by Calculated Risk on 3/10/2008 10:00:00 PM

Here are the Kennedy-Greenspan estimates (NSA - not seasonally adjusted) of home equity extraction for Q4 2007, provided by Jim Kennedy based on the mortgage system presented in "Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences," Alan Greenspan and James Kennedy, Federal Reserve Board FEDS working paper no. 2005-41.

Click on graph for larger image.
For Q4 2007, Dr. Kennedy has calculated Net Equity Extraction as $76.3 billion, or 3.0% of Disposable Personal Income (DPI). Note that net equity extraction for Q3 2007 has been revised downwards to $119.3 billion.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, both in billions of dollars quarterly (not annual rate), and as a percent of personal disposable income.

MEW was declining in Q4 2007, however, these numbers are not seasonally adjusted. MEW in Q4 2006 was $94.6 Billion, so MEW has only fallen 20% from Q4 2006.

As homeowner equity continues to decline sharply in the coming quarters, combined with tighter lending standards, equity extraction should decline significantly and impact consumer spending.

by Calculated Risk on 3/10/2008 07:04:00 PM

Here is the long version of Summers' speech.

Here is the short version video of Larry Summers' speech last week (11 minutes).

"We are in nearly unprecedented times with respect to the financial strains." Summers, March 7, 2008 at Stanford

Here is also US Treasury Secretary Henry Paulson also on March 7th at Stanford (13 minutes).

by Calculated Risk on 3/10/2008 02:46:00 PM

From Paul Jackson at Housing Wire: Fitch Downgrades National City, Wamu, Others on Home Equity Concerns

Deterioration within home equity portfolios will clearly emerge in first-quarter 2008,” the agency said in a press statement late Friday, “which is earlier than Fitch previously expected.”
...
“Home equity delinquency rates are rising at a far more rapid pace than even most bankers’ and analysts’ grim outlook for 2008 had anticipated,” it said. The agency characterized home equity loans originated by brokers, and located in a locale enduring swift price declines such as California, as “particularly toxic.”

HELOCs. Alt-As. We are all subprime now.

by Calculated Risk on 3/10/2008 02:01:00 PM

Last week, MBIA asked Fitch to withdraw ratings on several of its units.

Today Fitch responded (via MarketWatch): Fitch calls MBIA info destruction request 'disingenuous' (hat tip Charlie)

[Stephen Joynt, the chief executive of Fitch Ratings] told MBIA it was "considering" MBIA's request to withdraw IFS ratings, and that it was willing to waive rating fees.

Joynt also asked MBIA if they were asking S&P and Moody's to waive their fees.

For those with access, here is the Fitch response.

by Calculated Risk on 3/10/2008 12:31:00 PM

From CNNMoney: Moody's downgrades Alt-A deals

Moody's downgraded the ratings of 163 tranches from 15 deals issued by Bear Stearns ALT-A Trust, with 78 downgraded tranches remaining on review for possible further downgrades.

Moody's said the downgrades are based on 'higher-than-anticipated rates of delinquency, foreclosure and REO in the underlying collateral relative to credit enhancement levels.'

Also, former Bear Stearns CEO "Ace" Greenberg responded on CNBC to a rumor that Bear faced a liquidity crisis:

"It's ridiculous, totally ridiculous."

by Anonymous on 3/10/2008 11:20:00 AM

From Marketwatch:

Getting the FBI to do your due diligence doesn't seem like a particularly great business strategy.

by Anonymous on 3/10/2008 11:00:00 AM

by Calculated Risk on 3/10/2008 10:19:00 AM

From Bloomberg: Emerging-Market Bonds Rise on Speculation of Emergency Rate Cut

Emerging-market bonds rose following a Goldman Sachs Group Inc. research note suggesting that the Federal Reserve will cut rates before its scheduled meeting to shore up the U.S. economy.
...
Goldman joined several other analysts who say the Fed may lower interest rates today in ``a more aggressive response'' after the government said on March 7 that employers unexpectedly cut jobs in February for a second month.

by Calculated Risk on 3/10/2008 10:12:00 AM

From Paul Krugman at the NY Times: The Face-Slap Theory

This column is a followup to Krugman's blog posts: What’s Ben doing? (Very wonkish) and Why sterilization matters

Note: It was reader BR who sent me the joke mentioned in the column. I like Tanta's version too: "Mr. Margin on line one"

by Calculated Risk on 3/09/2008 07:42:00 PM

From the WSJ: Fear Cycle Ensnares Structured Products

... investors ... are driving risk premiums on a closely watched derivative index -- the investment-grade Market CDX IG9 index -- to record weak levels ...

That, in turn, is creating a vicious cycle: the wider the risk premiums go on this index, the more of these complex structured products -- which are at the heart of the ongoing credit crunch -- get dragged into the maelstrom.

Click on graph for larger image.

Here is the CDX IG9 graph from Market.

The IG9 index reflects the cost of insuring against default by 125 U.S. and Canadian investment-grade companies. It widens when investors buy protection in anticipation of further troubles in corporate credit. Structured products also used the index, primarily selling protection, as part of elaborate money-making strategies.

Just more cliff diving in the credit markets.