Greenspan Worries About US Credit Market
The former chairman of the Federal Reserve has certainly kept himself busy preaching doom for US Markets.
In his latest public conference, he revealed a decreased amount of hope for US credit markets. Here’s a blurb from Bloomberg:
Former Federal Reserve Chairman Alan Greenspan said credit markets are in a “state of fear,” instead of a “state of euphoria” where investors are buying.
“We’re now in a state of fear,” Greenspan said in Chicago at the Midwest ACG Capital Connection conference, a gathering of investment bankers and private-equity companies. Greenspan was discussing commercial paper and structured investment vehicles.
Fed and U.S. Treasury officials have also said that it will take some time for confidence to return to markets for complex securities. Investors who depended on credit ratings companies to assess the debt now must struggle to come up with their own prices, Fed Chairman Ben S. Bernanke said Oct. 15.
Should credit supplies shrink, it will become hard to find affordable credit such as a Utah home equity loan.
Germany Accuses UK Economy of Being a ‘Sham’
The international blame game continues as two of Europe’s largest economies have begun to go for each other’s throats.
The Telegraph writes:
Britain’s economic resurgence over the last fifteen years has been driven by record levels of household debt and a public spending spree that cannot continue, according a German-led team of economists.
In a damning new report “More Mirage than Miracle” published by the free-market think tank Policy Exchange, the analysts said Britain was relapsing into high-tax and high-regulation sclerosis just as the rest of Europe begins to shake itself out of statist lethargy.
The country’s underlying slippage has been masked by a housing boom that creates a false sense of wealth and encourages people to over-spend by drawing cash from their homes.
With economies across the west struggling to pay off mortgage losses, it will be interesting to see just how heated the blame and accusations become. While certainly a far cry from last century’s World War, economic trouble may lead to heated conflict once again.
Top Investors Lost on Suprime
A huge writeoff is coming from Merrill Lynch as a result of terrible investments made in the subprime markets. How huge? More than 5 Billion Dollars.
The NY Post recently reported:
As Merrill Lynch prepares to report its third-quarter earnings tomorrow, there are concerns the eye-popping pre-announcement of a $5.5 billion charge from troubled bond investments might be the tip of the iceberg for the Wall Street giant.
The noise is coming from traders and portfolio managers in the market for collateralized debt obligations - which are bonds made of other bonds - where Merrill has reigned supreme since the early part of the decade.
Rumors started circulating late Friday that Merrill might have an additional write-down and that a special board meeting had been called to discuss the matter.
In reality, the board’s get-together was a regularly scheduled meeting. But the losses - at least into the first three weeks of the quarter - appear to be real enough.
Merrill earlier this month announced that most of its writedown, about $4.5 billion, would be in its subprime mortgage and CDO securities. Merrill said the continued deterioration in that market over the past few weeks has, in the words of a Merrill executive, “kept the blood on the page.”
With such incredible amounts being written off in order to payoff mortgage debt, it seems certain that a dire future awaits American markets.
Mixed Feelings on US Lenders
Foreign banks are watching with interest and fear as the US works frantically to rescue it’s troubled housing sectors. With $100 billion promised by US banks, it seems that something may actually result from the intervention. Whether that result will be positive remains to be seen.
Marketwatch has an interesting commentary regarding this:
The world’s top banking overseer has reservations about the $100 billion rescue package planned by U.S. banks and believes U.S. banks could be temporarily at a competitive disadvantage to their foreign rivals because of the slowed implementation of new capital requirements.
Nout Wellink, the chairman of the Basel Committee on Banking Supervision who is also president of the Dutch central bank and a member of the European Central Bank’s Governing Council, discussed the recent credit-market turmoil with Joellen Perry of The Wall Street Journal and Damian Paletta of Dow Jones Newswires.
WSJ/Dow Jones: What are your thoughts about this new superconduit that’s been proposed?
Wellink: For the time being, I have mixed feelings. …What is exactly the idea behind it? Is it a way of escaping your fate? Because if there is no market, at a certain price, then you’re confronted with losses. Take these losses. …As long as it’s meant to create an orderly process, okay. But if these artificial elements are involved, then immediately the supervisor and the central banker uses the phrase moral hazard.
With refinances and home equity line of credit loans made available, the housing crisis may be averted. Many fear that all of this will only be delaying the inevitable, and have no positive long term affects.
Lenders Doing Little to Help Homeowners
It comes as no surprise that lenders which preyed upon borrowers during the recent housing boom have strongly resisted all efforts at mandating homeowner assistance. Obviously the lenders would rather get out of debt.
The AP is writing:
But as defaults and foreclosures snowball, the mortgage industry is under increasing pressure to do even more to help financially strapped borrowers hang on to their homes.
“People are talking about it, saying it might be necessary, but there’s not a lot of it going on,” said Guy Cecala, publisher of Inside Mortgage Finance, an independent trade publication.
The Mortgage Bankers Association is currently surveying its members to determine how many mortgages have been modified in recent months.
Moody’s Investors Service recently surveyed 16 mortgage servicers that accounted for 80 percent of the market for subprime loans made to borrowers with shaky credit histories.
It found that most of those companies had modified only about 1 percent of loans with interest rates that reset in the first half of this year.
It seems like a silly conflict of interest to force a lender to assist a homeowner in reducing mortgage debt. The government is rarely logical when considering such however. Just look at who runs the Federal Reserve.
