Sidetalk

This is a big deal.  A Bankruptcy Court has now held that a stated income HELOC (otherwise known as a “liar loan”) is dischargeable in bankruptcy by the homeowner/debtor.  The lender’s argument that the loan should not be discharged because it relied on the homeowner’s income statement and the (inflated) appraisal did not fly.  “In short, while the Court found that the Hills knowingly made false representations to the lender, the lender’s claim that it “reasonably relied” on these representations doesn’t hold water, because “stated income guidelines” are not reasonable things to rely on. In essence, the Court found, such lending guidelines boil down to what the regulators call “collateral dependent” loans, where the lender is relying on nothing, at the end of the day, except the value of the collateral, not the borrower’s ability or willingness to repay. If you make a “liar loan,” the Judge is saying here, then you cannot claim you were harmed by relying on lies. And if you rely on an inflated appraisal, that’s your lookout, not the borrower’s.”  http://calculatedrisk.blogspot.com/2008/05/bk-judge-rules-stated-income-heloc-debt.html

May 28, 2008

Hundreds of thousands of people were hit by electricity blackouts yesterday when seven power stations shut down. The unscheduled stoppages were regarded as an unprecedented sign of the fragility of Britain’s power infrastructure. Operations were cancelled, people were stuck in lifts, traffic lights failed and fire engines were sent out on false alarms. Householders were unable to use any appliances or make phonecalls as the blackouts hit areas including Cleveland, Cheshire, Lincolnshire and London.  It was unclear last night why the power stations had failed. As the cuts escalated, the National Grid was forced to issue the most serious possible warning — “demand control imminent” — and urged suppliers to provide lower-voltage electricity to meet demand. (more…)

And now, it is revealed that Moody’s allowed investment banks to cherrypick which analysts determined their ratings. Seems to me it is basic common sense that this would be a no-no, no? (more…)

No doubt relying on the integrity of the venerable Moody’s Triple A rating, investors of all stripes have sunk untold amounts of money into financial instruments which it turns out should NOT have been rated AAA in the first place. Moody’s is blaming this on a “computer bug.” And if that’s not bad enough, Moody’s knew about the problem since early 2007, and never told the investors or anyone else apparently. Only after an investigation by a FT journalist uncovered what looks like an outright fraud did Moody’s admit the “bug” this week. (more…)

From CNN: “There are 12 parking lots across Santa Barbara that have been set up to accommodate the growing middle-class homelessness. These lots are believed to be part of the first program of its kind in the United States, according to organizers. The lots open at 7 p.m. and close at 7 a.m. and are run by New Beginnings Counseling Center, a homeless outreach organization. It is illegal for people in California to sleep in their cars on streets. New Beginnings worked with the city to allow the parking lots as a safe place for the homeless to sleep in their vehicles without being harassed by people on the streets or ticketed by police. Harvey stays at the city’s only parking lot for women. “This is very safe, and that’s why I feel very comfortable,” she said. Nancy Kapp, the New Beginnings parking lot coordinator, said the group began seeing a need for the lots in recent months as California’s foreclosure crisis hit the city hard. She said a growing number of senior citizens, women and lower- and middle-class families live on the streets.’” Full article here parkinglots

Despite some variation, average ratio of high risk assets to equity was 188% across these major banks:


Many thanks to Russ Winter for chart and graphic!

Jim Manzi thinks so:

“According to the Wall Street Journal, Massachusetts legislators are studying a plan to levy a 2.5% annual tax on the portion of college endowments that exceed $1 billion. The high-wage union workforce with lifetime employment contracts and restrictive work rules tenured faculty is not amused.

Harvard’s official response is pretty funny:

Kevin Casey, a spokesman for Harvard, said the proposal would hurt Massachusetts and colleges because it would damage “stable bedrock institutions” that have helped shield the region from the worst of the economic slowdown.

But why isn’t this statement true of, say, Akamai, Biogen and Raytheon?” (more…)

euroarealendingsurvey0408  ←link to full report

The Euro Area lending survey for April 2008 is out, and shows considerable tightening in both lending standards and in loan demand across consumer, enterprise and mortgage credits. 

Something is happening at the nation’s largest pension fund, the Sacramento-based California Public Employees’ Retirement System, which has nearly a quarter-trillion dollars in investments ranging from real estate to stocks.  (more…)

Grameen Bank, the micro-credit financier initially set up to help the poorest in Bangladesh, has opened its first branch in the United States. The Bangladesh-based outfit known as the poor people’s bank plans to hand out loans to the less well-off in one of the most ethnically-diverse neighbourhoods in the US. Muhammad Muhammad Yunus, who founded the bank in 1976, said the branch in Queens, New York City, was to cater to thousands of new immigrants without access to basic banking services. “They think ‘What you come from Bangladesh to do banking in NYC? That sounds so ridiculous.  “This is [the] city where [the] whole world learnt banking from’.” But the Nobel laureate said New York also had its share of poor people just like any other city “so we are actually working in [a] third world” environment. 

(more…)

The decade of bling is over in the USA.  Now it’s supposed to be cool to dump the SUV, dumpster dive and freecycle.  Having read reams of articles on this trend, I’ve selected the one I think is the best from the San Francisco Chronicle which is fairly long but required reading.  It does a good job of showing the macro and micro reasons for the changes, and showing exactly how the economics translate into real everyday life for many people.  Link to read full article:  frugalamerica

Here’s the chart:

Source: Chronicle research, BudgetSavvyMag.com

The Treasury Department’s TBAC has released its report dated April 28.  It is grim but required reading.  Full report here:  treasurybacreportreleased050208

Excerpts:

The Federal government’s budget balance is deteriorating in fiscal year 2008. Weaker economic activity has dampened the pace of revenue collection and lifted growth in economically sensitive spending. A recent survey of primary dealers estimates that the deficit for the 2008 fiscal year ending in September will exceed $400 billion with some economists expecting a deficit of more than $500 billion–a significant deterioration from fiscal 2007’s deficit of $163 billion. Economic stimulus measures will complement the forces widening the budget deficit. This year’s shortfall may surpass fiscal year 2004 as the largest on record in nominal dollars. (more…)

The other alternative perhaps being a 1929 style crash. 

A DERIVATIVES expert who two years ago warned of a potential meltdown in global credit markets has cautioned that the crisis is far from over, and has endorsed recent calls to relax controls on inflation and allow higher prices to help markets trade their way out of their problems.  Longtime critic of derivatives markets, Satyajit Das, says those who believe the US sub-prime loans crisis, and the drought in credit markets it triggered, are nearly over are wrong.

Full article:  das0508

Is your pension plan underfunded now that the true value of its investments is beginning to come to light?  It’s possible that you will receive a deficit notice from your pension fund similar to this one sent out recently to Sheet Metal Workers pensioners:  criticalstatusfinal (more…)

Fictitious capital to the tune of $536 Billion in household assets in the United States has already evaporated.  Read Kasriel’s April 29 report here → kasriel042908halftrillion

For curiosity’s sake, take a look at the historical dollar amount of borrowing by depository institutions (banks) from the Federal Reserve.  It is hard not to notice that what we have here is unprecedented over the last 100 years.  When you hear someone say the credit crisis is almost over, check this chart and think again.

Total Borrowings of Depository Institutions from Fed. Reserve 1910 - present (Billions $US)