Global Economic Trend Analysis Test

Georgia State Tax Collections Down 9.4% In June

2008-07-20T09:16:00.001-07:00

The outlook for Georgia is gloomy: Georgia ends fiscal year with $600 million shortfall.

With the economy continuing to sputter, state government is going to have to spend $600 million in reserves just to pay its bills for the recently completed fiscal year. And the outlook doesn't look a whole lot better for fiscal 2009, which started July 1. State tax collections were down 9.4 percent in June, the final month of fiscal 2008. They were off 1.1 percent for the entire fiscal year.

Collections of corporate income taxes and sales taxes, particularly on materials used in construction, dropped the most. That decline mirrors a national housing downturn that has hobbled the economy in many parts of the country.

Gov. Sonny Perdue said because of the tax collection decline, the state will have to use $600 million of its $1.5 billion reserve fund to balance last year's budget. In anticipation of the slow economy, the governor already had ordered state agencies to come up with plans to cut 3.5 percent of their budgets this year.

Most state spending goes for education, public health care and prisons. For now, the governor has exempted most kindergarten through high school education as well as public health programs from those proposed cuts. But that exemption may not stick if the economy weakens further.

"If the bleeding doesn't appear to be stopping, we'll have to look at all those options," Perdue told reporters.

In the final three months of fiscal 2008, overall tax collections were down 7.3 percent over the same period in fiscal 2007, according to the Georgia Department of Revenue. Corporate income taxes plummeted 26.7 percent, and sales tax collections fell 8.6 over the same months in fiscal 2007.

Senate President Pro tem Eric Johnson (R-Savannah) said, "Georgia will do what families across this state are already doing, adjust our priorities and tighten the belt."

Bleeding Not Going To Stop

Let's be realistic. The bleeding is not going to stop. In fact it is going to double or even quadruple. I suggest Perdue start looking at the options now, instead of putting things off perpetually as does California Governor Arnold Schwarzenegger.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Georgia State Tax Collections Down 9.4% In June

2008-07-20T00:11:00.001-07:00

The outlook for Georgia is gloomy: Georgia ends fiscal year with $600 million shortfall.

With the economy continuing to sputter, state government is going to have to spend $600 million in reserves just to pay its bills for the recently completed fiscal year. And the outlook doesn't look a whole lot better for fiscal 2009, which started July 1. State tax collections were down 9.4 percent in June, the final month of fiscal 2008. They were off 1.1 percent for the entire fiscal year.

Collections of corporate income taxes and sales taxes, particularly on materials used in construction, dropped the most. That decline mirrors a national housing downturn that has hobbled the economy in many parts of the country.

Gov. Sonny Perdue said because of the tax collection decline, the state will have to use $600 million of its $1.5 billion reserve fund to balance last year's budget. In anticipation of the slow economy, the governor already had ordered state agencies to come up with plans to cut 3.5 percent of their budgets this year.

Most state spending goes for education, public health care and prisons. For now, the governor has exempted most kindergarten through high school education as well as public health programs from those proposed cuts. But that exemption may not stick if the economy weakens further.

"If the bleeding doesn't appear to be stopping, we'll have to look at all those options," Perdue told reporters.

In the final three months of fiscal 2008, overall tax collections were down 7.3 percent over the same period in fiscal 2007, according to the Georgia Department of Revenue. Corporate income taxes plummeted 26.7 percent, and sales tax collections fell 8.6 over the same months in fiscal 2007.

Senate President Pro tem Eric Johnson (R-Savannah) said, "Georgia will do what families across this state are already doing, adjust our priorities and tighten the belt."

California Is Insolvent

2008-07-19T23:07:00.000-07:00

Yesterday, in Taxpayers Can Bear No More, we discussed the record public debt problem in the UK. Chancellor Alistair Darling made it "clear that he thought that the only politically viable option was to increase borrowing, rather than to raise taxation."

In the US, states are facing similar budget dilemmas.

New Jersey, whose median household income of $64,470 is second only to Maryland, is one of 29 states that ran short of revenue to balance this year's budget, up from three in 2006, the Center on Budget and Policy Priorities in Washington found. Lawmakers across the country, who previously sought to trim debt and cut taxes, are instead increasing borrowing as the slowest economy since 2001 erodes consumer spending and home values.

California Governor Arnold Schwarzenegger is looking to bridge a $17 billion budget gap by borrowing against future lottery profits. Illinois Governor Rod Blagojevich wants to issue bonds to plug a shortfall in pension-plan funding and cut spending on health care and education. Corzine plans to borrow for school construction, and officials in Arizona may too.

Taxes are already so high that further increases may actually reduce collections, said former U.S. Senator Robert Torricelli, a New Jersey Democrat who recruited Corzine for his successful 2000 Senate campaign.

"People obviously don't want higher taxes," said Torricelli, who earlier this month hosted a fundraiser for Corzine's 2009 re-election effort at his Delaware Township home. "They never want spending cuts, and no one is lining up to make sacrifices."

