by Calculated Risk on 2/16/2009 02:24:00 PM

"The money is going to sit on the sidelines until [regulators] announce they’re going to do something with these [big banks]. Nobody is going to put fresh capital into the banking business when your major competitor is going to be continuously bailed out by the United States government with more and more money.”
Rusty Cloutier, the president and CEO of MidSouth Bank

From Diana Golobay at Housing Wire: Break Up Big Banks, Says Community Banker

Rusty Cloutier, the president and CEO of MidSouth Bank, recently told major news outlets that “[c]oncentration is a bad thing” and called for the feds to break up the “miserable eight” largest banks that, he said, control 60 to 64 percent of the country’s assets, restoring competition to the banking industry and restoring investor confidence in the system.

This is an excellent point. Most of the big banks can't raise capital because investors are afraid of nationalization preprivatization. And small banks can't raise capital because investors are concerned that their competitors (the large banks) will be continuously bailed out by the government.

by Calculated Risk on 2/16/2009 12:25:00 PM

Comedian Jim the Realtor tells the story of Dictionary Hill ... (2 min 49 sec). You have to wait until the end ...

For a couple of ugly McMansions in foreclosure, see this Chula Vista video. This is foreclosure alley in a higher price range. And yes, even homes that original sold for over one million dollars are sometimes destroyed by the owners:

by Calculated Risk on 2/16/2009 10:12:00 AM

From MarketWatch: Japan's economy shrinks 12.7% annualized

Japan's economy contracted ...12.7% on an annualized basis in the October-to-December period ...

The decline was the biggest since a 13.1% annualized contraction in the January-to-March period in 1974.

From CNBC:

"Given a rise in inventory and a decline in final demand, output adjustments will continue in January-March, paving the way for another big contraction in the first quarter," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities.

"As the U.S. stimulus package will have its effect on Japanese exports, Japan's economy may start picking up from April-June onwards, but it will be a very weak recovery amid a lingering recession. The economy can't avoid a second straight year of contraction in the fiscal year starting in April."

The Japanese economy is very dependent on exports, especially to China and the U.S. They are hoping the stimulus packages in China and the U.S. will also provide a boost to their economy.

by Calculated Risk on 2/16/2009 12:05:00 AM

The North County Times has a feature called "Deal of the Week". This week the deal is interesting for several reasons: See: Deal of the Week: 73% Off (sorry, wrong link initially)

The featured property is a one-bedroom, one-bath, 700-square-foot condominium in Escondido (inland north county San Diego).

In 2006, during the bubble, the unit sold for $191,000, and in December 2008 - after foreclosure, the unit sold for $52,000. That is almost 73% off the peak price!

A few key points:

In 2006, the unit was bought with no money down. Two months ago the buyer paid all cash. From no money down to all cash; near the opposite extremes of financing!

Note: "near" because during the bubble, some buyers actually received cash out at closing with financing of 105% LTV or greater.

These units currently rent for close to $900+ per month (although I suspect rents will decline in this area). Even figuring in HOA fees, taxes, maintenance, insurance, vacancy and other expenses, this unit has to be generating a nice return for the investor.

The unit sold for $45,900 in 1979 (Yes, 1979). I checked with Zach from the NC Times, and he said he confirmed the 1979 price with the assessor's office. Zach told me other units in the building sold for $40,500 in 1984, so maybe the '79 price was a little high (that was near the peak of a housing bubble too, so a 10% decline from '79 to '84 might be reasonable).

Over almost 30 years (1979 to Dec 2008) the price increased 13%. Annualize that return!

by Calculated Risk on 2/15/2009 10:50:00 PM

"Some clever advocates of nationalization have come up some alternative names, Dan. Some of them include government receivership, and my favorite is preprivatization."
John Hendren, ABC News, Feb 15, 2009

(ht to all)

See video ...

My favorite too. Best to all.

by Calculated Risk on 2/15/2009 07:01:00 PM

Four banks were closed by the FDIC Friday, for a total of 13 banks so far in 2009. To put those failures into perspective, here are two graphs: the first shows the number of bank failures by year since the FDIC was founded, and the second graph shows the size of the assets and deposits (in current dollars).

Click on graph for larger image in new window.

Back in the '80s, there was some minor multiple counting ... as an example, when First City of Texas failed on Oct 30, 1992 there were 18 different banks closed by the FDIC. This multiple counting was minor, and there were far more bank failures in the late '80s and early '90s than this year.

Note: there are currently 8,384 FDIC insured banks.

The second graph (ht Kurt) shows the bank failures by total assets and deposits per year starting in 1934 (in current dollars adjusted with CPI).

