bank run blog

Realty Trac reported today that 739,714 homeowners received notice that their homes were in foreclosure in the second quarter, up 13.8 percent compared to the first quarter of 2008. Foreclosures are up a 121 percent compared to the same quarter in 2007.

Bank seizures in the first half of the year increased by 154 percent to 370,179 from the same period in 2007. 48 of 50 states and 95 of the 100 largest US cities had year-over-year increases in foreclosure filings in the second quarter. Realty Trac reported that the following states saw the largest increases in foreclosures last quarter;

Nevada: one in every 43 households received a foreclosure notice in the quarter

California: one in every 65 households received a foreclosure notice in the quarter

Arizona: one every 70 households received a foreclosure notice in the quarter

Also among the top ten states where home owners receive foreclosure notices were Florida, Colorado, Ohio, Michigan, Georgia, Massachusetts and Illinois

Bloomberg quotes Bill Gross, manager of the bond fund at Pacific Investment Management, who said “About 25 million U.S. homeowners risk owing more than the value of the their homes.” Bloomberg writes;

“One in every 171 households was foreclosed on, received a default notice or was warned of a pending auction.”

see stories -
Reuters :RealtyTrac report says Q2 home foreclosures up 13.8 pct from Q1
Bloomberg : U.S. Foreclosures Double as House Prices Decline

Treasury Secretary Henry Paulson made the rounds of the television talk shows on Sunday to discuss the federal bailout plan for Fannie Mae and Freddie Mac and to proclaim that the US banking system is sound, capping another extraordinary week for Washington’s top economic policy makers. Intervention on behalf of the Government Sponsored Enterprises was necessitated after a sudden institutional run depressed their share prices and fueled rumors of insolvency at the quasi-governmental agencies that together hold or guarantee more than 80 percent of US home mortgage loans. Also last week, the Securities and Exchange Commission announced an emergency measure prohibiting the short selling of stocks in the GSEs and 17 other financial institutions, prompting confusion on Wall Street and giving rise to fears that troubled banks not protected by the SEC order may soon fail.

Referring to the FDIC list of institutions that may be in jeopardy of failure, which currently numbers about 90 banks and thrifts, Paulson told CBS News, “Of course the list is going to grow longer given the stresses we have in the marketplace, given the housing correction. But again, it’s a safe banking system, a sound banking system. Our regulators are on top of it. This is a very manageable situation.” With regard to the recent failure of California-based IndyMac, that led to long lines of tense depositors at several branches, the Treasury Secretary reiterated that no one has ever lost money on a federally insured deposit.

Paulson denied that the rescue package devised for Fannie and Freddie amounts to a government bailout, even as he urged Congress to quickly approve the plan to provide essentially unlimited liquidity to the GSEs. Some analysts have predicted that the immediate cost of salvaging the GSEs will exceed a trillion dollars. New York University economics professor Nouriel Roubini has argued that the government will ultimately be forced to nationalize home mortgages to stabilize the banking and financial services sectors.

The American Bankers Association called on the SEC to broaden its order to protect all US banks, writing in a letter to the commission, “The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country’s banking industry.”

cross posted at

redstateupdate.net

In this segment, CBS News explains the Texas ratio formula, an indication of the financial stability of banks, and gives the ratios of some banks with wildly lopsided ratios.

“Some Wall Street analysts using a little known formula known as the Texas ratio say as many as 150 financially strapped institutions could fail over the next 18 months.”- Pryia David, CBS News

Economists have predicted that the current slump will be prolonged for American consumers, and some have even suggested that the nation may be facing an inevitable and permanent reduction in its standard of living. In this context, perhaps it is not too traumatic to discover that some of the accoutrements and accessories of the boom years have hidden health risks.

Today the New York Times is reporting on the heated debate over radiation in popular “designer” kitchens :

“Allegations that granite countertops may emit dangerous levels of radon and radiation have been raised periodically over the past decade, mostly by makers and distributors of competing countertop materials. The Marble Institute of America has said such claims are ‘ludicrous’ because although granite is known to contain uranium and other radioactive materials like thorium and potassium, the amounts in countertops are not enough to pose a health threat.

Indeed, health physicists and radiation experts agree that most granite countertops emit radiation and radon at extremely low levels. They say these emissions are insignificant compared with so-called background radiation that is constantly raining down from outer space or seeping up from the earth’s crust, not to mention emanating from manmade sources like X-rays, luminous watches and smoke detectors.

But with increasing regularity in recent months, the Environmental Protection Agency has been receiving calls from radon inspectors as well as from concerned homeowners about granite countertops with radiation measurements several times above background levels. ‘We’ve been hearing from people all over the country concerned about high readings,’ said Lou Witt, a program analyst with the agency’s Indoor Environments Division.”

