by Calculated Risk on 7/16/2009 12:24:00 AM

From the WSJ: U.S. Regulators to BofA: Obey or Else

Bank of America Corp. is operating under a secret regulatory sanction ... the so-called memorandum of understanding gives banks a chance to work out their problems ...

Citigroup Inc. has been operating since last year under a similar order with the Office of the Comptroller of the Currency...

In a letter that was reviewed by The Wall Street Journal, the Fed criticized Bank of America's management and directors for being "overly optimistic" about risk and capital. The bank's capital position "was vulnerable" even before the Merrill deal, the Fed concluded, citing "acquisition activity" that included last year's takeover of mortgage lender Countrywide Financial Corp.

by Calculated Risk on 7/15/2009 08:39:00 PM

From the LA Times: California Approaches a Deal on Budget Cuts (ht Rob Dawg)

California lawmakers neared a deal Wednesday with Gov. Arnold Schwarzenegger to close the state’s $26 billion budget gap ...

Details emerging from the talks suggested that the deal will require extraordinarily deep cuts to school systems and local governments, and ... substantial cuts to health care and other social services.
...
The state’s education budget of nearly $52 billion seemed destined for another large hit — likely $1.5 billion — on top of substantial reductions earlier this year, officials said. ... Public colleges and universities across the state have already prepared for millions of dollars in cutbacks by furloughing employees. Statewide furloughs of three days a month for government employees are likely to continue through the rest of the fiscal year.

The furloughs continue, and this will lead to more layoffs especially at the local level.

by Calculated Risk on 7/15/2009 06:09:00 PM

Update 2: WSJ is reporting that a Treasury official says that the U.S. expects to lose entire TARP investment in CIT ($2.3 billion). I think that means a BK is certain, probably before the market opens tomorrow.

From MarketWatch:

CIT says government support unlikely near term
CIT says board, management evaluating alternatives
CIT: Appears no likelihood of add't gov't support
CIT: Talks with government agencies have ceased

Bankruptcy is probable.

Update: CIT Press Release:

CIT Group Inc., a leading provider of financing to small businesses and middle market companies, today announced that it has been advised that there is no appreciable likelihood of additional government support being provided over the near term.

The Company’s Board of Directors and management, in consultation with its advisors, are evaluating alternatives.

by Calculated Risk on 7/15/2009 05:08:00 PM

Note: Ignore the median home price during periods of rapidly changing mix.

From DataQuick: Southland home sales highest since late ’06; median price up again

Southern California home sales rose in June to the highest level in 30 months as the number of deals above $500,000 continued to climb. ...

A total of 23,262 new and resale houses and condos closed escrow in San Diego, Orange, Los Angeles, Ventura, Riverside and San Bernardino counties last month. That was up 12.0 percent from 20,775 in May and up 29.0 percent from a revised 18,032 a year ago, according to San Diego-based MDA DataQuick.

Sales have increased year-over-year for 12 consecutive months.

June’s sales were the highest for that month since 2006, when 31,602 homes sold, but were 17.7 percent below the average June sales total since 1988, when DataQuick’s statistics begin. June sales peaked at 40,156 in 2005 and hit a low last year.

Foreclosures remained a major force in June, but their impact on the resale market eased for the third consecutive month.

Foreclosure resales – homes sold in June that had been foreclosed on in the prior 12 months – represented 45.3 percent of Southland resales last month, down from 49.7 percent in May and down from a peak 56.7 percent in February this year. Last month’s level was the lowest since foreclosure resales were 43.7 percent of resales in July 2008.
...
The recent shift toward higher-cost markets contributing more to overall sales has put upward pressure on the region’s median sale price – the point where half of the homes sold for more and half for less. The median dived sharply over the past year not just because of price depreciation but because of a shift toward an unusually large share of sales occurring in lower-cost, foreclosure-heavy areas.
...
“The rising median should still be viewed mainly as a sign the market’s moving back toward a more normal distribution of sales across the home price spectrum.” ... said John Walsh, DataQuick president.
...
Foreclosure activity remains near record levels ... Financing with multiple mortgages is low, down payment sizes and flipping rates are stable, and non-owner occupied buying is above-average in some markets, MDA DataQuick reported.

by Calculated Risk on 7/15/2009 04:00:00 PM

By popular demand ... the S&P 500 was up almost 3% today. The NASDAQ was up 3.5%.

Click on graph for larger image in new window.

The first graph shows the S&P 500 since 1990.

The dashed line is the closing price today.

The S&P 500 is up almost 38% from the bottom (256 points), and still off 40% from the peak (632 points below the max).

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

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