescue, But Will it Work?" here. News Analysis.

"Will a Crisis Create A Financial Scandal?" Floyd Norris, here. Short blog post by NYT Sr. Financial Correspondent lays out potential landmines.

"No Deal," Paul Krugman, here. Short blog post where Princeton economist smells future trouble in incorrectly assessing the value of assets.

"Thoughts on the Bailout," CaluculatedRISK, here. The finance/econ gurus explain the issues and problems of the rescue.

"10 Reasons to Be Cautious About the Motherland Rescue," here. Dr. Housing Bubble explains the bailout in terms of actual housing.

Sunday, September 21, 2008

Local Economy: Consumers Cutting Back

The DP reports that the nation-wide recession has finally hit Charlottesville:

*Only 760 house sold in Charlottesville and Albemarle during the first six months of 2008 — the lowest number in at least seven years, according to a mid-year report by the Charlottesville Area Association of Realtors.

*Motor vehicle and parts sales during the first half of 2008 fell by 4.2 percent when compared with the first half of 2007, according to the Virginia Department of Taxation.

*In part because sales-tax collections have fallen short of projections, Charlottesville is anticipating a $1.78 million budget deficit and Albemarle expects a $4.1 million shortfall.

*At the same time, the state government is projecting a shortfall of at least $1 billion, brought about by lower-than-expected revenues. UVa & PVCC have both been instructed to cut their budgets.

Read Brian McNeill's article here.

Friday, September 19, 2008

Dodd & Shelby of Senate Banking Committe Discuss Bailout: "One Trillion"

Here's the Video of Senators Chris Dodd (D - Ct) and Richard Shelby (R - Al) on Good Morning America, as they discuss the gigantic bailout of the U.S. Financial system.

As of today, bailouts or special facilities have been created for these entities:

- Bear Stearns
- Economic Stimulus progam
- Bad Mortgage Bailout Program
- Fannie & Freddie
- "No More Short Selling" rules
- Fed liquidity programs (Term Lending facility, Term Auction facility)
- Money Market fund insurance program
- Special Loans for GM & Ford

We're not alone in wondering what Our Leader, Comrade Paulson, has in mind for us next week.

1516 Chesapeake Street - $525K. Woolen Mills is the New Belmont. Again.

1516 Chesapeake Street
MLS 457236
4 beds 3.5 baths,
approx. 1 acre
ca. 1998

Here's a contemporary house that from the outside is supposed to give the feel of an older, traditional house.

The listing for 1516 Chesapeake Street says, "Amazing views from this CIty [sic] home...." The view includes a graveyard across the street. Hey, has to be your thing, right? Listing: "Almost an acre lot with lots of privacy...." Other than the neighbor house that's an arm's length away (see pic), and the two roofs that this house looks down upon, yes, there's some privacy out in the yard (btw, the house now has a big tree in front of it, not yet grown in the above picture). However, the yard is long and narrow, a hill, and unfenced.

Listing: "beautiful mountain views...." Like many places in Charlottesville, the mountains are, in fact, viewable from the 2nd story. Listing: "Minutes from Downtown...." True, Downtown is quickly drivable. What's not minutes from downtown when you're within the City Limits? And we're wondering, What, no chef's kitchen?

Recent Transfer History*

1999 - $165K
2004 - 360K - 118% increase in five years
2008 - Asking $525K - an additional 45% increase in four years

*because there's an older house somewhere in here, the transfer history is to say the least interesting. See it here by typing in the address.

This is a house with a Half Million Dollar Plus Asking, but the Woolen Mills neighborhood is not a Half Million Dollar area, IOHO. But that's what you get in the C'ville Bubble--irrational exuberance. Chesapeake Street has lots of small aluminum-sided or brick cottages, about 900 sq. feet; additionally, across from this house are two "Modern" abodes next to the cemetery. The degree of "house pride" varies from property to property in Woolen Mills, and there are a number of duplexes and other rentals.

