financial crisis: What Would Happen If the FDIC Seized Citi Bank?
- 02/08/09 01:30 PM
Perhaps the FDIC is reluctant to seize any of the banks that were deemed to big to fail because of the impact it will have on all of the other banks that are carrying the so called "Tarnished Assets" on their books. The reason, the Book Value is significantly greater than the True Market Value. If the FDIC seizes one of these banks and then auctions off "Tarnished Assets" of that bank it will establish a Market Value for the "Tarnished Assets" held by all of the other banks. When the new Market Value is established through a public auction then (6 comments)
financial crisis: IRS Decision Enables Banks to Shift Their Losses to the Public
- 02/08/09 09:36 AM
So, do IRS decisions (the IRS is a bureau of the Dept. of Treasurey) that function as change to tax laws carry the same weight as law? Yes, they do. A tax decision which can only be interpreted as being written specifically for the benefit of banks was issued just prior to the Wells Fargo & Co. purchase of Wachovia Corp. This is what happened. Two days before the October 2nd 2008 announcement of the Wells Fargo plans to purchase Wachovivia, the Internal Revenue Service issued the controversial tax change. What was the change? Prior to this decision, businesses, including banks, were restricted in the amount by which they could lower (2 comments)
financial crisis: Here We Go Again With the Second Tranche of TARP Funding
- 02/08/09 04:36 AM
With the first tranche of TARP funds former Treasury Secretary Paulson paid 78 biilion dollars more for banks stocks than they were worth and no funds were directed toward solving the housing & foreclosure crisis. We the public immediately lost 78 billion dollars. With the second traunch of TARP fund Treasury Secretary Geithner wants to provide incentives to investors (aka banks) in the form of commitments to absord some of the losses from any assets they purchase should the value of these assets continue to decline. So banks could by each others worst assets at what ever price they negotiate. Then they get to keep any (7 comments)
financial crisis: SEC Chairman Cox Admits His Agency Failed
- 02/05/09 04:17 PM
Failure is an understatement. At best members of the SEC are guilty of criminal negligence at worst SEC members were co-conspirators and/or accessories to the crimes. In December 2008, SEC Chairman Christopher Cox admitted that the agency had failed to thoroughly investigate multiple "credible and specific allegations regarding Mr. Madoff's 50 billion dollar financial wrongdoing," adding "I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them." On 4 February 2009 Harry Markopolos, an independendt certified fraud examiner, testified at the House Financial Services (2 comments)
financial crisis: Foreclosure Solutions for Families
- 01/07/09 07:23 AM
We have experience in solving the foreclosure problems. In 1933 FDR's people redefined the role of the Federal Home Loan Banking Board through the Home Owner's Loan Act and created the Home Owners Loan Corporation (HOLC). The HOLC was granted $200 million in start up funds and the authority to market more than $2 billion in govt. backed tax-exempt bonds to purchase delinquent mortgages before they went into default. But that is not all the HOLC did. The new agency also offered direct aid to the besieged homeowners who were cut off from credit. The HOLC operated under six guiding principals (2 comments)
financial crisis: Banks Will Resume Lending When …
- 01/06/09 08:50 AM
The risk is manageable and they once again can make money on: Residential mortgages Commercial mortgages Business loans Auto loans Credit Cards, The govt. is taking action to stabilize the economy and create a market environment in which the risks can be managed and banks will make loans. In addition to taking over Fannie Mae and Freddie Mac and reducing the Federal Reserve Rate to between 0 and 0.25% the govt. has invested more than: 256 billion to address insolvency in the financial markets by stabilizing banks that were deemed to big to fail,credit worthy banks, and AIG. 500 billion for the Federal Reserve to (6 comments)
financial crisis: Reasons Home Buyers Are Not Buying
- 01/05/09 10:12 AM
I just finished a webinar at John Burns Real Estate Consulting that provided some insight and clarification about the reasons home buyers are not buying. Some of this is common knowledge but I like to have good reference data available in any discussion with listing clients. The source of this info is the John Burns Real Estate Consulting Survey of 240 Home Building Executives, December 2008. The reasons are ranked by the percentage of buyers impacted Concerns about economy and jobs........... = 36% Cannot sell existing home..................... = 29% Worried about further home price declines = 20% Credit/Qualification issues...................... = 10% Lack of down (10 comments)
financial crisis: Does the Treasury Dept think your bank is likely to survive?