On January 12 I offered Mish's California Budget Proposal. The budget deficit was $14 billion at the time. The Budget deficit is now $17 billion or $20 billion depending on who you want to believe.

It's interesting that Schwarzenegger is now "looking to bridge the budget gap by borrowing against future lottery profits."

Flashback October 27, 2007

On October 27, 2007 I talked about Schwarzenegger's health care reform strategy being nothing more than a sleight of hand shell game robbing Peter to pay Paul. Please consider Drop in Revenue Growth at State and Federal Level.

Schwarzenegger's latest scheme is to use lottery proceeds to expand health care. Given that lottery proceeds now fund education, the governor's proposal would replace money from the lottery that now goes to education with funds from the state's general fund. Schwarzenegger did not say what would be used to fund the shortfall in the state's general fund.

Schwarzenegger's Financial Wizardry

Lottery proceeds will be used to expand health care.
Education that used to be funded by lottery proceeds will instead be funded from the state general fund.
The question as to what will fund the shortfall in the state's general fund, has thankfully been solved: Lottery proceeds.

That is one magic mirror use of lottery proceeds. Inquiring minds will note that Schwarzenegger was elected governor of California, vowing to "tear up the state's credit card."

Who needs credit cards when you have a magic mirror?

California Unemployment Rate Hits 6.9%

Silicon Valley is employment slowing as California Unemployment Rate Hits 6.9%.

Silicon Valley posted anemic job growth last month, but in a state that economists say is in a "jobs recession," any growth is good. More than 1.2 million Californians are unemployed, according to figures released Friday by the state Employment Development Department.

California's seasonally adjusted unemployment rate was 6.9 percent, up from 6.8 percent in May; the valley's rate jumped from a seasonally unadjusted 5.6 percent in May to 6.1 percent in June.

Many of the valley's largest companies have been cutting jobs. Layoffs combined with construction and financial unemployment boosted the number of people looking for work and unable to find it.

The state's jobless rate "tells us that the California economy is in a recession," said Stephen Levy of the Center for the Continuing Study of the California Economy. With data not yet in on the quarter for the state economy, Levy called it a "jobs recession."

Jobs Recession?

The last bastion of California economic strength, Silicon Valley, is about to find out what the rest of the state already has: It's a full blown economic recession, not a "jobs recession". In California, as well as nationally, ideas that the economy is still expanding depend on the same type of magic wizardry that Schwarzenegger is using to "balance" the budget.

Those not looking in Schwarzenegger's magic mirror should now be able to see the truth: California is insolvent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Panic By The Fed: Anatomy of a Short-Squeeze

2008-07-19T21:20:00.000-07:00

I have been talking about the short squeeze in financials all week. See The Financial Dogs Are Now Bitching About SEC Ruling.

Minyanville's Todd Harrison has this synopsis of how it happened. Please consider Freaky Friday Potpourri: Anatomy of a Short-Squeeze.

Financial companies are desperate for capital but their stock prices are so low that any issuance would be dilution death for the companies. The government is desperately trying to keep the financial system together. Add that up and you get the possibility of a great manipulation.

How would the government engineer a rally in financial stocks so that these companies can sell stock to raise capital at a reasonable or at least palatable dilution level?

It might go something like this. Since financial stocks are in such trouble they have heavy short interest; this is natural and well known and can be used to their advantage. A clever “berry” might think to introduce confusing rules that raise the cost of borrowing short stock and temporarily confuse shorts into covering and not shorting more. And this is precisely what the SEC did.

But this alone would only drive stock prices up so much. The clever berry needs a catalyst, one that would force panic buying into now truncated supply.

It just so happened that the new SEC rules came conveniently the day before many of these financial companies were to report earnings. If just some how these earnings were really good the match would be lit on the kindling.

So far banks have miraculously come through on their end of things. Wells Fargo (WFC) and JPMorgan (JPM) reported better than expected beaten down earnings. Things must be getting better just as the companies need capital.

What a coincidence.

But if you look at how the banks “beat” their earnings the coincidence becomes clear. WFC took the unprecedented step of extending charge-off acknowledgment from 120 days to 160 days. This allowed the bank to move less capital to loan loss reserves and report better than expected horrible earnings. And JPM was even more aggressive. It actually lowered its loan loss reserves quarter to quarter.

The list of financial companies where shorting regulations are being enforced/enhanced is precisely the banks and dealers (and FNM/Freddie Mac (FRE)) that have access to the Fed's balance sheet (dealers through the PDCF and FNM/FRE through the recently-allowed access to the discount window). So we can speculate on the nature of the "coincidence": Perhaps the Fed is getting worried about the value of all that collateral these dealers have posted to the Fed balance sheet and must boost the capital of these companies to protect that value.

And now on cue FRE, a $5 billion market capitalization company wants/needs to issue $10 billion in new stock? Doesn’t that sound a little crazy? Well get ready for others to do the same because the banking system needs capital desperately and the government is there to help.

But help at the expense of who?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Open Letter To Obama

2008-07-19T15:26:00.001-07:00

Dear Senator Obama. The US economy is in the worst economic crisis in decades, arguably since the great depression. Housing is collapsing, state budgets are in shambles, unemployment is soaring, and the US dollar is sinking.