Yesterday the Associated Press ran an article on one doctor’s wake up call for cell phone users :

“The head of a prominent cancer research institute issued an unprecedented warning to his faculty and staff Wednesday: Limit cell phone use because of the possible risk of cancer.

The warning from Dr. Ronald B. Herberman, director of the University of Pittsburgh Cancer Institute, is contrary to numerous studies that don’t find a link between cancer and cell phone use, and a public lack of worry by the U.S. Food and Drug Administration.

Herberman is basing his alarm on early unpublished data. He says it takes too long to get answers from science and he believes people should take action now — especially when it comes to children.”

This report from Indianapolis NBC affiliate WTHR proves avoiding carcinogens is no picnic :

“For decades, wood used for outdoor purposes was infused with the preservative CCA. The preservative contains copper, chromium and arsenic, and it was pumped into billions of pounds of lumber used for playground equipment, backyard decks and picnic tables to help prevent decay and deterioration.

The lumber industry voluntarily agreed to stop using CCA by the end of 2003 due to pressure from the Environmental Protection Agency and health concerns that arsenic was leaching out of the wood, exposing consumers to an increased risk of cancer and other health problems.”

New York Times : What’s Lurking in Your Countertop?

Associated Press : Pittsburgh cancer center warns of cell phone risks

WTHR TV (Indianapolis) : Poison in the Parks

Real estate statistics published today document the continuing implosion of the US housing market, which is now subject to a whole new range of external pressures from the banking crisis. Bloomberg has this morning’s NAR data :

“Sales of previously owned U.S. homes fell in June to the lowest level in a decade as tumbling real- estate prices and consumer confidence signaled no end in sight to a housing recession now in its third year.

Resales dropped 2.6 percent to a lower-than-forecast 4.86 million annual rate from a 4.99 million pace the prior month, the National Association of Realtors said today in Washington. The median home price dropped 6.1 percent from June 2007.

The housing slump may deepen further after mortgage rates climbed to the highest in a year this month and turmoil engulfed Fannie Mae and Freddie Mac, which account for more than two- thirds of new home-loan financing. A record 18.6 million houses, apartments and condominiums stood empty in the last three months as the industry’s recession reverberated through communities, separate figures showed today.”

The combination of falling prices, moribund sales, and a steady stream of foreclosures coming onto the market every month has disastrous implications for inventories. The Associated Press reports :

“The drop in sales pushed inventories of unsold single-family homes and condominiums to 4.49 million units, up by 0.2 percent. That represented a 11.1 month supply at the June sales pace, the second highest level in the past 24 years.”

Bloomberg : U.S. Economy: Home Resales Decline to 10-Year Low

Associated Press : Existing home sales fall 2.6 percent in June

The Labor Department reported that jobless claims by recently laid off workers rose last week by 18,000 requests for benefits. The new figure, 366,000 workers seeking benefits, is the highest weekly number of new claims filed since last month and higher than a year ago by about 50,000.

The number of people continuing to draw unemployment benefits stood at 3.1 million for the week ending July 5, which is compared with 2.6 million people last year at this time. The number of jobs lost this year in the US is 438,000, according to government figures.

Bloomberg writes, “Housing-related companies and carmakers are leading the cutbacks in staff as costs of fuel and raw materials have surged and consumer demand has waned,” and reminds readers of the recent announcements of anticipated job cuts at GM and Northwestern Airlines. CNN notes that the Tribune company, Pfizer and American Airlines also announced lay offs this month.

Bloomberg provides this analysis and prediction;

“The biggest U.S. housing recession in a generation, tightening credit and slowing consumer spending are inhibiting economic growth. A softening labor market means consumer spending may retrench, threatening to extend the slump.”

see stories-
Bloomberg : U.S. Initial Jobless Claims Rose to 366,000 Last Week
CNN Money : Jobless claims up

A recent study released by the Nielsen Company that tracks consumer habits found that 63 percent of consumers report having to trim expenses because of high gas prices. Todd Hale, senior vice president of Nielsen said;

“While discretionary spending is likely to be a challenge for most low and middle income shoppers, even affluent consumers are looking for ways to make their dollars go further.”

Nielsen reported that 78 percent of consumers are combining shopping trips, 52 percent are eating out less and 35 percent of consumers are buying less expensive brands at the supermarket.