The Asking for 1516 Chesapeake reminds us of two houses in Belmont, both which listed in May and have not sold. These are pricey houses in a neighborhood that also doesn't, IOHO, deserve such expensive Askings: 702 Belmont (began at $519K, now cut to $499K) and 611 Avon (began at $494K and dropped to $460K).

While tax assessment has little to do with the Asking Price of a house, a prospective buyer is certainly going to notice that the taxes for this property are based on a figure much lower than the asking: $368.5K.

Information on national housing prices here. How to price a house to sell here.

Thursday, September 18, 2008

The Socialization of Wall Street Continues: "US Plans to Clean Up Finance System...."

The WSJ reports:

The Federal government is planning a sweeping series of programs/rescues/bailouts that would represent the biggest intervention in financial markets since the 1930s:

"At the center of the potential plan is a mechanism that would take bad assets off the balance sheets of financial companies, according to people familiar with the matter, a device that echoes similar moves taken in past financial crises. Its size could reach hundreds of billions of dollars...."

A Treasury spokeswoman said: "Treasury Secretary Paulson joined Federal Reserve Chairman Bernanke in a meeting with House and Senate Republicans and Democrats to discuss current market conditions. They began a discussion with them on a comprehensive approach to address the illiquid assets on bank balance sheets that are at the underlying source of the current stresses in our financial institutions and financial markets. They are exploring all options, legislative and administrative, and expect to work through the weekend with Congressional leaders to finalize a way forward."

Those "illiquid assets" are subprime mortgages and CDOs--Collateralized Debt Obligations, which are the Securities formed by bundling subprime mortgages together and selling them to investors as mortgage-backed securities.

What Does the Wall Street Crisis Mean For Your Money? For Housing?

We've come across two very clear explanations of this crisis, with some answers to how it happened and what it can mean for your own finances.

The first is from the NYTimes Freakonomics blog, which is always linked in our sidebar. The usual Freaks called in some finance experts, Doug Diamond and Anil Kashyap, to write a guest post.

Among the questions they address are "What happened that is so remarkable?" and "Why should I care?"

The other explanation is audio--you may download this and listen at your leisure. It's an interview from Wednesday's Fresh Air with Terry Gross, and is about 38 minutes long. The guest is Michael Greenberger, a law professor at the University of Maryland. He discusses what the federal takeover of insurance company A.I.G means to individuals with retirement accounts, money markets, mutual funds, and so forth; what the company's "products" have done to Wall Street; and what the impact around the globe may be. Listen here.

Wednesday, September 17, 2008

US Financials Gets More Socialized Every Day. But Housing Crisis Could Worsen if AIG Allowed to Fail.

What used to be gigantic private financial institutions are now funded by taxpayers. Wait--wait--isn't the reason that healthcare isn't socialized--because it's too expensive?

In the past 10 days, the Federal Government has bailed out Giant Mortgage Losers Fannie & Freddie; Tuesday night, the Treasury and the Fed agreed to bailout A.I.G.

They had no choice, according to NYT:

"What frightened Fed and Treasury officials was not simply the prospect of another giant corporate bankruptcy, but A.I.G.’s role as an enormous provider of esoteric financial insurance contracts to investors who bought complex debt securities. They effectively required A.I.G. to cover losses suffered by the buyers in the event the securities defaulted. It meant A.I.G. was potentially on the hook for billions of dollars’ worth of risky securities that were once considered safe."

"If A.I.G. had collapsed — and been unable to pay all of its insurance claims — institutional investors around the world would have been instantly forced to reappraise the value of those securities, and that in turn would have reduced their own capital and the value of their own debt."

The company has been injected with $85 Billion, at over 11% interest for 24 months, while the US has a %79.9 stake.

If this hadn't happened, though, things would be worse than they are now for the U.S. economy and individuals: less credit, less ability to fund and refi mortgages, less consumer spending, higher unemployment, and so forth....

What next? Felix Salmon weighs in.