Things are going to get even worse when the commercial real estate bust picks up steam. We have seen six bank failures already this year. There are 90 more banks on the problem list. Many of them will fail.

Meanwhile, Treasury Secretary Paulson and President Bush are both stressing "The U.S. economy is fundamentally strong, diverse and resilient." Indeed, Paulson speaks of the "strong dollar policy" at every opportunity.

The vast majority of citizens in the United States know that the above statements by President Bush and Paulson are lies.

What we really need is for politicians to face the public and state the truth.

The Truth Is Easy To See

The US can no longer afford to be the world's policeman.
Congress has been spending beyond its means.
Deficit spending is cheapening the US dollar.
Cutbacks and sacrifices have to be made.

Interest On The National Debt Is $377 Billion

The national debt as of July 17, 2008 is $9.5 Trillion dollars. Monthly interest For the first nine months of Fiscal Year 2008 the Interest Expense on the Debt Outstanding is $377 billion dollars!

Paulson talks about the "strong fundamentals" of the US dollar. Our entire "Strong Dollar Policy" consists of nothing more than Paulson yapping about the strong dollar. It is an international disgrace. It is sad the Treasury Secretary does not understand that the two biggest factors affecting the US dollar are interest rates differentials and deficit financing.

Our Feds Fund Rate is 2.00% in comparison to 5.00% in the UK and 4.25% in the EU. In regards to the budget deficit, China and Japan have been financing our out of control spending.

Some fundamentals! If Paulson believes what he says, he is not qualified to be Treasury Secretary.

US Banking System Is Unsound

Senator Obama our banking system is unsound. I presented the case in You Know The Banking System Is Unsound When....

I ask you to take the time to read that post. In it, I presented 25 reasons our system is unsound. Here is number reason number 25.

25. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

The problem is not bank regulation or lack thereof. The problem is fractional reserve lending accompanied by runaway spending in Congress.

Congress Must Be Held Accountable

Congress must be held accountable for deficit spending. Clearly the Republican plan of reducing taxes, foolishly wasting hundreds of billions in Iraq, and praying for an economic miracle did not work.

Phil Gramm, senator McCain's economic advisor, said we were in a "mental recession". You rightfully blasted him for it, stating "He didn't say this but I guess what he meant was that it's a figment of your imagination, these high gas prices."

Economically, you are calling for another $50 billion dollar spending stimulus. If that fails (which it will) do you want another one, and another one after that? Where does it stop? I am all in favor of returning $50 billion to the taxpayers. I just want to know we are going to pay for it.

Senator Obama how do you propose we pay for that?

The 100 Year's War

Senator Obama, the entire nation knows we went to war under false pretenses, if not blatant lies. Yet Senator McCain is willing to keep us in Iraq for a hundred more years if necessary. Unfortunately, you have not found the courage to commit to a timetable to pull all of our troops out of Iraq. Senator, the nation is sick of this war. ALL of our troops need to come home. Every one of them.

It is time for someone to stand up and say "This war was a mistake. We are pulling out. And here is the time table in which we are going to do it."

Since that person is not going to be McCain, it better be you.

Everyone I speak to is now unsure of your commitment to get us out of Iraq. Leaving 1/2 or 1/3 of our troops in Iraq is a miserable compromise. Iraq belongs to the Iraqis. Those who fear moral consequences of an exit should look at the moral and economic consequences of keeping our troops in harm's way for another 100 years.

The biggest mistake we can now make in Iraq is prolonging the big mistake we already made.

Horrendous Ethanol Policies

Senator Obama, you support ethanol tariffs and subsidies. These policies are nothing short of an economic disaster. Congress passed a 54 cent tariff on ethanol imports. That tariff is increasing the price of gasoline at the pump.

Is that tariff creating any jobs here? Of course not. Government mandated solutions never work. The US Ethanol Industry Is In Distress. There are "16 Ethanol Plants Filing For Bankruptcy. Many More Will Come." If that is not bad enough, the corn subsidy is uneconomically diverting corn production to ethanol production. This in turn is causing food prices to rise.

So much for government mandated "solutions".

Why We Are In This Mess

Senator Obama, the root cause of this mess is uncontrolled Congressional spending, government sponsorship of GSEs and rating agencies, fractional reserve lending, and the Fed.

The Fed attempting to stave off the last recession slashed interest rates to 1% to bail out their banking buddies in deep trouble over dotcom loans as well as loans to emerging markets. Congress compounded the problem by spending like complete fools. And the Bush Administration with help from Congress was willing to waste billions of dollars we did not have in that hellhole called Iraq.

Finally, SEC sponsorship of the rating agencies led to insane AAA ratings on all sorts of subprime and Alt-A mortgage debt that Wall Street could package and sell to unsuspecting suckers like state pension plans.

Biggest Party Wall Street Ever Had

Paulson called this "The strongest global economy he has ever seen". The reality is throwing money around created "The biggest party Wall Street has ever had". This was an unfounded boom based on low interest rates and cheap credit. Millions of people, sucked in the vortex of this artificial boom, are now being foreclosed on.

