by Calculated Risk on 5/11/2009 09:12:00 PM

From Crain's Chicago Business: Foreclosure wave slams suburbia (ht Atrios)

Home foreclosures are surging in Chicago's suburbs just as they level off or decline in many city neighborhoods already ravaged by mortgage defaults.

Foreclosure cases filed in the first quarter jumped between 25% and 70% from the fourth quarter in DuPage, Will, McHenry, Lake and Kane counties, according to new data provided to Crain's by the Woodstock Institute, a Chicago-based housing advocacy group. Meanwhile, foreclosures fell 8% in Chicago, the first quarterly decline in a year.
...
The shifting locus of new foreclosures shows how the recession and job losses are supplanting subprime lending as the main driver of mortgage defaults ... While the first wave of foreclosures hit hardest in poorer city neighborhoods ... the latest round is striking middle-class areas where most borrowers qualified for standard-rate mortgages.

The decline in foreclosures in Chicago might be because of the recent moratorium, but clearly foreclosures are moving into the middle-class areas.

We're all subprime now!

And that gives me an excuse to post this ...

Click on drawing for larger image in new window.

My friend and co-blogger Tanta originated the phrase "We're all subprime now!" One of her many talents was something she called "Excel Art". This drawing is from December 2007 and is titled "The Adventures of Mortgage Pig, Chapter 4: Hanging Over the Cubicles of the Mod Squad".

The drawing is from an excel file that Tanta used to explain how Option ARM loans recast - see Tanta's UberNerd post: On Option ARMs

by Calculated Risk on 5/11/2009 06:52:00 PM

UPDATE: Speech Text: The Supervisory Capital Assessment Program

My remarks this evening will focus on the Supervisory Capital Assessment Program, popularly known as the banking stress test. ...

It is important to note that this was not a solvency test. After including capital previously provided by the Treasury, all of these banking organizations currently have capital well in excess of the minimum stated capital requirements of the supervisors. Instead, the purpose of the exercise was to determine the size of the capital cushion that each organization would need to remain well capitalized and still be able to lend--even in an economic scenario more severe than expected.
...
Conclusion
In summary, the Supervisory Capital Assessment Program is an important element of broader and ongoing efforts by the Federal Reserve, other federal bank regulators, and the Treasury to ensure that our banking system has sufficient resources to navigate a challenging economic downturn. A collateral benefit is that many lessons of the exercise can be used to improve our supervisory processes. In particular, the supervisory capital assessment has demonstrated the benefits of using cross-firm, cross-portfolio information and the simultaneous review of a number of major firms to develop a more complete and fine-grained view of the health of the banking system.

Whether the objectives of the assessment program were achieved will only be known over time. We hope that in two or three years we will be able to reflect on the banking system's return to health with a sharply diminished reliance on government capital. More immediately, we hope and expect that the public and investors will take considerable comfort from the fact that our largest financial institutions have been evaluated in a comprehensive and rigorous fashion; and that they will, as a consequence, be required to have a capital buffer adequate to weather future losses and to supply needed credit to our economy--even if the economic downturn is more severe than is currently anticipated.

Fed Chairman Ben Bernanke will speak tonight at the Atlanta Fed's Financial Markets Conference in Jekyll Island, Georgia.

I believe Bernanke will be talking about the stress tests.

I'll post a link and excerpts from the prepared text when available ...

Here is the CNBC feed (maybe they will cover the speech).

by Calculated Risk on 5/11/2009 04:52:00 PM

Here is Meredith Whitney on banks and stress tests today ...

On the stress test leaks:

"I couldn't believe how poorly the impressions leaked, how effectively people say it was leaked, if it was any other company leaking that information there would be SEC investigations all over the place."

by Calculated Risk on 5/11/2009 04:19:00 PM

By popular demand, the 2nd graph is Doug's "Mega-Bear Quartet" that includes the Nikkei and NASDAQ bear markets.

Click on graph for larger image in new window.

The first graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

This is the 2nd worst S&P 500 / DOW bear market in the U.S. in 100 years.

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

The second graph compares four significant bear markets: the Dow during the Great Depression, the NASDAQ, the Nikkei, and the current S&P 500.

See Doug's: "The Mega-Bear Quartet and L-Shaped Recoveries".

by Calculated Risk on 5/11/2009 03:09:00 PM

"We are, as far as growth is concerned, around the inflection point in the cycle"
European Central Bank President Jean-Claude Trichet, May 11, 2009

From The Times: Britain may be on road to recovery, says OECD

The worst of Britain's recession may now be over, according to the Organisation for Economic Co-operation and Development (OECD).

The OECD, the umbrella group for the top 30 developed nations, said its indicators, which are considered to be a bellwether for the global economic outlook, pointed to a strong slowdown in the OECD area, but said that Britain, France and Italy were showing “tentative signs” of a pause in the slowdown.

Canada, Japan, Germany and the US, are still in the midst of a "strong slowdown".
...
“However, with the exception of China, where signs of a pause have also emerged, major non-OECD economies still face deteriorating conditions,” the OECD said.
...
“We are, as far as growth is concerned, around the inflection point in the (economic) cycle,” said Jean-Claude Trichet, head of the European Central Bank, at a G10 meeting in Switzerland.

More from Bloomberg: Trichet Says Global Economy Is Near Turning Point

Once global growth starts to pick up, central banks will have to scale back their support for the economy, Trichet said.

“Insistence is put on the exit strategy, on the medium- term path that permits us to go back to a normal situation, a sound and sustainable situation,” he said. At the same time, central banks will “do what is necessary in terms of extraordinary measures, as long as necessary,” he added.

It took just a couple of months to go from Great Depression II to "green shoots". Now Trichet is talking about an "inflection point" and central bankers scaling back their support - this seems a little premature.