Tuesday, September 16, 2008

What Does the Wall Street Crisis Mean to Americans? Does McCain Know? Does Obama?

Treasury Secretary Hank I'm-Sorry-I-Ever-Left-Goldman Paulson has now clearly positioned himself as Leader of Our Country. Surely he turned a shoulder on Lehman Brothers this past weekend, which forced them into bankruptcy, because he foresaw that A.I.G., the largest insurer in the world, would need to be rescued by the federal government.

And tomorrow, we'll hear more about Money Market Funds unraveling.

Meanwhile, we have an election (or "election") coming in less than 50 days. One member of this blogging team is a genetic Republican. However, he's no longer sure who gets his vote for president.

What John McCain has to say about the economy is troubling. He's not getting "it," to put it mildly. And Barack Obama?

McCain thinks there was a "social compact" between Wall Street and investors (hello? free market anybody?) and he thinks a commission needs to be convened (like the one formed to study 9/11) to study what went wrong to generate the current Wall Street crisis. A "commission" is going to discover things long after our economy has dismantled itself and we belong to Russia or China, IOHO. The crisis can't wait to be solved--it needs immediate attention (hence Hank's actions).

See what we're talking about in the video below from MSNBC. McCain tries to clarify what he meant when he said "the fundamentals of our economy are strong." Really? On a day when two giant investment banks are disappearing, one into bankruptcy, the other selling itself off at a fire-sale price--all due to the mortgage crisis and plummeting housing values--really? Our "fundamentals" are strong? McCain claims he meant "people." Right. That's like Clinton splitting hairs over the meaning of "is."

For a different take on the economic picture, we're going to see what Michelle Obama has to say as the mouthpiece of her better half, Barack, this Wednesday, September 17, at the Virginia Women for Obama Voter Registration Rally. It's at Newcomb Hall Plaza, University of Virginia. The program begins at 4:50 p.m.; get there early.

We're also going to start looking at Real Estate in Canada...and Mexico.

Monday, September 15, 2008

What Does the Wall Street Crisis Mean For Housing?

Not this.

Dean of UVa's B School, Robert Bruner, On the Wall Street Crisis

Floyd Norris, Chief Financial Correspondent for The NY Times, is Live Blogging from Wall Street about the current crises facing Lehman Brothers, Merrill Lynch, and A.I.G.

His 10:20 a.m. post quotes our own Robert Bruner, Dean of University of Virginia's Darden School of Business (Dean Bruner is himself a blogger; see link below).

Norris writes:

Robert Bruner, the dean of the Business School at the University of Virginia, is one who did see this coming. His book on the Panic of 1907, published last year, saw parallels between then and now.

When I checked in with him this morning, he sounded like he wanted to be optimistic.

“What we have seen in all previous crises is that the bottom is marked by the collapse or rescue of major institutions that were thought to be beyond the reach of the crisis."

“If this crises follows that, the events of the past 10 days may mark the nadir.”

Yes, but will it follow that pattern? He’s not confident.

“I’ll give you 50-50 odds that this is the bottom. I am concerned about the spread of the crisis offshore, and to other markets. If the crisis is contained, then I think the odds are dramatically improved that this is the bottom.

“But if Russia fails to refinance the debts coming due by the end of the year, if consumers dramatically pull back on their spending, and if corporate investing really pulls back, we’re in for more heavy weather.”

[emphasis ours]

You can access Floyd Norris' blog here.

Robert Bruner's Blog is available here. We're admirers of Mr. Bruner's erudition in general, and find the W.B. Yeats poem, "The Second Coming," which is posted at the top of his blog, particularly apt.

Lehman & Merrill Lynch: Two of the Most Powerful Firms On Wall Street Gone By Monday

Update 1: NYTimes: "Nations Financial Industry Gripped By Fear" as the market unfolds this week. What banking giant will fail, and how low stocks will go?

WSJ: "Crisis on Wall Street as Lehman Totters, Merrill Seeks Buyer, AIG Hunts For Cash. Traders Brace For A Chaotic Monday."

