by Calculated Risk on 1/19/2010 07:48:00 PM

Here is the letter from Fed Chairman Ben Bernanke to the GAO.

[T]o afford the public the most complete possible understanding of our decisions and actions in this matter, and to provide a comprehensive response to questions that have been raised by members of Congress, the Federal Reserve would welcome a full review by GAO of all aspects of our involvement in the extension of credit to AIG. GAO is authorized to conduct this review under its current authority (31 USC 714(e)).

The Federal Reserve will make available to the GAO all records and personnel necessary to conduct this review.

From Sudeep Reddy at the WSJ: Bernanke Invites GAO to Audit AIG Bailout

In a bid to soften congressional criticism, Federal Reserve Chairman Ben Bernanke on Monday invited the Government Accountability Office to audit the central bank’s involvement in the U.S. rescue of American International Group Inc. In a letter to Acting Comptroller General Gene Dodaro, Bernanke said the Fed would provide “all records and personnel necessary” for the auditing arm of Congress to review the rescue. ...

The invitation from Bernanke does not change existing policies about congressional reviews of the Fed. The GAO already has authority to review the central bank’s involvement in the AIG bailout, along with other company-specific rescues by the Fed and Treasury Department.

And more from Bloomberg: Bernanke Seeks ‘Full Review’ by GAO of Fed’s AIG Aid

Bernanke’s letter coincides with efforts by lawmakers to obtain more details on the Fed’s oversight of AIG after e-mails released this month showed that the New York Fed asked the company to withhold information from the public about payments to banks.

The House Committee on Oversight and Government Reform last week subpoenaed all documents related to the New York Fed decision to fully reimburse banks that bought protection from AIG and efforts to persuade AIG to keep information about the payments from the public.

The New York Fed said today it delivered 250,000 pages of documents to the House panel. The materials show that the New York Fed’s actions “assisted AIG in ensuring the accuracy of its disclosures and protected important U.S. taxpayer interests,” the bank said. The New York Fed reiterated that its former president and now-Treasury Secretary Timothy F. Geithner had no role or knowledge of the disclosure matters.

Mark Thoma adds:

Most people won't realize Bernanke is asking for something the GAO could have done on its own (though perhaps with less cooperation) ... so the politics work in the Fed's favor. And it does send the message that the Fed doesn't think it has anything to hide.

This is both good politics and good policy.

Note: I added the section from Bloomberg on Geithner too - he is being attacked for something that happened apparently after he left the NY Fed.

by Calculated Risk on 1/19/2010 04:30:00 PM

A few articles of interest ...

From Diana Olick at CNBC: Short Sale 'Fraud' Follow. This is a followup to her earlier article: Big Banks Accused of Short Sale Fraud

This alleged activity by banks - paying 2nd lien holders without proper disclosure - appears outrageous. Based on Olick's reporting, this practice appears to be widespread. Kudos to Olick and hopefully the regulators are reading.

From DataQuick: Southland home sales, median price up over last year. As DataQuick notes the median price increase was due to a change in mix - as always I recommend ignoring the median price.

Southern California home sales in December remained above year-ago levels for the 18th consecutive month, bolstered by gains in many mid- to high-end communities. \
...
The December sales tally was the highest for that month since 24,209 homes sold in December 2006, but it was still 11.2 percent below the average for a December – 25,143 sales – over the past 22 years.
...
December’s foreclosure resales remained well below peak levels but were still a large force in the market, edging higher than the prior month for the first time since last February. Foreclosure resales – houses and condos sold in December that had been foreclosed on in the prior 12 months – were 39.6 percent of resales, up from 39.0 percent in November but down from 53.5 percent in December 2008. They hit a high of 56.7 percent last February, then tapered or leveled off month-to-month until last month’s uptick.
...
Government-insured FHA loans, a popular choice among first-time buyers, accounted for 39.6 percent of all home purchase mortgages in December.

Absentee buyers – mostly investors and some second-home purchasers – bought 19.2 percent of the homes sold in December. Buyers who appeared to have paid all cash – meaning there was no indication that a corresponding purchase loan was recorded – accounted for 24.9 percent of December sales, based on an analysis of public records.

The market is still mostly first time homebuyers and investors.

