by Calculated Risk on 12/19/2007 01:01:00 AM

“It’s a zero-sum game. If you put trades on that worked so well that you bankrupt your counterparty, you will not collect on those trades.”
(edit, quoted wrong person) Jim Keegan, a senior vice president and portfolio manager at American Century Investments

I'm starting with Keegan's comment because that was my first reaction to a possible bailout by the banks. Since ACA currently has a negative net worth, wouldn't the bailout amount have to be equal to the amount that ACA lost (and the banks saved by buying insurance)? How does that help?

From the NY Times: Banks Study Bailing Out Struggling Bond Insurer

Officials from Merrill Lynch, Bear Stearns and other major banks are in talks to bail out a struggling bond insurance company that has guaranteed $26 billion in mortgage securities, according to two people briefed on the situation, because the insurer’s woes could force the banks to take on billions in losses they had insured against.

Worth reading.

by Calculated Risk on 12/19/2007 12:04:00 AM

Press Release: Hovnanian Enterprises Reports Fiscal 2007 Results

Sales:

... the Company delivered 13,564 homes with an aggregate sales value of $4.6 billion in fiscal 2007, down 24.4% from 17,940 home deliveries with an aggregate sales value of $5.9 billion in fiscal 2006. In the fourth quarter, the Company delivered 3,969 homes with an aggregate sales value of $1.3 billion in fiscal 2007, a decline of 22.0% in sales value from the fourth quarter in fiscal 2006.

Cancellation rate:

The Company's contract cancellation rate, excluding unconsolidated joint ventures, for the fourth quarter of fiscal 2007 was 40%, compared with the rate of 35% reported in both the fourth quarter of 2006 and the third quarter of fiscal 2007.

The headline number will be their losses and writedowns, but for the overall housing market, I think sales and cancellations are interesting. I use changes in the cancellation rate to adjust the New Home sales number from the Census Bureau (since the Census Bureau excludes cancellations). With rising industry wide cancellation rates, the Census Bureau understates the increase in inventory.

by Calculated Risk on 12/18/2007 08:11:00 PM

Krugman speaks at Google on Dec 14th. Krugman was on book tour, but he spoke about the current economic issues instead.

Paul Krugman is a professor of economics and international affairs at Princeton University, and the author or editor of 20 books and more than 200 professional journal articles. In recognition of his work, he has received the John Bates Clark Medal from the American Economic Association, an award given every two years to the top economist under the age of 40. The Economist said he is "the most celebrated economist of his generation."

by Calculated Risk on 12/18/2007 07:19:00 PM

From the Financial Times: Second wave of SIV liquidity problems looms

January will bring the start of a second wave of liquidity problems for SIVs as the vast majority of medium-term funding starts to come due for repayment, according to a report from Dresdner Kleinwort analysts to be published on Wednesday.
...
SIVs rely on cheap, short-term debt ... [that] has come from both ...(CP) ... and from the slightly longer maturity medium-term note (MTN) markets. ... “So far SIVs have primarily felt the impact of collapsed CP issuance,” said Domenico Picone at DrK. “Outstanding MTN for the 30 SIVs currently stands at $181bn, which will be the next liquidity challenge they face.”

Luckily the SuperSIV will be ready to step in, from Bloomberg: `SuperSIV' Fund to Start Buying in Weeks, Banks Say.

by Calculated Risk on 12/18/2007 04:13:00 PM

From Bloomberg (no link yet): Macklowe Failed to Repay $500 Million Loan, Newsletter Says (hat tip Brian)

New York investor Harry Macklowe failed to pay a $495 million loan from Deutsche Bank AG to develop an office, hotel and condominium tower on the Park Avenue site of a former luxury hotel, Commercial Mortgage Alert said.
...
He also missed a payoff deadline for a $120 million loan on
510 Madison Ave. ...

In September, the WSJ reported: Macklowes On a Wire

Mr. Macklowe and his son Billy paid $6.8 billion to buy seven New York buildings from Equity Office Properties Trust. ... the sale was one the most expensive real-estate deals in U.S. history, symbolizing the skyrocketing prices paid for buildings at a time of cheap debt and demand for office buildings.

The transaction was emblematic of the lax underwriting standards of the real-estate boom. Macklowe Properties put in only $50 million of equity and borrowed $7.6 billion, according to the documents. (Mr. Macklowe borrowed more than the purchase price to cover closing costs and other fees.) The deal also had "negative debt service," meaning that the rents from the buildings weren't expected to cover the debt payments for five years ...

Talk about a high LTV: borrowing $7.6 Billion for a $6.8 Billion purchase on properties that have probably declined in value. Approximately $5.0 Billion of the debt must be paid off in February.