Lehman Brothers
will file for bankruptcy protection, according to people close to the negotiations, in the largest failure of an investment bank since the collapse of Drexel Burnham Lambert 18 years ago.

Shares of Lehman fell 94% in the past year primarily due to losses related to commercial and residential real estate.

Lehman will seek to place its parent company, Lehman Brothers Holdings, into bankruptcy protection, as its subsidiaries remain solvent while the parent firm liquidates. Lehman has retained the law firm Weil, Gotshal & Manges. A group of banks will provide a financial backstop to help provide a winding down of the 158-year-old investment bank. The Federal Reserve has agreed to accept lower-quality assets in return for loans from the government.

When Bank of America's talks failed with Lehman Brothers, B of A turned its attention to Merrill Lynch, the next biggie in trouble. B of A will buy Merrill for about $50 Billion, or $29.00 per share, which is more than it was valued at just last week.

In the coming week, we'll watch as Washington Mutual fails, and A.I.G. either raises $30 Billion in capital, or goes belly-up.

Sunday, September 14, 2008

Lehman: Barclays Bank Walks Away. Bankruptcy?

By 3pm Sunday afternoon the formerly fourth-largest securities firm Lehman Brothers appeared headed for liquidation, one of the biggest bank failures ever.

Bloomberg News reports that a bankruptcy filing could come before Monday:

"Banks and brokers today held a session for 'netting' derivatives transactions with Lehman, or canceling trades that offset each other, in case the New York-based firm files for bankruptcy before midnight New York time.

``The purpose of this session is to reduce risk associated with a potential Lehman Brothers Inc. bankruptcy filing,'' the International Swaps and Derivatives Association said in a statement today. The ISDA includes 218 banks, brokerages, insurance companies and other financial institutions from the U.S. and abroad." Read more here.

Barclay's Bank bailed from talks, according to the WSJ. "The situation was rapidly evolving...another bidder could emerge to save Lehman before markets opened Monday. But with the government balking at putting any taxpayer money at risk for Lehman, the likelihood of a transaction was dimming." Read about this here.

(We, the taxpayers, are already 'on the hook' for $29 Billion for the Bear Stearns Bailout last March, and nobody knows how much for the Fan & Fred Takeover....Pride of Ownership for us all, right?)

The NYTimes reports:

"The leading proposal had been to divide Lehman into two entities, a “good bank” and a “bad bank.” Under that scenario, Barclays would have bought the parts of Lehman that have been performing well, while a group of 10 to 15 Wall Street companies would agree to absorb losses from the bank’s troubled assets.

What remained unclear was how a liquidation might proceed. One option that was discussed on Saturday would have major banks and brokerage firms continue to do business with Lehman as it unwinds its assets and liquidates over a period of months, according to several people briefed on the discussions. That would buy Lehman time to sell those assets in an orderly way and avoid a fire sale that could depress prices of similar assets held by other banks."

If Lehman has to "mark to market" the value of its current assets--state what they are actually worth--other banks have to follow suit, which leads to huge losses of capital.

Many believe that bankruptcy is likely.

Friday, September 12, 2008

What Gets a $750K Asking Price in Charlottesville?

Along the lines of the NYTimes column, "What You Get For...", we're looking at several houses with the same Asking Price.

Here's an interesting element of the C'ville/Albemarle Post-Bubble Market: the seeming ability of sellers to Pick An Asking Price Out Of A Hat. There're conflicting ideas, we've noticed, about what constitutes a $300K house, a $500K house, and so forth. This isn't verified by hard science; it's an opinion.

But here's a good example. Remember 708 Park Street? That place had an Original Asking of $829K. After months on the market and several price "adjustments," it finally sold in May for $470K. Huh? Huh.

Here's a thought: is it possible that the people who are least likely to have a realistic idea of what any house anywhere should cost are Realtors and professional assessors? These types are so used to bubble prices that now that property values are declining--even here in C'ville--they've lost their ability to discern nuance or, in some cases, to realize that a house is not primarily a cash cow.

