by Calculated Risk on 12/29/2008 08:40:00 AM

Paull Krugman writes: Fifty Herbert Hoovers

No modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession. The Obama administration will put deficit concerns on hold while it fights the economic crisis.

But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.

State and local governments cut back every down turn, exacerbating the recession.

Krugman doesn't mention it, but most governments also tend to spend every dollar (or more!) during economic booms. Oh well ...

(out hiking today)

by Calculated Risk on 12/28/2008 10:21:00 PM

From the NY Times: Private Equity Firms Are Near Deal to Buy IndyMac

The deal is in the final stages of negotiations, which are private, and could be announced as early as Monday ... The team of buyers include the private equity firms J. C. Flowers & Company and Dune Capital Management and the hedge fund Paulson & Company, the people involved in the deal said. It was unclear exactly how much capital the buyers would inject into IndyMac, but they would be shouldering a portion of the losses the bank may have on mortgages and other assets, these people said.

The proposed deal is unusual because it is one of the first transactions involving unregulated private equity firms acquiring a majority stake in a bank holding company.

Note: Light posting for next few days. Recharging my batteries in the mountains. Best to all.

by Calculated Risk on 12/28/2008 12:41:00 PM

On the road ...

by Calculated Risk on 12/28/2008 08:54:00 AM

From the NY Times: A Wish List for Commercial Real Estate

Commercial real estate groups have been meeting with members of Congress, the Federal Reserve, the Treasury, the Federal Deposit Insurance Corporation as well as Mr. Obama’s transition team, to press their case. And they say they have a compelling one.

This is similar to the WSJ article I covered last week. The answer is there is no reason for a CRE bailout:

[T]his is really about property investors who bought commercial buildings at the price peak and are now underwater. But say the owners default and the properties are transferred to the bondholders - what is the risk to the economy? None.

The NY Times article claims CRE is in pretty good shape:

Although commercial real estate remains in better shaper than some other industries — there is a good balance between supply and demand, vacancy rates are modest and loan default rates have so far hovered at a rock-bottom 1 percent, according to trade groups — industry leaders warn that the sector faces significant problems.

Default rates are low - but starting to rise. However the balance between supply and demand is poor and vacancy rates are rising rapidly.

by Calculated Risk on 12/28/2008 12:30:00 AM

Here is an article from the NY Times on WaMu: By Saying Yes, WaMu Built Empire on Shaky Loans

Not much new, although I was aware of WaMu's lax lending, I wasn't aware of this flier:

By 2005, the word was out that WaMu would accept applications with a mere statement of the borrower’s income and assets — often with no documentation required — so long as credit scores were adequate, according to Ms. Zaback and other underwriters.

“We had a flier that said, ‘A thin file is a good file,’ ” recalled Michele Culbertson, a wholesale sales agent with WaMu.

Just great ...

Note: light posting while I'm traveling for the holidays. Adventure pictures to come! Best to all.

by Calculated Risk on 12/27/2008 10:10:00 AM

From the NY Times: Downturn Ends Building Boom in New York

Nearly $5 billion in development projects in New York City have been delayed or canceled because of the economic crisis, an extraordinary body blow to an industry that last year provided 130,000 unionized jobs, according to numbers tracked by a local trade group.
...
The long-term impact is potentially immense, experts said. Construction generated more than $30 billion in economic activity in New York last year, said Louis J. Coletti, the chief executive of the Building Trades Employers’ Association. The $5 billion in canceled or delayed projects tracked by Mr. Coletti’s association include all types of construction: luxury high-rise buildings, office renovations for major banks and new hospital wings. Mr. Coletti’s association, which represents 27 contractor groups, is talking to the trade unions about accepting wage cuts or freezes. So far there is no deal.

Not surprisingly, unemployment in the construction industry is soaring: in October, it was up by more than 50 percent from the same period last year, labor statistics show.

More bad CRE news ...

by Calculated Risk on 12/26/2008 08:55:00 PM

From the WSJ: Retailers Brace for Major Change a few excerpts:

More Bankruptcies: Corporate-turnaround experts and bankruptcy lawyers are predicting a wave of retailer bankruptcies early next year, after being contacted by big and small retailers either preparing to file for Chapter 11 bankruptcy protection or scrambling to avoid that fate.

Analysts estimate that from about 10% to 26% of all retailers are in financial distress and in danger of filing for Chapter 11. AlixPartners LLP, a Michigan-based turnaround consulting firm, estimates that 25.8% of 182 large retailers it tracks are at significant risk of filing for bankruptcy or facing financial distress in 2009 or 2010. In the previous two years, the firm had estimated 4% to 7% of retailers then tracked were at a high risk for filing.
...
Store Closings: The International Council of Shopping Centers estimates that 148,000 stores will close in 2008, the most since 2001, and it predicts that there will be an additional 73,000 closures in the first half of 2009.

January is usually the busiest month for retailer bankruptcies ... and 2009 will probably be especially busy.

Note:light posting for the next few days. Best to all.

by Calculated Risk on 12/26/2008 01:05:00 PM

A late Christmas present ... Click on cartoon for larger image in new window. Cartoon from Stu Rees Stu Rees Cartoons

by Calculated Risk on 12/26/2008 11:33:00 AM

From the Miami Herald: Refinance rates low; few qualify

Recent drops in interest rates have homeowners rushing to call local banks and mortgage lenders about refinancing. Loan applications are pouring in.

Yet, South Florida homeowners are mostly getting a big fat ''No!'' from the bank when they ask to refinance. The chief reason: Falling home values mean they owe more than their homes are worth.
...
In South Florida, four in 10 homeowners who bought or refinanced over the past five years owe more on their home than it is worth, according to sales and mortgage data analyzed by Zillow.com ... Many of them chose adjustable-rate loans and other expensive mortgages because that was the only way they could afford the payments.
...
''This is only putting people who are in a good position in a better position,'' [Justin Miller, a broker with Resource Mortgage Group in Plantation] said.
...
Before LaPenta begins processing an application, he said he makes sure customers are aware of the essential criteria needed to refinance: 20 percent equity in the property, a homestead exemption, a credit score of 700 or higher, a mortgage debt-to-income ratio of no more than 45 percent and the ability to fully document income and assets.

This is a key point - these lower rates don't help underwater homeowners. Also, I think the 45% debt-to-gross income ratio is a little higher than most lenders will allow now.

by Calculated Risk on 12/26/2008 09:55:00 AM

From MarketWatch: Japan November industrial output falls 'off the cliff'

Japan's industrial output tumbled at a record pace in November, stoking fears the country's recession may stretch longer and be more painful than anticipated.

Industrial production fell as much as 8.1% in November from the previous month -- the biggest drop in the measure since the government started releasing comparable figures in 1953 -- as Japanese companies produced less automobiles and other machinery on vanishing demand.

The drop was steeper than the 6.8% fall expected by economists, and came after a 3.1% decline in October.

"Industrial production in Japan is falling off the cliff," wrote Merrill Lynch Economist Takuji Okubo ...

I think the proper phrase is "cliff diving".

Light posting today ... I'm traveling. Best to all.