- 01/04/09 11:43 AM
Although the process is very opaque, the Treasury Dept. is assessing the condition of the nation's 8.500 banks and assigning them a rating of one to five where 1 means the Treasury Dept. will most likely make an equity investment in your bank and 5 means that it most likely wont. I explained this in my previous blog. Upon further reflection it occurred to me ask: How can the public at large manage the risk to personal and/or business assets deposited in their bank if the Treasury Dept. doesn't make this information available for public consumption. The position the Treasury Dept (0 comments)
financial crisis: Treasury Dept Allocates 278 Billion - Where Did It Go?
- 01/04/09 09:35 AM
ProPublica, an independent non-profit newsroom that works in the public interest reports that 278 billion dollars were allocated to 282 banks. Their report is at the following website http://www.propublica.org/feature/bailout-bucks-to-banks-1028 ). However, we still don’t know how these funds are being used or if they are being used appropriately to restore liquidity to the financial markets and stem the tide of home foreclosures The Treasury Dept is using the US supervisory CAMELS ratings to help it decide which of the nation’s 8.500 banks will receive bank equity investments from the TARP funds authorized by the Emergency Economic Stabilization Act (EESA) and which (0 comments)
financial crisis: What can history teach us about the current financial crisis?
- 01/03/09 04:41 PM
By the date of President Roosevelt's inauguration, 4 March 1933, we were in the depth of the Great Depression. The citizenry was panicked; there had been a run on the banks; and nearly all of the nation's banks had temporarily closed. To paraphrase our present Secretary of the Treasury, Henry Paulson: There was a lack of liquidity. I have included links below to 2 one page speaches given by FDR. He was a skilled communicator who spoke frankly and chose his words carefully. You'll appreciate the irony when you realize that these same words could be used today. FDRs first inaugural speech 4 March 1933. "The only thing we have to fear is fear itself." (0 comments)
financial crisis: The Market Price of Delinquent Loans, a.k.a. Non-Performing Assets
- 12/29/08 06:12 AM
Premise The value of a delinquent primary note is not zero. If a bank/lender wants to sell a delinquent note to convert a non-performing asset into a significant lump sum of cash then we need to establish a process for establishing the value of these assets. Facts Real estate value have deteriorated in many parts of the country. The number of foreclosures is at an historic high. Large banks have incurred loses on large portfolios on non-performing notes and/or real-estate secured instruments that is jeopardizing their solvency. There is too little cash in the private sector to purchase these notes. GSEs are (0 comments)
financial crisis: 'What if Analysis" It can help you make better plans.
- 12/14/08 04:00 PM
What if Consumer Confidence/Spending declines further? What if more workers lose their jobs and unemployment grows to 9% or higher? What if commercial properties go into default and banks foreclose on these properties? What if there are more foreclosures both residential and commercial in 2009 than there were in 2008? What if Banks unilaterally decide that foreclosure is a better option than renegotiating their mortgages with property owners who are at risk of default? What if banks decide that it is better to rent REOs than to sell them in the 2009 market? What if real estate sales continue to decline (0 comments)
financial crisis: Bailout funds are dwarfed by the 33 to 47 trillion dollar asset value of CDSs
- 11/25/08 02:22 PM
The subprime loans are just the tip of the iceberg. These loans were leveraged many times over as they were packaged and repackaged into Mortgaged Backed Securities (MBS), Collaterallized Debt Obligations (CDOs) and these investment instruments were then the objects upon which wagers or side bets in the amount trillions of dollars were made. The window at which these wagers were made was the Credit Default Swaps (CDS) window where Over-The-Counter bets and side bets were made. After reaching a peak asset value of 62 trillion dollars in 2007 which is estimated to be more than the Gross Domestic Product of (0 comments)
financial crisis: Short Sales - Lenders can lose a little, or Lenders can lose a lot
- 11/21/08 04:53 PM
We just had a sale fall out of escrow because the lender(s) wouldn't approve a short sale on an all cash offer that was approximately 83% of the outstanding balance of the combined 1st and 2nd mortgage. This amounted to a lender's loss of a little more than $26,000. Without going into to all of the details of the transaction the buyers had an offer that was accepted by the Seller's attorney. They wire transferred all the funds necessary to close escrow and all contingencies were either satisfied and removed or waived and removed including the fact that the potable water (0 comments)
financial crisis: What is a subprime loan and what is Alternative A paper?