And instead of fixing the fundamental problem (The Fed, runaway Congressional spending, governments sponsorship of the GSEs, and government sponsorship of the big 3 rating agencies), you along with most of congress are looking towards more regulation as the solution.

Senator Obama, The Fed IS the problem. Congress IS the problem. Bernanke IS the problem. Fractional Reserve Lending IS the problem. If you do not see the light, YOU are the problem.

The Problem Cannot Be The Solution

If runaway government spending is part of the problem, (and it is clear that it is), then it should be equally clear that runaway government spending is NOT the solution. If government sponsorship of the GSE was part of the problem (and it was) then even bigger government sponsorship of the GSEs is not the solution.

The plain fact of the matter is that home prices are still too high. They need to come down. Artificial attempts to force home prices up will drag this economic mess out for a decade longer, just as happened in Japan.

It was a sad day last week when Bernanke said "It's important for Fannie Mae and Freddie Mac bonds and stocks to rise so they can keep raising capital and aid the mortgage market."

With that we lost every semblance of the free market we had left. We now have government sponsorship if not outright nationalization of GSEs.

Senator Obama, do you even remember the Mission Statement of Fannie Mae?

We are a shareholder-owned company with a public mission. We exist to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market.

Fannie Mae exists to expand affordable housing. Clearly Fannie Mae has failed its core mission. All government sponsored corporations fail their mission. The very nature of promoting housing makes prices go up, until the final blowoff top which we are now on the backside of, having reached Peak Credit.

The US has partied too long and too hard at the federal level, the state level, the corporate level, and the personal level. The cure for a hangover is most emphatically not more booze. The cure for a credit crisis is not more "free money", from either Congress or the Fed.

The Fed Uncertainty Principle

Sadly, we are moving in the wrong direction as predicted by the Fed Uncertainty Principle.

Uncertainty Principle Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn't know (much more than it wants to admit), particularly in times of economic stress.

Uncertainty Principle Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Uncertainty Principle Corollary Number Three: Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

Uncertainty Principle Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.

The Cure

The only cure for an artificial boom is time and price, in conjunction with sound economic policies.

Senator Obama, you have a chance to make history. Assuming you are elected, you will have the opportunity to do something no President has done for decades: Stand before the American people and tell the plain hard truth.

The US can no longer afford to be the world's policeman.
Congress has been spending beyond its means.
Deficit spending is cheapening the US dollar.
Cutbacks and sacrifices have to be made.

People will understand as long as they are being leveled with.

A New Economic Advisor

Before you can lead the way, you need a new economic advisor, preferably one as Vice President.

One thing is certain: Giving away $50 billion dollars on top of the $150 billion in stimulus Congress already gave away is not going to solve any problems.

If printing money and handing it out solved economic problems, Zimbabwe would be the most economically powerful nation in the world.

Why is it the same solution "free money" is tried over and over and over, when it never works?

The Nation Needs Heeling

This war torn, economically tortured county needs heeling. To meet that goal we can no longer afford the same bitter partisanship in Congress that we have seen for what seems like forever.

McCain is unable and unwilling to heal the nation. His willingness to spend another 10 years in Iraq, wasting trillions more dollars at a time the nation is sick of this war, is proof enough.

Senator Obama, you are clearly able to heal the nation, but are you willing? If you can just see fit to have the courage to reach across the aisle you can electrify the nation, re-energize the country based on sound economic free market principles, and minimize the partisan bickering in Congress.

Senator Obama, I ask you to nominate Ron Paul as your Vice President, embrace sound economic policies, and return this country to greatness. If you have the courage to do so, the upcoming election will be the biggest surprise blowout in history. On the other hand, if you stick to policies of giving away "free money" this nation will be in ruins four years from now.

Senator Obama I ask you, "What's it gonna be?"

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Taxpayers Can Bear No More

2008-07-19T01:51:00.000-07:00

This story is from the UK but the same situation applies here: Taxpayers can bear no more, admits Alistair Darling.

Taxpayers are at the limit of what they are willing to pay to fund public services, the Chancellor has said in an interview with The Times. In his gloomiest assessment yet of the state of the British economy, Alistair Darling gave warning that the downturn was far more profound than he had thought and could last for years rather than months.

He revealed that he told Cabinet ministers this week that there would be no more money for schools, hospitals, defence, transport or policing.

He confirmed that the Treasury was considering revising its fiscal rules to allow more borrowing to deal with the economic problems. He said that he did not believe that voters, already struggling with higher food and fuel bills, would be willing to pay more tax. “People will pay their fair share but you can’t push that,” he said.

Mr Darling said of this week’s Cabinet meeting: “I’ve been very clear with my colleagues that there is no point them writing in saying, ‘Can we have some more money?’ because the reply is already on its way and it’s a very short reply. I told them at the last meeting of Cabinet they’ve got to manage within the money they’ve got.”

The Chancellor played down that the Government is reviewing the fiscal rules, which say that borrowing must not go beyond 40 per cent of gross domestic product. “This routine work has been going at the Treasury for several months,” he said.