Let's start with the numbers. Since all of our lives have recently been improved by the Federal Government's seizing of Giant Mortgage Losers Fan and Fred, we're going to go ahead and calculate a mortgage on $750K, using the optimistic but soon realistic 30 year fixed of 5.75%. And since we're responsible borrowers, we've put down 20%. (Fannie Mae's new guidelines only require 15%, fwiw.)

Using the USBank Mortgage Calculator, these are our figures:

Loan amount $600,000.00
Term of loan 30 years
Interest rate 5.750%
Monthly payment $3,501.44
Total interest $660,515.75

Total payments $1,260,515.75

That's One Million, Two Hundred and Sixty Thousand, Five Hundred and Fifteen Dollars and Seventy Five Cents.


108 Kenwood Circle

This is a Mid-Century Rancher located in Meadowbrook Heights.

You can check it out at the Charlottesville Albemarle Association of Realtors by clicking on "Property" and entering the MLS #456805.

This brick house was built in 1953, has four bedrooms, 2 baths, and 2100 finished square feet.

The listing states, "The existing house, while functional, could use some updating." Which of course is a Red Flag to prepare the buyer for--whatever. Stasis? Moldering carpet? Kitchen ca. 1960?

The house sits on two lots, for a total of 1.47 acres, most of which is wooded. The listing continues, "Numerous options available," but then offers just two: "The house could be torn down and the front lot subdivided into 2 lots (check w/ the City)." That is, no one connected to the property has bothered to determine whether this is a realistic proposition. And the second option? "...a new house could be constructed on the combined property providing privacy, seclusion and ample ground." Well, we're not the City, so we can't say whether the lots could be subdivided. But we have been to Kenwood Circle. "Seclusion?" Depends upon what you mean by "Seclusion."

Transfer History: 108 Kenwood Circle last changed hands in 1999 for $146+K, without the second lot. So let's do the math. Let's say that in 2001, when the lot was added, it cost $80K. We're looking at a base, then, of about $222,ooo.oo.

Now that the Asking is $750K, the place has "appreciated" in seven years by 250

"Location, location, location" you say? Location shmocation. Nothing has happened to this neighborhood in the past fifty years--except that there's far more traffic on both Meadowbrook Heights Road and the Bypass. There still aren't even sidewalks, in case somebody wants to take a stroll.

1613 St. Anne's Road is a quick car ride or an iffy bike ride away.

1613 St. Annes Road
MLS #452162
3 bedrooms, 4 baths
2700 sq ft
ca. 1940.

A lovely location with a house in move-in condition, also in Meadowbrook. The listing says, "Set on one beautifully landscaped acre: lovely stone walls, terracing, gardens -- w/ screened porch, deck & 2 terraces to enjoy a private setting/gardeners' paradise. Owner added large, light-filled LR w/ garden & forest views."

We've been to this house: lots of curb appeal. Not only that, but the listing could go on singing the praises of this place, and it wouldn't just be the usual "endless possibilities," "corian counters," or "stainless appliances"--all of which are usually Uh-ohs.

Though this road also does not have sidewalks (a "quirk" of the era during which much of the original development took place) the traffic is primarily that of residents--no cutthroughs. This makes for nice walking.

1613 St. Anne's Road has long-term owners of about 25 years. One interesting point about the pricing is that real estate ads are often quick to mention what the tax man believes a property is worth, especially when they can note that the property is "well below recent assessment!" We all know that the tax assessment often has little to do with the price of a house. But a prospective buyer is certainly going to notice that the taxes for this property are based on a figure much lower than the asking.

At any rate, we're in a down market and this beauty sat unsold through the summer.

751 Park Street is another long-time-owner house listed for sale.

751 Park Street is aka "The Keller House," so-called after the original owner, a local merchant. The current owners have owned the place since 1972, when they bought it for $39K (those were the days).