- 11/18/08 08:34 AM
The housing market as well as the broader economy has been destabilized by the extension of loans to homeowners with poor credit history and to homeowners with above average credit ratings who were never required to provide verification of income. Without assigning blame it is important to acknowledge that this practive was one of the leading causes in record numbers of foreclosures, declining home values, the freezing of the credit market, and in rising job losses. There is no shortage of opinions as to who is at fault and who should be blamed. However, to understand what the "Experts" and the partisan politicians are saying we need to know (0 comments)
financial crisis: Homeownership 1999 to 2006 Boom to Bust
- 11/15/08 10:17 AM
I went to the US govt. census site to investigate the changes in the Homeownership rates from 1968 to the present, 2008. Since we just completed the 3rd Qtr for 2008 I looked at the 3rd Qtr findings. From 1968 to 1978 looking at the 3rd Qtr it was at 64.6 +/- .6 percent. From 1979 to 1983 looking at the 3rd Qtr it was at 65.8 +/- .2 percent. From 1984 to 1998 looking at the 3rd Qtr it was at 64.4 +/_ .4 percent. From 1999 to 2006 looking at the 3rd Qtr it was at 68.0 +/- 1.0 (0 comments)
financial crisis: Credit Default Swaps have made a bad situation worse
- 11/14/08 05:01 PM
It is my understanding that investor demand for collateralized mortgage obligations (CMO's) and collateralized debt obligations (CDO's) which are backed by the value of mortgage loans created a need for more mortgage loans. The investment firms that were producing the CMOs and CDOs exerted demand pressures on the mortgage lender's to relax their underwriting standards in order to write more mortgage loans to address the market demand for CMOs and CDOs. Subprime mortgages and loose underwriting criteria subsequently produced mortgage loans that were at high risk of default. These high risk loans became part of the next generation of CMOs and CDOs (0 comments)
financial crisis: When a homeowner wants to renegotiate their mortgage who do they contact?
- 11/13/08 05:33 AM
As I understand it, most residential mortgages are resold into the secondary mortgage market to recapitalize local and regional lenders. The original lender is recapitalized by the sale of the mortgage into the secondary market so they have more money to lend. Additionally, the original lender has the opportunity to make money by charging fees to service the loan for the new owners. In the secondary mortgage market the original loans are purchased and sold. Subsequently specialized investment firms will group together many loans and sell grouped loans as securities or bonds. They market these products as collaterized mortgage obligations (CMO's) (0 comments)
financial crisis: Housing Inventory is at record HIGH - Demand is a record LOW
- 11/12/08 03:47 AM
The govt needs to develop a plan of action with milestones to reduce the inventory of homes on the market and to stop the decline of prices. In targeted areas the govt can buy up homes at the low end of the market. In some areas where the older homes are delapidated, not up to building code & zoning standards, and not energy efficient the govt can employ construction workers to tear down these properties and create economic zones for future re-development and/or for community gardens. In other areas where there is high unemployment and a need for low income housing the govt. could (0 comments)
financial crisis: Lender's concerns in a declining market
- 11/08/08 08:00 AM
With declining property values it is no mystery why lenders are reluctant to lend. Some housing markets like Stockton, CA have already experienced declines in property values up to 40%. A 20% decline in the last 12 months has occurred in more than a few metropolitan markets and there are forecasts that some of these markets may see another 20% decline in property values. So if you are a lender you are seeing the value of the property used to secure your loan decline rapidly to a point that is inadequate to secure your loan and manage your risk. Let's look (0 comments)