And the high percentage of FHA buyers is a good lead into the third story ...

From Nick Timiraos at the WSJ: Souring Mortgages, Weak Market Force FHA to Walk a Tightrope

Souring FHA-insured mortgages are threatening the agency's finances. Congress is pressuring [FHA commissioner, Mr. Stevens] to tighten the easy-money standards that once helped people like him, and he is expected to announce revisions as early as this week.

by Calculated Risk on 1/19/2010 02:53:00 PM

Note: The NAHB housing market index (HMI) release is for residential, and the Architecture Billings Index (ABI) is for non-residential with a nine to twelve month lead.

The WSJ reports that the American Institute of Architects’ Architecture Billings Index increased slightly to 43.4 in December from 42.8 in November. It was at 46.1 in October. Any reading below 50 indicates contraction.

The ABI press release is not online yet.

Click on graph for larger image in new window.

This graph shows the Architecture Billings Index since 1996. The index has remained below 50, indicating falling demand, since January 2008.

Historically there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. This suggests further significant declines in CRE investment through 2010, and probably longer.

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions.

by Calculated Risk on 1/19/2010 01:00:00 PM

Click on graph for larger image in new window.

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

The housing market index (HMI) was at 15 in January. This is a decrease from 16 in December and 17 in November

The record low was 8 set in January. This is still very low - and this is what I've expected - a long period of builder depression. The HMI has been in the 15 to 19 range since May.

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

This second graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the January release for the HMI and the November data for starts (December starts will be released Wednesday Jan 19th).

This shows that the HMI and single family starts mostly move in the same direction - although there is plenty of noise month-to-month.

And right now they are moving sideways - at best.

Press release from the NAHB: (added) Builder Confidence Declines in January

The January HMI fell one point to 15, its lowest point since June of 2009. Two of its three component indexes registered one-point declines, with the index gauging current sales conditions and the index gauging traffic of prospective buyers falling to 15 and 12, respectively. The index gauging sales expectations in the next six months held even, at 26.

The HMI edged down by a single point in three regions, with the Northeast falling to 22, the Midwest down to 11 and the South declining to 16. The HMI fell three points in the West, to 16.　

by Calculated Risk on 1/19/2010 10:31:00 AM

New York has the earliest start to the new fiscal year, and other states will soon follow, see: Illinois: "state of insolvency"

From CNNMoney: New York budget plan a sign of things to come for the states (ht energyecon)

New York's governor unveiled a painful budget plan Tuesday that slashes services, raises fees and implements some creative actions to close a yawning $7.4 billion fiscal gap.
...
"There are no more easy answers. We cannot keep spending money that we do not have," Paterson said in a written statement.
...
The state's woes are a bellwether of what others around the nation are facing. New York's fiscal year starts in April, the earliest of any state.

by Calculated Risk on 1/19/2010 08:10:00 AM

Press Release: Fourth Quarter Net Loss of $7.6 Billion

Citigroup today reported a full year 2009 net loss of $1.6 billion ... Managed revenues were $91.1 billion for the year. The fourth quarter 2009 net loss was $7.6 billion ...

"We ... cut costs by over $13 billion annually, reduced headcount by 100,000, and reduced assets by $500 billion from peak levels." [said Vikram Pandit, Chief Executive Officer of Citigroup]

More from Eric Dash at the NY Times: Citigroup Reports a $1.6 Billion Loss for Year

[L]osses in Citigroup’s domestic mortgages and credit units overwhelmed gains from investment banking, a trend that is likely to continue. Bank executives set aside another $700 million to cover consumer losses in the fourth quarter, bringing the total amount of reserves to about $36 billion at year’s end.

The confessional is still open.

by Calculated Risk on 1/18/2010 10:13:00 PM

Note: Here is a weekly summary and a look ahead.

Below is a sign on the Broadway Auto Row in Oakland on Broadway. This is where the Chrysler/Jeep/Kia dealer used to be - the "Heart of the Marketplace".

Now dark and for lease. A sign of the times (photo credit: Bob)

by Calculated Risk on 1/18/2010 06:45:00 PM

First, from the NY Times back in April: Vandals Strip a Vacant Villa in California

Suzy Brown ... was sued by her neighbors and ran afoul of the local planning department over plans to use the villa as a “spiritual retreat” and high-end drug rehabilitation center.