MLS #457177, 2928 finished square feet, .49 acre, ca. 1900. 4 bedrooms, 2 full baths, kitchen, living room, dining room, library. Annual City taxes: $6566 (2008).

This is a grand house that one can't help but notice heading south on Park Street or coming off the Bypass.

In June, the house was listed for $769.9K. By August, the sign was gone and we assumed that 751 Park Street had sold. But no: we found the website, where 751 Park was listed for $739.9K.

Last week, the beginning of September, the place showed up again on the Charl/Alb Association of Realtors Multiple Listing Service--with a new MLS and a new Realtor.

The Current Asking is $669.9K--a Hundred Grand less, just a couple months after original listing.

The house's website reports that the City of Charlottesville Landmarks Survey says, “The only frame Colonial Revival residence on Park Street … is an extremely important example of Georgian Revival style so popular at the turn of the century.” Check out the website for pictures.

We feel for the sellers of the 1613 St. Anne's Road and 751 Park Street (but the Kenwood offering? IOHO, not so much). These are the type of classic, emblematic-of-The-Hook, comes-with-an interesting-provenance kind of houses that a local--or an interloper--would have paid big coin for even as late as the Summer of 2007, before the national credit crunch kicked in around August. Though the national and local markets had peaked and we were already much slowed, house buyers around here were still drinking the Kool Aid. And these houses are long, cool sips of goodness. Too bad.

Thursday, September 11, 2008

WaMu Fesses Up & Cut to "Junk"

Washington Mutual has provided a press release on its expectations for its third quarter performance to allay investors' fears...not likely to work.

Tanking, and tanking hard.

From Reuters: "Investors are worried that Chief Executive Alan Fishman, who replaced the ousted Kerry Killinger this week, might fail to raise sufficient capital to cover mortgage losses that the thrift has said could reach $19 billion through 2011.

Washington Mutual said it expected the third-quarter increase in loss reserves to decline from $5.9 billion in the second quarter, when its overall net loss was $3.33 billion.

Moody's cut the Seattle-based thrift's senior unsecured debt rating two notches to "Ba2," its second-highest "junk" grade, from "Baa3," with a "negative" outlook.

"Washington Mutual's access to the debt and equity markets remains severely constrained," Craig Emrick, a Moody's senior credit officer, said in an interview.


Be sure to visit the gurus for info on this, and don't forget to trawl through the comments, which are always enlightening and entertaining.

Lehman Selling Itself By Sunday; WaMu Continues Plummeting

Yesterday, Lehman Brothers. released its Third Quarter report early in an effort to reassure investors and save itself.

Didn't work. Today the bank's shares fell another 41%. Tonight they're looking for a buyer. Chair Richard Fuld is in talks with Barclay's Bank of Britain, as well as Bank of America. Uh Oh.

Fuld is also a Director at the New York Fed, and he's seeking assurances that any sale will be guaranteed in a way similar to that of Bear Stearns sale to JPMorgan back in March.

WaPo says this is even more of a done deal than the NYTimes, and that the Treasury is involved. Shocker. Instead of another Late Friday Rumor, we've got it on Thursday; expect an announcement no later than Sunday Night ahead of the opening of the Asian markets.

Meanwhile, Washington Mutual stock declined 50% over the past two days. Will anybody be stepping in to rescue these jokers, or will a big bank finally be allowed to fail?

Wednesday, September 10, 2008

Q: Who's Cutting Asking Prices? A: NBA All-Stars

Allen Iverson, the NBA All-Star Guard from the Denver Nuggets, and Rasheed Wallace, the Detroit Pistons' All-Star Forward, have both cut the Asking Prices of the houses they currently have on the market, reports the Private Properties column of the WSJ.

Allen Iverson has cut his price by 37%. It's a six-bedroom, 14,ooo sq. ft. house in Villanova, PA, about 20 miles from Philadelphia. Iverson bought the "French-style" house, built in 1991 and sitting on four acres, for $5M in 2003; he put the house on the market for $6.3M in 2007. He's now hoping to get $4M.

