by Calculated Risk on 4/19/2010 10:58:00 AM

Back in 2006, we discussed that the hardest hit areas, in the then coming housing bust, would be the communities most dependent on residential construction employment. Last week, I posted a follow up focused on California: The Housing Bust and Construction Employment

Zach Fox at SNL Interactive writes about the impact on Cape Coral, a construction dependent community in Florida: A generation of wealth lost

With so little commercial space in Cape Coral, the metro area became especially reliant on construction for employment. By June 2006, 16.8% of all jobs in the metro area came from the mining, logging and construction sector (the Bureau of Labor Statistics does not break out construction jobs for the Cape Coral-Fort Myers, MSA). By contrast, the national average reliance on the sector that month was 6.3%. Even the notoriously growth-dependant Phoenix-Mesa-Glendale, Ariz., MSA (the U.S. Office of Management and Budget changed the name of the MSA from Phoenix-Mesa-Scottsdale, Ariz., in December 2009), was far less reliant on development, with 10.1% of its jobs coming from mining, logging and construction in June 2006.

"I can remember driving up the west [Florida] coast and saying, 'Where are all these people going to work?'" [Andrea Heuson, a professor of finance at the University of Miami] said.

Source: Graph from SNL Financial.

Unsurprisingly, with construction jobs falling off a cliff, Cape Coral-Fort Myers has posted a towering unemployment rate, hitting 13.9% in February, according to a preliminary report; the national average was 10.4% in February, non-seasonally adjusted. Whatever housing market metric one picks, Cape Coral-Fort Myers is near the top — in a bad way. The metro area has seen prices fall 49.5% from the 2006 first quarter through the 2009 fourth quarter, larger than the 42.0% drop posted by California's infamous Inland Empire and the 49.3% decline seen in Nevada's eviscerated Las Vegas-Paradise MSA, according to the FHFA's all-transactions index. With unemployment shooting up and prices tumbling, it comes as little surprise that Cape Coral-Fort Myers is also one of the nation's most foreclosure-prone neighborhoods. The metro posted the second-highest foreclosure rate of any metro area in the nation during 2009, according to RealtyTrac.

This was so easy to predict ...

by Calculated Risk on 4/19/2010 08:42:00 AM

To follow up on the stories from last night, the Financial Times reported in January: SEC subpoenas big banks over CDOs

The Securities and Exchange Commission sent subpoenas [in December 2009] to banks including Goldman Sachs, Credit Suisse, Citigroup, Bank of America/Merrill Lynch, Deutsche Bank, UBS, Morgan Stanley and Barclays Capital, these people said. Requests for information were also made by the Financial Industry Regulatory Authority, which oversees broker-dealers.

The regulators are seeking information about the sale and marketing of so-called synthetic collateralised debt obligations during the financial crisis.
except with permission

So that is a starting list.

And a key story from Jesse Eisinger and Jake Bernstein at ProPublica: The Magnetar Trade: How One Hedge Fund Helped Keep the Bubble Going

by Calculated Risk on 4/18/2010 10:03:00 PM

Several articles tonight ...

From Gretchen Morgenson and Landon Thomas Jr. at the NY Timmes: A Glare on Goldman, From U.S. and Beyond

“We request that S.E.C., with all due haste, pursue investigations into the remaining 24 Abacus transactions for securities fraud, evaluate the extent of any receipt, by Goldman Sachs, of fraudulently generated A.I.G.-issued credit default swap payments, and vigorously pursue the recovery of such payments on behalf of the U.S. taxpayer,” the [Representatives Elijah E. Cummings and Peter DeFazio] wrote to Mary L. Schapiro, the head of the [S.E.C.], in a letter dated April 19. Mr. Cummings and Mr. DeFazio are still gathering signatures from other members of Congress to add to their letter, so it has not yet been sent.

From Trish Regan at CNBC: Pursuing Banking Fraud is 'Top Priority': SEC'S Khuzami

In the Securities and Exchange Commission's first public statement since its press conference announcing charges against Goldman Sachs on Friday, S.E.C. Enforcement Director Robert Khuzami told CNBC, "We have brought and will continue to pursue cases involving the products and practices related to the financial crisis." ... a wide range of cases are currently being investigated.

From Carrick Mollenkamp, Serena Ng, Scott Patterson, and Gergory Zuckerman the WSJ: SEC Investigating Other Soured Deals

The Securities and Exchange Commission ... is investigating whether other mortgage deals arranged by some of Wall Street's biggest firms may have crossed the line into misleading investors.

From Edward Wyatt at the NY Times: S.E.C. Puts Wall St. on Notice

In the last few years, the Securities and Exchange Commission seemed like the cop in the doughnut shop, sitting idly by while the likes of Lehman Brothers and Bernard L. Madoff ran amok.
...
In interviews this weekend, Mary L. Schapiro, the commission’s chairwoman, and Robert Khuzami, its new director of enforcement, said the agency was stepping up both its rule-making and its investigations in the wake of the financial crisis.

And from John Emshwiller at the WSJ: Countrywide Probe Shows Signs of Life

Federal criminal investigators looking into the collapse of Countrywide Financial Corp. have been calling witnesses before a grand jury, say people familiar with the matter. Such a step suggests that the investigation of the one-time mortgage giant, which has been continuing for about two years, could be moving closer to a resolution.

by Calculated Risk on 4/18/2010 07:00:00 PM

Ryan Avent discusses the Minsky Conference in The Economist: First, define the problem

I HAVE been meaning to summarise my thoughts on financial regulatory reform in the wake of the Hyman Minsky conference on same. I have to say, it has left me with a sense of resigned cycnicism.
...
On to more specific thoughts. The Federal Reserve is very unhappy with the prospect of losing its regulatory authority over all but the largest financial institutions. ... I found this all to be exasperating. None of the attending presidents adequately explained how a Fed that completely failed to prevent dangerous consolidation before the crisis should now be viewed as a credible enemy of too-big-to-fail after the crisis. None of the attending presidents provided tangible evidence of internal changes designed to make the Fed a more credible regulator. Each was asked about the odd disconnect between the Fed's pre-crisis actions and its post-crisis rhetoric, and each responded by saying little more than "we've learned our lesson, now trust us".... If it believes it can regulate most effectively, [the Fed] should be explicit about how it might do that. ... If the incentives were in place to turn a blind eye before, and little has changed, then "we've learned our lesson" will not make for a sustainable model of competent regulation.