He made clear that he thought that the only politically viable option was to increase borrowing, rather than to raise taxation.

Darling Under Pressure Over Record Debt

The TimesOnline is reporting Darling under pressure on record public debt.

Government borrowing has leapt since April, making grim reading for Alistair Darling and helping to explain why the Chancellor is drawing up plans to overhaul the Treasury’s fiscal rules, put in place by Gordon Brown.

Over the first three months of the new financial year, April to June, the Treasury had to borrow £24.7 billion - the highest figure since records began in 1946 and up by a startling two-thirds from the £14.7 billion total for the same period last year to an all-time high for this period.

In June alone, borrowing jumped to £9.2 billion, up by almost £3 billion, or nearly 50 per cent from the previous June, and also setting a record for borrowing in any June.

Borrowing Highest Since 1946

Bloomberg is reporting U.K. Budget Deficit Balloons to Widest Since 1946.

The U.K. budget deficit ballooned to the widest since records started in 1946, adding pressure on Prime Minister Gordon Brown to ease his decade-old borrowing rules.

The shortfall was 24.4 billion pounds ($49 billion) in the three months through June, the Office for National Statistics said today. Last month, the deficit expanded to 9.2 billion pounds, more than the median forecast of 7.4 billion pounds in a Bloomberg News survey of 17 economists.

The slowdown puts Brown at risk of breaching the two fiscal rules he created as finance minister in 1997, when he promised to borrow only for investment over the economic cycle and keep debt below 40 percent of economic output.

Net debt stood at 38.3 percent of GDP in June, up from 37.3 percent a year earlier and the highest since July 1999, the statistics office said. Including the liabilities of Northern Rock, the mortgage lender taken into temporary state ownership in February after its funding dried up, debt was 44.2 percent of GDP.

The quarterly deficit was at least the worst since the aftermath of World War II, when the country, its resources depleted by the six-year military effort, was forced to borrow $4.34 billion from the U.S. to stave off bankruptcy.

Brown "staked his credibility on the fiscal rules," said George Osborne, who speaks for the opposition Conservative Party on finance. "The public finances are in a mess and the rules are being ditched. It's like giving the prisoners the keys to their own cell."

Brown is under pressure to deliver further giveways, said Robert Chote, director of the Institute for Fiscal Studies in London. Brown can "raise the money in taxation, cut spending or change the rules," he said in an interview. "It looks today like it's going to be the third of those that takes place."

UK follows US Playbook

It looks like the UK is going to follow the US playbook and just spend money it does not have. With that in mind, let's take a look at the British Pound.

British Pound vs. US Dollar Weekly Chart

click on chart for sharper image

British Pound vs. US Dollar Monthly Chart

click on chart for sharper image

Were it not for much higher interest rates in the UK vs. the US, the pound would probably be getting hammered. We may be coming to the end of a trend, regardless.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Palm Beach County Foreclosure Report

2008-07-19T01:19:00.000-07:00

"KG" just sent me a link to the Palm Beach County Foreclosure Report. It is updated every few days to include the next three or four dates where the gavel falls on the average homeowner.

I did a quick search and found

21 Wells Fargo properties
5 Wachovia properties
45 Deutche Bank properties
7 Bank of New York properties

Your results will vary as the report is continually changing. This is just one county in one state out of 50. The REOs keep piling up week after week, month after month.

Addendum

MLS writes "The total on this foreclosure list is 245. There are 682,500 buildings/dwellings in the Palm Beach County. Admittedly this is everything with a roof on it (res, commercial, industrial, agricultural, etc.), but it puts this foreclosure number in some context. MLS."

My Reply: MLS, that foreclosure list was for an 11 days.

7/21/2008
7/24/2008
7/28/2008
7/31/2008

245 foreclosures in 11 days is 8130 foreclosures in a year.

Furthermore I suspect the numbers are going to get a lot worse as the economy slows. Nonethless, I am willing to call that an average week.

Losses on foreclosures are typically 50%. Let's assume a $100,000 loss per home. I suspect that is extremely low. Here is the math: 8130 * $100,000 = $8,130,000,000

That is just one county. There is your "context"

Mish

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

The Financial Dogs Are Now Bitching About SEC Ruling

2008-07-18T20:41:00.000-07:00

Many banks are bitching about the new SEC rules on shorting. On the off chance you are new to the story, it's time for a full recap from the beginning.

Complete Recap

In case you are just tuning in, the most pertinent of the above is Tossed To The Dogs? where I said...

Where is Washington Mutual (WM)? Wachovia (WB)? Were they tossed to the dogs?

What about Corus Bank (CORS), Bank United (BKUNA), National City Corporation (NCC)?

It is beyond all belief that naked short selling is affecting Goldman Sachs (GS) more than Washington Mutual, Wachovia, Corus Bank, Bank United, and National City Corporation.

Now that the complete background is out of the way, inquiring minds may wish to consider SEC Short-Sale Rule Gets Negative Reviews.