Countrywide Intends to Refinance $16 billion in Loans
In a surprise move by Countrywide, the 1st and 2nd mortgage lender has announced its intentions to purchase a huge number of subprime loans. Considereing the down market currently being experienced by mortgage companies worldwide, this strategy seems odd to say the least.
Bloomberg reports:
Countrywide Financial Corp., the biggest U.S. mortgage lender, will make it easier for customers to keep their homes by changing the terms on $16 billion of adjustable-rate mortgages.
About 52,000 customers with subprime loans can refinance into prime or government-backed mortgages through next year, the Calabasas, California-based company said today in a statement. Such loans usually have lower rates. Another 30,000 who may miss payments, or are already late, will get more affordable terms.
Treasury Secretary Henry Paulson last week called the housing slump “the most significant current risk to our economy” and urged lenders to modify more loans. Countrywide, which funded more than 1.8 million mortgages this year, has been criticized by housing advocates who say the company has done little to stem record U.S. foreclosures.
There is some degree of irony here considering the clamor which mortgage companies have been making for Federal aid as a result of bad mortgage loans they ‘mistakenly issued’.
Stockholders Clamor for New Countrywide CEO
Major primary and second mortgage lender Countrywide is receiving a heavy backlash from stockholders requesting a new CEO be put in place.
The AP has the latest:
A pension plan that owns shares of Countrywide Financial Corp. has asked the mortgage lender’s board to oust Chairman and CEO Angelo Mozilo amid criticism of the company’s management and a sharp decline this year in its stock price.
The Washington D.C.-based American Federation of State, County and Municipal Employees, which counts 1.4 million members, asked the board to replace Mozilo with two independent directors to the board in a six-page letter sent late Thursday.
In its letter, the union-affiliated pension plan called on the Calabasas-based company to also replace its executive compensation committee with people who have not played a role in the committee’s actions.
“Adding new independent directors is a way for stockholders to change an atmosphere that allows a dominant dual-role chairman and CEO to operate without appropriate checks and balances,” Gerald W. McEntee, president of the union and chairman of its pension plan, wrote in the letter.
This is certainly an interesting turn of events. It remains to be seen how Countrywide chooses to respond.
Changing Middle Class
MSNBC has run an interesting article regarding the changing middle class divide. It indicates that those who live in midwestern or central states have a far more affordable lifestyle than those who live in coastal or metropolitan areas. The article proceeds to suggest that Congress get involved:
Congress to the rescue?
With the campaign season gearing up, there’s a great deal of talk about the need for government to take a greater interest in this key demographic group. In theory, that’s where the bulk of American voters are. So earlier this year, Congress asked its research service to come up with a definition of middle class.The researchers started by looking at income levels. Based on 2005 Census Bureau reports, some 40 percent of the nearly 115 million households in the U.S. earned less than $36,000 a year. That represented just 12 percent of all income. The 40 percent on the next rung up the economic ladder took in between $36,000 and $91,705 — or about 37.6 percent of all income. The top 20 percent, who made $91,705 or more, collected half of all income.
But those numbers don’t adequately reflect the state of mind of those who consider themselves middle class. Surveys have shown that, while people consider $40,000 a year to be the low end of what it takes to buy a middle-class life, some people who make as much as $200,000 a year still consider themselves middle class, the researchers said.
Few seem to realize that even outside of Utah, one can manage debt through creative debt management and live a more affordable lifestyle. Those here sometimes choose to use a Utah Home Equity Loan to pay down excess debts and enable saving.
E*Trade Suffers Huge $58 Million Loss
The former lender E*Trade has been struggling to exit the lending business as a result of it’s inability to pay off mortgage debt incurred by increasingly large numbers of foreclosures. This is almost comical considering E*Trades record amounts of trading activity and asset growth. Writeoffs on bad mortgage debt have nonetheless led to a third quarter loss being reported of $58 million.
MarketWatch further illuminates us on the hilarity of the entire situation:
“People are probably surprised that a company like E-Trade is being snared in this mortgage crisis,” said Chip Hanlon, president at Delta Global Advisors Inc. in Huntington Beach, Calif. “This could fuel fear that the real estate mess isn’t close to being over.”
Shares of E-Trade finished down nearly 1.8% in Wednesday’s session. In after-hours trading about an hour after the market’s close, shares dropped 4%. E-Trade had warned last month that it was being heavily impacted in the quarter by adverse mortgage-related conditions. The company pointed at the time to a potentially large hit in earnings.
“This is very frustrating for us,” said Jarrett Lilien, E-Trade’s president. “We had the best quarter ever in our core business. But events in the credit markets overshadowed those gains.”
It is indeed surprising that such a large company, particularly one which markets itself as financially savvy enough to assist investors in investing, could have made so many bad real estate investments.
Mortgage Rates Remain Steady
Further indication that the mortgage market is still in an unknown state, rates have remained at a somewhat stable level despite the many downturns within the lending industry.
A blurb from Reuters indicates:
Average rates on U.S. 30-year mortgages were unchanged in the latest week, mortgage giant Freddie Mac said on Thursday.
U.S. 30-year mortgage rates remained at an average of 6.40 percent, as fifteen-year mortgages rose slightly to 6.08 percent from 6.06 in the prior week.
One-year adjustable rate mortgages inched upward to an average of 5.76 percent from 5.73 percent last week.
Freddie Mac said the “5/1″ ARM, set at a fixed rate for five years and adjustable each following year, averaged 6.11 percent, down slightly from 6.12 percent a week ago.
With rates being steady, this is certainly a good time to lock in a rate on a home equity line of credit. Rates are almost certainly going to jump in the near future.