Detroit Pistons' Rasheed Wallace has lowered the asking price of his Portland, OR, house from $5.2M to $4.9M. Wallace bought the ca. 1924 5 bedroom, 5 bath house English Tudor, which sits on two+ acres, for about $3M in 2000. It was briefly listed for $5.5M in 2007 before being pulled off the market.

$3.9 Billion Loss for Lehman Bros. In Expected Third Quarter Results

Lehman Brothers' stock lost 45% of its value on Monday, after talks fell through with a Korean Bank, for purchase and infusion of capital. In an effort to keep some sort of perceived value for the company, they will reveal their expected Q3 earnings today, rather than later this month.


These are the "highlights":

*Estimated Net Loss of ($3.9) Billion or ($5.92) Per Common Share (Diluted)

* Significant Reduction in Residential Mortgages, Commercial Real Estate and Other Less Liquid Assets

  • Residential Mortgage Exposure Reduced by 47% to $13.2 B, Pro Forma for Pending UK Mortgage Transaction
  • Commercial Real Estate Exposure Reduced by 18% from $39.8 B to $32.6B

* Spin-off to Lehman Brothers’ Shareholders of Vast Majority of the Firm’s Commercial Real Estate Assets into a New, Separate Public Company

*Annual Dividend to be Reduced to $0.05 Per Share

Update 1:

WSJ Deal Journal LiveBlogged the Conference Call.

For analysis, see WSJ Heard On the Street column, "Lehman Lurches Into Endgame."

See CalculatedRISK's take here and here, and be sure to read the comments. The second link also has instructions on how to listen to this morning's conference call, which will remain available to the public until September 17.

Tuesday, September 9, 2008

Who Will Fail First? Lehman or WaMu?

In July, IndyMac became one of the larget banks ever to fail. Since then, there have been several smaller banks to go under as well.

But now everybody awaits the collapse of a couple more biggies. Who will fail first? Lehman or WaMu?

As mere bubblers even we knew before it happened that the announcement of a Fan/Fred bailout was imminent back in July. About two weeks before Labor Day, we started our Countdown. It just took a few days beyond the holiday before the takeover finally happened this past weekend.

Now we're waiting for some biggies to collapse, not to be rescued. We have a Deathwatch going in our sidebar. Each day we'll have the latest under the skull and crossbones.

Today, Lehman tanked by 45%, WaMu by 20%.

If you've been distracted by Fannie & Freddie, here are some links to catch you up:

MarketWatch: Standard & Poors cuts WaMu's Outlook to Negative
MarketWatch: Lehman Will Announce Q3 Earnings 7.30 a.m. Wednesday After Today's Disastrous Results
CalculatedRISK on how much it will cost to insure WaMu's debt

What Does Fan/Fred Takeover Mean for Mortgage Rates? And for Whom?

What does the Fan & Fred takeover mean for current mortgage holders, and what can it mean for prospective buyers?

Rates should go down:

"The average interest rate for a 30-year fixed rate mortgage dropped 0.3 of a percentage point to 6.04 on Monday, according to HSH Associates, and are expected to decline a little more in the coming weeks."

Why? Because the government has now taken on the "risk" of losses. For an explanation of this--and in 265 words!--click here.

Many people expect to see rates eventually drop much lower, somewhere around 5.5.

So for borrowers whose ARMs (Adjustable Rate Mortgage) haven't yet reset to a higher rate, help may be at hand.

However, the Treasury's actions probably can't stem the wave of foreclosures. The AP reports:

"President Bush earlier this summer signed a bill that aims to prevent foreclosures by allowing an estimated 400,000 homeowners to swap their mortgages for more affordable loans, but only if their lender agrees to take a loss on the initial loan."

"The Bush administration also has expanded guidelines for the Federal Housing Administration, which backs loans to borrowers with poor credit and small down payments. But that program has helped only a tiny number of borrowers who are actually behind on their mortgages."