In a letter to Mr. Cox [the SEC chairman], the American Bankers Association, a trade group that represents the interests of 8,500 banks, said it fears short sellers will now focus on banks not covered by the new rules, many of which are already big targets of short sellers.

"The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country's banking industry," the ABA wrote, as it called for an expansion of the order to including stocks of banks and bank holding companies.

The Financial Services Roundtable, an organization that represents 100 of the largest U.S. financial companies, also asked the SEC to extend the order. It wants to have all financial-services companies covered in the second week.

Only one company, Deutsche Bank AG, is on both the SEC's protected list and the NYSE Euronext's threshold list. Deutsche Bank has been on the threshold list for the past six trading days; however, that may have been triggered because of low U.S. trading volume, compared with its global trading volume. A Deutsche Bank spokesman declined to comment. Because these stocks are so widely traded, it's possible they are subject to abusive trading and the firms still wouldn't make the list.

Other companies that also have been under selling pressure didn't make the cut, including Wachovia Corp. and Washington Mutual Inc. Washington Mutual submitted a letter to the SEC asking that the rule include other financial companies, according to a person briefed on the matter. Wachovia declined to comment.

National City Corp., a regional bank that scrambled to raise capital earlier this year and isn't protected in the SEC order, has been on the threshold list nine of the first 12 trading days this month.

"The current universe of names is too narrow" and should include the largest U.S banks, said Kristen Baird Adams, a spokeswoman for Cleveland-based National City. She said the bank intends to contact the SEC.

This took about as long as expected. In other words, almost immediately. And there you have it, the financial dogs are now all howling "me to". Everyone wants protection.

However, as I explained in SEC Issues Order To Protect Those Most Responsible For Naked Shorting, the SEC action is quite counterproductive in regards to share price.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

The Financial Dogs Are Now Bitching About SEC Ruling

2008-07-18T20:07:00.000-07:00

Many banks are now bitching about the new SEC rules on shorting. On the off chance you are new to the story, it's time for a full recap from the beginning.

Complete Recap

In case you are just tuning in, the most pertinent of the above is Tossed To The Dogs? where I said...

Where is Washington Mutual (WM)? Wachovia (WB)? Were they tossed to the dogs?

What about Corus Bank (CORS), Bank United (BKUNA), National City Corporation (NCC)?

It is beyond all belief that naked short selling is affecting Goldman Sachs (GS) more than Washington Mutual, Wachovia, Corus Bank, Bank United, and National City Corporation.

Now that the complete background is out of the way, inquiring minds may wish to consider SEC Short-Sale Rule Gets Negative Reviews.

In a letter to Mr. Cox [the SEC chairman], the American Bankers Association, a trade group that represents the interests of 8,500 banks, said it fears short sellers will now focus on banks not covered by the new rules, many of which are already big targets of short sellers.

"The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country's banking industry," the ABA wrote, as it called for an expansion of the order to including stocks of banks and bank holding companies.

The Financial Services Roundtable, an organization that represents 100 of the largest U.S. financial companies, also asked the SEC to extend the order. It wants to have all financial-services companies covered in the second week.

Only one company, Deutsche Bank AG, is on both the SEC's protected list and the NYSE Euronext's threshold list. Deutsche Bank has been on the threshold list for the past six trading days; however, that may have been triggered because of low U.S. trading volume, compared with its global trading volume. A Deutsche Bank spokesman declined to comment. Because these stocks are so widely traded, it's possible they are subject to abusive trading and the firms still wouldn't make the list.

Other companies that also have been under selling pressure didn't make the cut, including Wachovia Corp. and Washington Mutual Inc. Washington Mutual submitted a letter to the SEC asking that the rule include other financial companies, according to a person briefed on the matter. Wachovia declined to comment.

National City Corp., a regional bank that scrambled to raise capital earlier this year and isn't protected in the SEC order, has been on the threshold list nine of the first 12 trading days this month.

"The current universe of names is too narrow" and should include the largest U.S banks, said Kristen Baird Adams, a spokeswoman for Cleveland-based National City. She said the bank intends to contact the SEC.

Banks Hoard Cash

2008-06-16T00:21:00.000-07:00

In contrast to Bernanke's foolish comment "risk of substantial downturn has faded" (see Things That Have Not Yet Happened) the Bank of England sees things differently.

Please consider Bank of England warns that credit crisis far from over as banks hoard cash.

Conditions in the money markets remain "stressed", with banks reluctant to lend to each other for longer than a month, the Bank of England has said.

In a further sign that recovery from the financial crisis is still at a very early stage, the Bank used its quarterly examination of the markets to warn that many areas are almost frozen, as banks continue to repair their balance sheets.

My Comment: Recovery? There is no recovery?

It comes after Bank Governor Mervyn King warned that the crisis is not over, and amid fears that central banks around the world are preparing to raise their interest rates.

My Comment: Perhaps the ECB hikes, but I will be surprised if the Fed does. This is just another passing inflation scare as we stare into the biggest deflation abyss since the great depression. Nonetheless, it's better to have a crash now than prolong the agony for a decade or more like Japan did.