See stories-
CNN Money article : Gas prices have consumers cutting back - study
Phoenix Business Journal : Nielsen survey shows 63 percent of consumers cutting spending

In an interview today on Yahoo Finance, economist Nouriel Roubini predicted that independent investment banks will inevitably become extinct. According to Yahoo News, ‘They’re All Toast’: Roubini Says Brokers, Even Goldman, Can’t Stay Independent :

“The broker/dealer business model is ‘inherently unstable’ and the four remaining major firms will not be independent in a few years, says Nouriel Roubini, economics professor at NYU’s Stern School and chairman of RGE Monitor.

Embattled Lehman Brothers is likely to seek a buyer ‘within months,’ Roubini says. Lehman Brothers ceasing to be independent is not such a shocking outcome, but Roubini ultimately sees a similar outcome for Goldman, Merrill Lynch, and Morgan Stanley.”

Due to continuing problems in the financial sector, Roubini doesn’t see the investment banks being merged into large US commercial institutions :

“With U.S. financial giants like JPMorgan, Citigroup, and Bank of America dealing with internal issues, the most likely buyers are international financial firms or sovereign wealth funds, Roubini says. But unlike in 2007, foreigners are not going to settle for preferred shares, and non-voting rights next time around.”

full story

The Office of Federal Housing Enterprise Oversight reports that U.S. home prices fell a record 4.8 percent in May since the same time last year. The agency also said that home prices fell 0.3 percent since last month. OFHEO oversees the government-sponsored mortgage-finance companies Fannie Mae and Freddie Mac.

Market Watch points out, “The OFHEO index tracks mortgages data from Fannie Mae and Freddie Mac of sales of the same homes over time. It does not include jumbo loans, or subprime loans, so it may understate the declines in the bubbliest areas of the country, such as California, Florida, Nevada and
Arizona.” Market Watch notes that the more comprehensive Case-Schiller index;

“will be released for May by Standard & Poor’s next week. Through April, home prices were down 15.3% in the past year according to Case-Shiller. It includes subprime and jumbo loans, so it covers more homes than the OFHEO index does.”

There are wide regional disparities in home values that the national averages do not reflect. While the OFHEO reports that prices rose in May in the Middle Atlantic (New York, New Jersey and Pennsylvania) and the East North Central states (Michigan, Wisconsin, Illinois, Indiana and Ohio), the San Diego Union Tribune writes, “DataQuick Information Systems reported yesterday that the statewide median home price was down 31.5 percent last month from June 2007 levels.”

See articles-
Market Watch : U.S. home values fall 4.8% in past year, U.S. says
Associated Press : US home prices fell 4.8 percent in May
San Diego Union Tribune : Statewide home prices fall

Wachovia, the nation’s fourth largest bank, reported a record second quarter loss of almost $9 billion this morning, becoming the only one of the five biggest US banks to “miss Wall Street analysts’ expectations”. Reuters reports :

“Wachovia Corp on Tuesday posted an $8.86 billion second-quarter loss, slashed its dividend and announced 6,350 job cuts after losses tied to mortgages soared.

Its shares fell $1.67, or 12.7 percent, to $11.51 in premarket trading.

The net loss attributable to common stockholders equaled $4.20 per share and compared with a profit of $2.34 billion, or $1.22, a year earlier.

Results included a $6.1 billion write-down of goodwill, and reflected a $4.2 billion increase in reserves for bad loans.

The Charlotte, North Carolina-based bank slashed its quarterly dividend 87 percent to 5 cents per share from 37.5 cents, and has now lowered it 92 percent this year.”

Wachovia has been battered since its unwise acquisition of Golden West Financial Corporation, a subprime and Alt-A mortgage specialist that marketed the ill-fated ‘Pick-A-Payment’ marketing twist. According to the Associated Press :

“Wachovia recently discontinued offering the ‘Pick-A-Payment’ loan option, which allows customers to pay a less-than-full interest payment on all new home loans. The bank also had hired The Goldman Sachs Group Inc. to conduct an analysis of its loan portfolio and advise it on strategic alternatives.

Late Monday, Wachovia announced plans to leave the wholesale mortgage lending business. And beginning Friday, the company will no longer offer mortgages through brokers, joining other lenders making similar moves to exit the troubled sector.”

The article continues, noting that the bank recently turned to a consummate insider in an unsuccessful effort to right the ship :

“Earlier this month, Wachovia named former Treasury Undersecretary and Goldman Sachs Group Inc. executive Robert Steel as chief executive, replacing the ousted Ken Thompson. Within a week of being on the job, the bank’s shares tumbled to a new 17-year low.

In premarket trading Tuesday the stock shed nearly 12 percent to $11.80. That level would mark the stock’s lowest price since roughly June 1991.”

Reuters : Wachovia loses $8.86 billion, slashes jobs

Associated Press : Wachovia has $8.9B loss, cuts 6,350 jobs, dividend