Housing Bubble Bursting?

[Randolph Kinney]

So why would anyone buy a 10 year T-note?

Subprime Today: 10-yr Treasury yields fall below 4%, first time in two years

LONDON (MarketWatch) -- Yields on 10-year Treasury notes fell below 4% for the first time since September 2005 in early trading Wednesday, as investors flocked to safety with U.S. stock futures and international stock markets sharply lower.

A weakening economy means lower interest rates. It also means slowing imports. However, there is a perceived major risk in debt instruments worldwide and the US Treasury debt is the most liquid and the perceived safest.

So much for a falling dollar at the same time long term US Treasury debt has falling interest rates. There should be a disconnect there but demand is overpowering the fear of a falling dollar.

 

[Randolph Kinney]

The end game is here for Countrywide - no one believes them

Countrywide's shares remain pressured, down another 10%

SAN FRANCISCO (MarketWatch) -- Countrywide Financial Corp.'s shares fell more than 10% Wednesday, weakening further as investors discounted the company's argument that it has sufficient capital to run its business in the face of turmoil in the U.S. mortgage market.

Strange, IndyMac stock price is around $8 and Countrywide is around $9.30. Hmmm - so why is IndyMac lower than Countrywide? Maybe no one believes them either, more so than Countrywide?

 

[moh malekpour]

U.S. Stocks Fall to Three-Month Lows; Freddie, Countrywide Drop

U.S. stocks fell to three-month lows, led by financial companies and retailers, on growing concern that losses from mortgage defaults will spread through the economy.

Freddie Mac, the second-biggest source of funds for U.S. mortgages, declined for a sixth day after Goldman, Sachs & Co. said the value of its assets will continue to slide. Countrywide Financial Corp., the biggest U.S. mortgage company, also tumbled. Circuit City Stores Inc., the second-largest consumer- electronics chain, dropped to a four-year low after JPMorgan said it may not find a buyer to turn around its business until next year.

 

[moh malekpour]

This company guarantees many of the CDOs that are outstanding. It does not have the capital to make good on those guarantees. When the day comes to ante-up, pay-up, or shut-up, ACA will declare bankruptcy.

What about all those CDOs carrying A-ratings because they are insured by ACA? They will lose their A rating, they will be marked to market and sold creating huge losses for those that hold them. Citigroup is said to have a significant stash that will go En Fuego.

They will be returned back to thier original banks balance sheets

 

[MARK JOLLIFF]

If you guys want to hear the best discussion and ideas on our on going crisis you must tune to Fox New's new business channel and Neil Cavuto at 9PM nightly. This is no BS tell it like it is interviews.

Last night was really good. There is talk of doing away with the GSE's. The most significant point was the falling dollar. This is the ultimate case of being between a rock and a hard place.

China, along with a lot of other foreign countries, are sitting waiting for the US to do something about the dollar situation. They can't understand why the US won't move and take corrective action to turn the dollar around. What are the options to turn the dollar around? There is only one-raise interest rates. But if you raise interest rates that further knock the props out from under the mortgage crisis so we can't do that the man said. But something has to be done to stop the drop of the dollar and that only something is to raise interest rates.The bottom line is to save the US economy the mortgage industry must be thrown overboard. That is my summary of all this. I don't care what the FED does with their interest rates, when money is in high demand and their is a huge credit crunch, interest rates are going up because when good deals come along someone is going to pay whatever it takes to buy them which just adds to deflation.

Monday night Cavuto interrupted an interview to report that the planed merger of Chrysler had to be put on hold because they could not get the credit for the deal. Then he reported that the bank of China has cut off all lending because they have used up their quota for the year. The biggest purchaser of US real estate is the Chinese so now that demand element has been removed.

I can't find that channel!! I'm going to find it come hell or high water. Is that 9pm east coast? Oh well I inspected the wrong house once. sometimes I can't even find the subject property.

 

[Randolph Kinney]

Inflation without inflation

Recession without Romance


"Yes, America needs a recession. Bernanke and Paulson won't admit it. And investors hate them. We're all trapped in outdated 1990s wishful thinking about a 'new economy' and 'perpetual growth.'"

By keeping credit creation off the balance sheets of commercial banks, the money supply that fueled the housing bubble did not show up in traditional measures of the money supply, and thus was not commodity inflationary, although it was properly asset price inflationary.

 

[Randolph Kinney]

Where is that new money for mortgages coming from?

The Federal Home Loan Banks (FHLBanks) are an essential source of stable, low-cost funds to financial institutions for home mortgage, small business, rural and agricultural loans. With their members, the FHLBanks represent the largest source of home mortgage and community credit.

The three basic parts of the FHLBank System are the 12 banks, the Federal Housing Finance Board which regulates them, and the Office of Finance, which acts as a liaison with Wall Street. Over 8,000 community financial institutions are member/shareholders in the FHLBank system.

Securities were key sources of money during the housing boom. Now that investors have stopped buying, many institutions have been forced to seek out alternative sources of mortgage funding.

A number of banks have turned to the Federal Home Loan Bank (FHLB) system. The 12 FHLBs are cooperatives first created during the Great Depression to boost mortgage lending and revive the struggling housing market.

In August and September, lenders borrowed an unprecedented amount of money. During September alone, loans made to banks from the FHLB system increased nearly 30 percent since the beginning of this year.

In order to meet the demand from lenders who were teetering on the edge of financial ruin, the FHLBs sold $143 billion worth of short term debt, pushing outstanding debt up to $1.15 trillion--half of which comes due before the end of 2008.

The concern is that the FHLBs are taking on too much debt in their attempt to bail out lenders. If investors lose confidence and begin to get rid of FHLB debt (in the same way they dumped mortgage securities), one or more banks could collapse and leave taxpayers with the financial burden.

 

[Randolph Kinney]

Europe freezes mortgage bond trading between banks

Europe Suspends Mortgage Bond Trading Between Banks


European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region's main source of financing for home lenders... Banks including Barclays Capital, HSBC Holdings Plc and UniCredit SpA took the step as investors shun bank debt on concern lenders face more mortgage-related losses.

 

[Couch Potato]

It's official.

Now that Zillow says home prices fell an average of 6% nationwide, I guess that settles the debate.

 

[Randolph Kinney]

Now that Zillow says home prices fell an average of 6% nationwide, I guess that settles the debate.

Zillow gains credibility since it agrees with Case/Shiller. Of course, some people prefer to use NAR as their standard.