Indeed, interbank borrowing rates have remained high in recent months, despite the Bank's Special Liquidity Scheme to pump extra cash into the markets.

Concerns about tight credit have in some quarters been replaced by worries about the soaring price of oil, which recently peaked at just below $140 a barrel. The Bulletin acknowledged that the activities of hedge funds and other investors may have pushed it a little higher, saying: "Speculative activity was not widely thought by contacts to have been the primary cause of upward price pressures in energy markets, although it is possible that it played some role in the short run."

My Comment: Concerns about the price of oil are misguided. Central bankers cannot do much about peak oil. And when it comes to wanting the price of oil come down, this may be a case of "be careful what you ask for".

Falling oil prices will indeed happen if the world economy slows enough. The US is in recession and the UK and Eurozone are headed there. A nice rate hike or two should push both over the edge. It would be a good thing too, even though central bankers are foolishly attempting to prevent that from happening.

If there's one thing this global economic mess needs, it's a good flush. Rate hikes would probably do it.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Banks Hoard Cash

2008-06-15T23:50:00.000-07:00

Conditions in the money markets remain "stressed", with banks reluctant to lend to each other for longer than a month, the Bank of England has said.

In a further sign that recovery from the financial crisis is still at a very early stage, the Bank used its quarterly examination of the markets to warn that many areas are almost frozen, as banks continue to repair their balance sheets.

My Comment: Recovery? There is no recovery?

It comes after Bank Governor Mervyn King warned that the crisis is not over, and amid fears that central banks around the world are preparing to raise their interest rates.

Indeed, interbank borrowing rates have remained high in recent months, despite the Bank's Special Liquidity Scheme to pump extra cash into the markets.

Concerns about tight credit have in some quarters been replaced by worries about the soaring price of oil, which recently peaked at just below $140 a barrel. The Bulletin acknowledged that the activities of hedge funds and other investors may have pushed it a little higher, saying: "Speculative activity was not widely thought by contacts to have been the primary cause of upward price pressures in energy markets, although it is possible that it played some role in the short run."

Bernanke Urges Action to Slow Foreclosures

2008-05-06T01:49:00.001-07:00

Bloomberg is reporting Bernanke Urges Action to Slow Jump in U.S. Home Foreclosures.

Bernanke, in a speech in New York yesterday, also reiterated his call for lenders to forgive portions of mortgages for some struggling homeowners. He said proposals should be "tightly targeted" at borrowers at greatest risk of losing their properties, and avoid providing an incentive for defaults.

"Realistic public and private-sector policies must take into account the fact that traditional foreclosure-avoidance strategies may not always work well in the current environment," Bernanke said in remarks to a Columbia Business School dinner.

My Comment: May not always work well or almost never work well?

Treasury Secretary Henry Paulson met with some of the largest mortgage servicers, including JPMorgan Chase & Co. and Citigroup Inc., on April 23 to consider ways to expand the scope of the Hope Now Alliance, a voluntary industry-led initiative he helped set up to reach more struggling borrowers and help modify their mortgages.

My Comment: I proclaimed Hope Now DOA back in December 2007 in Hope Is Now a Sucker Trap with a followup in "Wedding" Invitations Worth Refusing. It will remain dead. Nothing can put life into that turkey of a plan.

Last week, Federal Deposit Insurance Corp. Chairman Sheila Bair proposed that Congress authorize the Treasury Department to make loans to homeowners to help pay down as much as 20 percent of their mortgage principal.

My Comment: Why stop there? Why not give everyone a free house?

Bernanke also reiterated his call for a stronger role for Fannie Mae and Freddie Mac, the government-chartered companies that are the biggest sources of money for U.S. mortgages, to ease the crisis.

It's an "especially appropriate time" for Fannie Mae and Freddie Mac to "move quickly to raise significant new capital" to aid the housing market, he said.

My Comment: Is Bernanke really that dense? Raising capital to "aid" the housing market is asking for shareholder dilution to give away handouts. Who wants to contribute to that?

"In some cases, when the source of the problem is a decline of the value of the home well below the mortgage's principal balance, the best solution may be a writedown of principal or other permanent modification of the loan," Bernanke said.

One option would be for the FHA to refinance a loan after the lender or investor forgives part of the mortgage, he said.

Bernanke warned that "to be effective, such programs must be tightly targeted to borrowers at the highest risk of foreclosure." Qualification guidelines could be set, such as identifying an amount of debt compared with income, or the extent to which the home value is below the mortgage amount, he indicated.

My Comment: This socialistic proposal is truly sickening. The redeeming feature is it may never get off the ground. Banks are so capital impaired they are not in a position to write down a huge chunk of mortgage debt. There are other non-trivial issues as well, such as no incentive for second lien holders to go along with the plan, and a securitization process that makes getting approvals from all lien holders difficult.

"Finding the right balance -- particularly the need to avoid programs that give borrowers who can make their payments an incentive to default -- is difficult," the Fed chairman said.

My Comment: Finding the right balance is not difficult, it's impossible. It's a fool's mission that should not even be on the table for discussion.