"Of the 356,000 borrowers projected to use the government's refinance program through the year ending Sept. 30. — about 1.5 percent, or about 5,000 consumers, are likely to have been delinquent. The Bush administration says borrowers are taking advantage of the program before they fall into delinquency and notes that the program was expanded over the summer to allow more delinquent borrowers to qualify."

Still, there are
consumer advocacy groups who want more help for mortgageholders in trouble:

"Consumer groups were already urging the government to place more pressure on Fannie and Freddie to aid borrowers in trouble."

"'Since we are using tens of billions of dollars to bail out entities engaged in these lending practices, it's time for the nation to demand those same entities fix it by restructuring loans and avoiding the further demise of the housing market,'" said Bruce Marks, chief executive of the Neighborhood Assistance Corporation of America, a Boston-based group that helps troubled borrowers."

There's talk of more congressional action. We doubt, as do minds greater than ours, that anything will happen before there's a new President in place.

Of course, a takeover was inevitable. From the WSJ:

"Fannie and Freddie's credit problems are largely a reflection of the overall weakness in the housing market. Some 9.2% of mortgages on one- to four-family homes were at least a month overdue or in the foreclosure process in the second quarter, according to the latest survey of the Mortgage Bankers Association. That is the highest percentage in the 39 years that the trade group has been doing the surveys."

"Make no mistake, anybody in the mortgage business is going to see much higher losses than they thought they would a year ago because we've had the worst housing market and the largest home price declines that anybody has seen," said Thomas Lawler, a housing economist in Leesburg, Va., who formerly worked for Fannie.

Additionally, from the WSJ:

"[Fan & Fred] are also exposed to some of the mortgage industry's most troubled players. Countrywide Financial Corp., now part of Bank of America Corp., was the largest provider of loans purchased by Fannie Mae, accounting for 29% of its business in 2007, according to Inside Mortgage Finance, and was the second largest source of loans for Freddie Mac, with a 16% share.

IndyMac Financial Corp., which previously had focused its business on Alt-A loans that didn't meet Fannie and Freddie guidelines, switched to a policy of making loans that could meet their standards in 2007."

Countrywide Financial is being sued in a number of states; the Center for Responsible Lending even has a database of the lawsuits. And many expect Angelo Mozilo, former chair, to be indicted for fraudulent lending practices.

IndyMac failed this summer, after a bank run.

So yes, mortgage rates will drop. But let's keep things in perspective: This takeover is going to be paid for by taxpayers--billions and billions of dollars. A little saved on the mortgage will go right back to the treasury via higher taxes.

And as for the prices of houses? The takeover does nothing for the gigantic supply. Nationally, there's about 11.2 months of inventory. Locally, there's over 14 months of inventory.

Prices on houses will come down, but this of course is dependent on how much an individual seller really wants to sell.

Monday, September 8, 2008

Henry Paulson Doesn't Have All the Answers

Here's Treasury Secretary Henry Paulson on MSNBC - Being asked, but not having the answers to, the "hard questions," such as "What will this cost the taxpayers?" Not even a vague guesstimate.

And as for timing? Claims that the takeover coming after the Republican National Convention is coincidental, and that the takeover coming as far away as possible from the election is just...coincidence.

Fed Takeover: What It Means For Americans

What the Takeover Means for Americans, according to Hank Paulson's Statement on Fan & Fred takeover:

"And let me make clear what today's actions mean for Americans and their families. Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation. That is why we have taken these actions today."

What the Takeover Means to Americans: Some thoughts from the finance/economy gurus at CalculatedRISK:

"For housing, this doesn't change anything. Housing fundamentals remain the same: excess supply (especially distressed supply), tighter lending standards, and prices are still too high compared to incomes and rents. The possible slightly lower mortgage rates are almost inconsequential compared to supply and price issues.

And the economy is still in recession that will linger for some time."

Additionally, the NYTimes' Ron Leiber weighs in on mortgage rates, house prices, new deals on old mortgages, new rules for new mortgages.

Time will tell....