WaMu accounted for a vast majority of the assets and deposits of failed banks in 2008, and it is important to remember that WaMu was closed by the FDIC, and sold to JPMorgan Chase Bank, at no cost to the Deposit Insurance Fund (DIF).

There are many more bank failures to come over the next couple of years, mostly because of losses related to Construction & Development (C&D) and Commercial Real Estate (CRE) loans, but so far, especially excluding WaMu, the total assets and deposits of failed FDIC insured banks is much smaller than in the '80s and early '90s.

by Calculated Risk on 2/15/2009 03:04:00 PM

From the WSJ: Axelrod: Obama Has 'Solid' Housing Plan

Speaking on "Fox News Sunday," senior adviser David Axelrod said the plan that President Barack Obama plans to announce on Wednesday will aim to provide immediate help to homeowners who are "right on the edge" of foreclosure, and ultimately help in "raising home values that have been plummeting."

Mr. Obama plans to unveil his housing plan during a visit to Phoenix. As part of his swing through western states, he is set to top in Denver Tuesday, when he will sign the $787 billion economic-stimulus plan just passed by Congress.

Mr. Axelrod provided few details of the housing plan, but said a government investment of $50 billion to $100 billion to fund foreclosure prevention "is obviously a necessary part." He promised that the plan would contain "a lot of aspects."

I hope "a lot of aspects" includes "a lot of details".

by Calculated Risk on 2/15/2009 10:55:00 AM

From the Times: £30 billion loss at RBS prompts savage job cuts (ht Jan)

ROYAL BANK OF SCOTLAND boss Stephen Hester is to unveil a brutal cost-cutting exercise, alongside record losses of close to £30 billion, that are expected to lead to a further 10,000 to 20,000 job cuts.
...
The bank has already axed 13,000 jobs internationally since last April, including 3,000 in its investment-banking business.

And the beat goes on ...

by Calculated Risk on 2/14/2009 08:01:00 PM

To new readers, please see In Memoriam: Doris "Tanta" Dungey

From Tanta's sister Cathy on some new items:

They say “Tanta Vive” on the embroidery instead of the mortgage pig. Some of us who “sport the pig” already get looks from people and I’m sure this will just add to that but we encourage the questions. To find them in EBay you search on “ Tanta ” and you’ll see them all. I’m switching all future donations to the OCRF. [Ovarian Cancer Research Fund (www.ocrf.org)]

Here is the link for Mortgage Pig Gear - the Tanta Vive items are the bottom.

These items are produced as they are ordered and we do apologize about the size and color confusion. The best method is to enter this information in the PayPal message box when completing the order.

We will accept check orders outside of Ebay but that will slow things down. Please EMAIL: rwstick AT yahoo DOT com (Dick) with the item, size and color and we will return the cost with shipping. Once the check is received with shipping instructions we will process the order.

Note from CR: I have a few items - my favorite is the Hooded Sweatshirt! Thanks for everyone who bought gear - and helped with this great cause - and thanks to those who donated to the Doris "Tanta" Dungey Endowed Scholarship Fund too.

And now, from Tanta last year: Happy Valentines Day

From Mortgage Pig™. (click on Pig for larger image)

by Calculated Risk on 2/14/2009 04:22:00 PM

Bill Moyers interviews Simon Johnson (ht Nemo)

Former chief economist of the International Monetary Fund (IMF), MIT Sloan School of Management professor and senior fellow at the Peterson Institute for International Economics, Simon Johnson examines President Obama's plan for economic recovery.

And Joe Nocera writes in the NY Times: A Stress Test for the Latest Bailout Plan (ht MrM)

Matthew Richardson and Nouriel Roubini write the WaPo: Nationalize the Banks! We're all Swedes Now

First -- and this is by far the toughest step -- determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it should determine which are solvent and which aren't in one fell swoop, to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.

Second, immediately nationalize insolvent institutions. The equity holders will be wiped out, and long-term debt holders will have claims only after the depositors and other short-term creditors are paid off.

Third, once an institution is taken over, separate its assets into good ones and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner's plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.

The proceeds from both these bad and good assets would first go to depositors and then to debt-holders, with some possible sharing with the government to cover administrative costs. If the depositors are paid off in full, then the government actually breaks even.

Fourth, merge all the remaining bad assets into one enterprise. The assets could be held to maturity or eventually sold off with the gains and risks accruing to the taxpayers.

The eventual outcome would be a healthy financial system with many new banks capitalized by good assets. Insolvent, too-big-to-fail banks would be broken up into smaller pieces less likely to threaten the whole financial system. Regulatory reforms would also be instituted to reduce the chances of costly future crises.

And they conclude: We're all Swedes now!