Geographic Variation in Loan Mortgage Performance

Ben Bernanke gave a speech on May 5, on Mortgage Delinquencies and Foreclosures.

As my listeners know, conditions in mortgage markets remain quite difficult, and mortgage delinquencies have climbed steeply. The sharpest increases have been among subprime mortgages, particularly those with adjustable interest rates: About one quarter of subprime adjustable-rate mortgages are currently 90 days or more delinquent or in foreclosure.1 Delinquency rates also have increased in the prime and near-prime segments of the mortgage market, although not nearly so much as in the subprime sector. As a consequence of rising delinquencies, foreclosure proceedings were initiated on some 1.5 million U.S. homes during 2007, up 53 percent from 2006, and the rate of foreclosure starts looks likely to be yet higher in 2008.

On the principle that a picture is worth a thousand words, Federal Reserve staff, using detailed, county-by-county information on mortgage performance, have developed a series of "heat maps," which summarize the incidence of serious mortgage delinquencies across the nation as well as some of the key drivers of loan performance. As the examples will make clear, the figures use warmer colors--orange and red--to show counties for which the factor being considered has a higher value or change. Lower values or changes are indicated by cooler colors--shades of green--and yellows indicate areas where the factor under consideration has a moderate value or change.

Mortgage Delinquency Levels By County

click on chart for sharper image

Change In Mortgage Delinquency Levels By County

click on chart for sharper image

Change In House Price Index By County

click on chart for sharper image

Non-Owner-Occupied Purchases By County

click on chart for sharper image

Figure 5 is way understated because it is using OFHEO data not Case-Shiller Data. See
Case-Shiller Shows Steep Declines In Home Prices for more information.

Figure 6 is understated by the amount of flipper liars saying they intended to live in the house to get a better mortgage rate.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Countrywide Shares Worthless?

2008-05-05T22:51:00.001-07:00

Analysts say Bank Of America may lower Countrywide deal price.

At least two analysts said Bank of America Corp (BAC) will likely lower its purchase price for Countrywide Financial Corp (CFC), with Friedman, Billings Ramsey analyst saying the bank may bring down its deal price to the $0 to $2 level or completely walk away from the deal.

Shares of Countrywide, the largest U.S. mortgage lender, fell nearly 12 percent to $5.29 in morning trade on the New York Stock Exchange, after Friedman downgraded Countrywide to "underperform" from "market perform."

Analysts at S&P Equity Research expect Bank of America to complete the buyout of Countrywide, but at a lower price due to the rapid deterioration of Countrywide's credit portfolio.

Miller cut his target on Countrywide's stock to $2 from $7.

Bank of America, which in January agreed to buy Countrywide for $4 billion, said in a filing last week there was no assurance that any of the mortgage lender's outstanding debt would be redeemed, assumed or guaranteed.

"Bank of America announced that it might not guarantee Countrywide's debt, which is most likely the first step in renegotiating the entire deal," Miller said. "We estimate that if fair-value adjustments to the loan portfolio could exceed approximately $22 billion, this would increase the odds of Bank of America renegotiating the transaction or walking away."

S&P Equity Research analysts also said they were "particularly wary of Countrywide's option ARM portfolio because we do not believe that it has yet been stress-tested."

"Indeed, one of our major concerns about Bank of America is the potential inheritance of Countrywide's option ARM portfolio," they added.

CFC Preferred Stocks Action Suggest Deal Price Dropping

Minyanville Professor Bennet Sedacca had this to say:

Judging by the way that Countrywide(CFC) preferred stocks are acting, my opinion is that the deal gets done at a significantly lower price than $5 and that common shareholders will be lucky to get anything at all.

Buried in the $2 billion investment Bank of America (BAC) made in CFC was the fact that BAC has 'last look' to buy the company. That was the main reason for that deal, me thinks.

So I imagine common shareholders get little if anything, preferred holders get potentially wiped out and some subordinated debt holders could get smoked as well.

The same could be said for Washington Mutual(WM).

Over the years ex-CEO Mozillo cashed out $1 billion in options. Look at all the buybacks of CFC and other financials at ridiculous prices over the past few years. Clearly shareholders would have been far better off with dividends. CFC was at $5 in 1996. It hit $42.5 in 2007. CFC may be worthless in 2008, but share buybacks supported the stock price allowing Mozillo to cash out $1 billion in options.

Ambac (ABK) needs to raise cash at $5 while having bought back shares at prices over $70. Inquiring minds may wish to consider this flashback From October 30, 2007: Stock Buybacks: A Good Thing Or Slipped DISCs?

Now we see the absurdity of companies like Citigroup borrowing money at 8% to pay dividends of 5% after having bought back shares at prices twice what they are now. It does not make economic sense to borrow money at 8% to pay a dividend of 5%. So why is Citigroup doing that? The only possible reason is Citigroup executives think there will be an adverse reaction to share price if they cut the dividend.

CEOs manage companies for their own benefit, and the benefit of insiders, not shareholder benefits. It's important to always keep that in mind, especially when it comes to share buybacks and dividends.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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