... several of the conference's speakers made the point that regulators had about 90% of the tools they needed to prevent a serious crisis before the crisis hit. They just didn't use them. A lack of needed tools is a convenient excuse for everyone who failed to do their job before the crash, which is everyone, and so you see the reform debate focusing on which new rules or institutions or regulators or authorities are needed that weren't previously around. In some cases, the new tools argument makes sense, but most of the time the real problem was that the people in charge were unwilling to do their jobs.

I think we need an explanation of how the financial reform would have caught the bubble earlier.

by Calculated Risk on 4/18/2010 11:50:00 AM

There will be two key housing reports released at the end of this week: Existing Home sales on Thursday and New Home sales on Friday.

Early in the week, the LoanPerformance house price index (for February) will be released. This will probably show further price declines in February (not seasonally adjusted). Other reports that will be released this week include the Moodys/REAL Commercial Property Price Index (for February), DOTs Vehicle Miles Driven for February, and the DataQuick's Q1 Notice of Defaults (NODs) report for California.

On Monday, the Conference Board's index of leading indicators for March will be released at 10 AM.

On Wednesday, the AIA's Architecture Billings Index for March will be released (a leading indicator for commercial real estate). Also the weekly MBA Mortgage Purchase Applications index will be released.

On Thursday the closely watched initial weekly unemployment claims will be released at 8:30 AM. The consensus is for a decline to 460K this week from 484K last week. The NAR will release Existing Home sales for March at 10 AM. The consensus is for an increase in sales to 5.25 million (SAAR) from 5.02 million (SAAR) in February. The FHFA house price index will be released on Thursday (although Case-Shiller and LoanPerformance are probably the most followed).

On Friday, March Durable Goods Orders will be released at 8:30 AM. The consensus is for a 0.4% increase. New Home sales for March will be released at 10 AM, and consensus is for an increase to 330 thousand (SAAR) from the record low 308 thousand SAAR in February.

Also on Friday the FDIC might close several more banks ...

And a summary of last week:

Housing Starts in March

Click on graph for larger image in new window.

Total housing starts were at 626 thousand (SAAR) in March, up 1.6% from the revised February rate, and up 30% from the all time record low in April 2009 of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 531 thousand (SAAR) in March, down 0.9% from the revised February rate, and 49% above the record low in January and February 2009 (357 thousand).

Here is the Census Bureau report on housing Permits, Starts and Completions

NAHB Builder Confidence increases in April

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The housing market index (HMI) was at 19 in April. This is an increase from 15 in March. The increase this month was driven by traffic of prospective buyers and current sales - and this was the last month that buyers can take advantage of the housing tax credit - so this increase was no surprise.

Note: any number under 50 indicates that more builders view sales conditions as poor than good.

Industrial Production, Capacity Utilization increase in March

From the Fed: Industrial production and Capacity Utilization

This graph shows Capacity Utilization. This series is up 7.2% from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 73.2% is still far below normal - and 9.1% below the the pre-recession levels of 80.5% in November 2007.

Note: y-axis doesn't start at zero to better show the change.

Also - this is the highest level for industrial production since Dec 2008, but production is still 9.6% below the pre-recession levels at the end of 2007.

Retail Sales increase sharply in March

On a monthly basis, retail sales increased 1.6% from February to March (seasonally adjusted, after revisions), and sales were up 7.6% from March 2009 (easy comparison).

This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline).

The red line shows retail sales ex-gasoline and shows the increase in final demand ex-gasoline has been sluggish.

Retail sales are up 8.3% from the bottom, but still off 4.4% from the peak.

Trade Deficit increases in February


The Census Bureau reports:

[T]otal February exports of $143.2 billion and imports of $182.9 billion resulted in a goods and services deficit of $39.7 billion, up from $37.0 billion in January, revised.

The graph shows the monthly U.S. exports and imports in dollars through February 2010.

On a year-over-year basis, exports are up 14% and imports are up 20%. This is an easy comparison because of the collapse in trade at the end of 2008 and into early 2009. This is the first time since late 2008 that imports are up a greater percentage than exports on a YoY basis as export growth appears to have slowed.

March State Unemployment Rates

From the BLS: Regional and State Employment and Unemployment Summary

This graph shows the high and low unemployment rates for each state (and D.C.) since 1976. The red bar is the current unemployment rate (sorted by the current unemployment rate).

Fifteen states and D.C. now have double digit unemployment rates. New Jersey and Indiana are close.

Four states and set new series record highs: California, Florida, Nevada and Georgia.

Other Economic Stories ...

From the SEC: SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages

From Kirsten Grind and Alwyn Scott at Puget Sound Business Journal: Federal regulators testify about seizing WaMu

From the National Federation of Independent Business: Small Business Optimism Declines in March

From UCLA Anderson Forecast and Ceridian March PCI Increase Indicates U.S. Economy on 4 Percent Growth Track

Official report on Iceland Bank Failures.

From RealtyTrac: Foreclosure Activity Increases 7 Percent in First Quarter

From Tom Lawler: BoA and Chase on Second Mortgages

Unofficial Problem Bank List hits 698

Best wishes to all.