But none of that prepared Ms. Brown for what happened last month when the 16,000-square-foot house fell into foreclosure. Vandals ripped out $1 million worth of fixtures, including toilets, according to a crime report filed on March 26 by a broker for Chevy Chase Bank.
...
Ms. Brown said she and 60 co-investors put $13 million into the construction and maintenance of the property, which they called Vivienda Estate, from 2004 to 2006, combining a $6 million down payment with $7 million from two mortgages and a private loan.

By the time she left last month, she had failed to make payments for one year and owed the bank $6.5 million, she said.

And a video from Jim today, the banked owned property is listed at $2.7 million. Crazy!

by Calculated Risk on 1/18/2010 04:00:00 PM

From Crain's ChicagoBusiness: Illinois enters a state of insolvency (ht Walt)

While it appears unlikely or even impossible for a state to hide out from creditors in Bankruptcy Court, Illinois appears to meet classic definitions of insolvency: Its liabilities far exceed its assets, and it's not generating enough cash to pay its bills. ... "I would describe bankruptcy as the inability to pay one's bills," says Jim Nowlan, senior fellow at the University of Illinois' Institute of Government and Public Affairs. "We're close to de facto bankruptcy, if not de jure bankruptcy."
...
Despite a budget shortfall estimated to be as high as $5.7 billion, state officials haven't shown the political will to either raise taxes or cut spending sufficiently to close the gap.

... Unpaid bills to suppliers are piling up. State employees, even legislators, are forced to pay their medical bills upfront because some doctors are tired of waiting to be paid by the state. The University of Illinois, owed $400 million, recently instituted furloughs, and there are fears it may not make payroll in March if the shortfall continues.

There is much more in the article, including a discussion of how pension payments are rising sharply.

For more on the problems of states, see the recent Rockefeller Institute report: Recession or No Recession, State Tax Revenues Remain Negative

The first three quarters of 2009 were the worst on record for states in terms of the decline in overall state tax collections, as well as the change in personal income and sales tax collections. The Great Recession hit virtually every single source of tax revenue and pushed a number of states to revise revenue forecasts numerous times throughout fiscal 2009 and 2010, with significant impacts on services.

Preliminary data for the October-December quarter suggest that fiscal conditions remain weak. ... While December data could change this troubling picture, there is little reason to expect reported revenues for that month to be strong. Continued weakness in revenues, along with continued if more moderate growth in expenditures, make further mid-year budget revisions and spending cuts highly likely.

According to the National Conference of State Legislatures (NCSL), new budget gaps have opened in at least 31 states since FY 2010 began. ... The continued weakening of state tax revenues in fiscal 2010 will force states to take further drastic measures.

by Calculated Risk on 1/18/2010 02:02:00 PM

Here is a followup to my earlier post about more hotel rooms coming online amid the worst occupancy slump since the Great Depression ...

From Jane Levere at the NY Times: Ailing Hotel Industry Is on Brink of Major Expansion

Though it may seem counterintuitive at a time when many hotels around the country are having trouble filling their rooms, nearly 100 hotels are scheduled to open in major American cities this year.

New York will have the most new hotels, 46, according to Smith Travel Research, a hotel research company in Hendersonville, Tenn., followed by Houston with 30. New hotels are opening as well in Atlanta, Boston, Chicago, Dallas, Miami, Los Angeles and Washington, D.C. That does not include new hotels opening in the suburbs of these cities.

So how can so many hotels be opening even though the economy and travel remain so slow?

The answer, according to Mark Lomanno, president of Smith Travel Research, is that “hotel building cycles rarely mesh just right with economic cycles.” Planning a new hotel can take two to four years and construction another one to four years. ...

This is probably the final surge in hotel construction related to the CRE bubble.

Click on graph for larger image in new window.

This graph shows investment in lodging as a percent of GDP since 1959 through Q3 2009 (data from BEA).

Even though lodging investment is falling rapidly, the level is still very high from a historical perspective because, as Mark Lomanno noted, it takes several years to finish major hotel projects.

As these hotels are completed in 2010, lodging investment will fall to low levels for several years as happened in previous investment busts. And that means more construction job losses are coming.