Prime loans default as unemployment climbs

It looks as though we will learn in the next quarter or two how accurate the "worst case" bank loss forecasts really were. If history is a guide, they will be wrong again and the banks will need to raise even more capital. Just because the banks and their apologists say it's over doesn't mean that it's over. Overstating and distorting the truth is what they've been doing since the bubble burst. None of them can live with the truth because they might have to face the fact that they're not as clever as they think they are. Either that or those in the government would have to admit that they've been duped over and over and over. NY Times:

From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.

During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million. The number of similarly troubled Alt-A loans — those given to people with slightly tainted credit — rose 159,000, to 836,000.

Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier.

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Troubled banks deeply involved with subprime lending

Surprise, surprise. The response to this new report by the banking lobbyist is laughable and predictable. See, the banks who are now inhaling billions to stay afloat and live the high life are really victims. The poor little lambs are as surprised as anyone that their shady business practices could crumble so quickly and be so costly. I mean, gosh, who could ever imagine besides maybe the crackpot Roubini? He has an accent and is a professor at some fancy pants college so this probably means he's untrustworthy and maybe even a communist. Washingtonpost.com:

While many portrayed themselves as unwitting victims of the subprime mortgage meltdown, the banks also enabled that kind of lending because it was lucrative, according to the Center for Public Integrity, a nonprofit investigative reporting group funded largely by charitable foundations. The group analyzed federal data on 7.2 million mortgages made from 2005 through 2007, a period that covers the peak and collapse of subprime lending.

The report oversimplifies the problem and ignores the complexities of the market, said Scott Talbott, chief lobbyist for the Financial Services Roundtable, which represents some of the nation's largest lenders. "To say we are victims is understating, and to say we are enablers is overstating," he said.

Banks that received federal bailout money financed at least 21 of the top 25 subprime lenders, the investigation found. They owned these lenders, extended credit to them, or bought their loans and then sold them as securities.

Of course the report "oversimplifies the problem" as the lobbyist (paid for by taxpayer bailout money) says. It's better if everyone gets lost in deep financial detail instead of seeing the obvious self-inflicted problems. Life was so much easier before the bubble burst and we could have media programs worshiping the brilliant corporate leadership who were making so much money. Those were the days. Read More......

Straight Talk Express gets a flat tire on Gramm link

I think the bus just ran over its best friend, backed up and ran over him again. The initial part of the video is McCain slamming his economic advisers remarks that he has promoted for months but when you hit the 2:38 mark, McCain completely dodges the question about the ongoing rumors of Gramm being a key economic adviser to McCain, who admits he knows nothing about the economy.

Question from Karen Tumulty to McCain: Phil Gramm is often described, however, as one of your top economic advisers. How significant was his role in formulating your economic plan and is there any chance that Phil Gramm would be your Secretary of Treasury or play a significant economic policy making role in a McCain administration?

Karen Tumulty of Time magazine isn't going to get a good seat on the McCain plane if she keeps asking questions like this. Naughty, naughty. Read More......

Gramm stands by "whiners" remark; McCain claims Gramm, the guy he has speak for him publicly, doesn't speak for him. Huh?

Much like John McCain, Phil Gramm doesn't quite realize what it means to live in 2008 when video is almost immediately available online. In another era, Gramm and McCain could easily rely on friends in the media to back them up but as Joe posted here, you can watch and listen and make your own decision. Phil Gramm called the US "a nation of whiners," and in no way implied this was a reference to politicians. It's a convenient after thought to suggest he meant otherwise. He meant you, the American people, don't get it. You think we're having economic problems - but you're wrong, according to John McCain's top economic adviser.

But let's again look at what Gramm said. He talked about the booming export economy and yes, that's true, exports are doing well. However, that completely ignores the economic impact of the cheap dollar policy which has played a critical role in high import prices, primarily for oil. It also is linked to increasing food prices since the world is buying more US food because it's so cheap, again, driving up prices. Inflation is crushing the middle class, but McCain and Gramm are among the nations financial elite. And "if things are not as bad as you think" as he says, then why has Gramm been lobbying Washington for handouts to his employer Swiss giant UBS? Please tell us more. We're all ears.

If things were going so well, the Swiss bank UBS would not be fishing for money in middle class pockets. Heck, if you played by Gramm's word, the market would take care of UBS and they would fend for themselves. Instead, we all know that UBS would be sold at a fire sale if they didn't rely on special tax loopholes to make a bad situation look a bit better. Maybe we should ask Gramm to just let the market take care of UBS and see what happens. This is clearly a case where I'd love to see the market rule the day. Then we could see how much whining Gramm does when his million dollar job disappears. And while that's going down, let's see how well Gramm does when he has to even think about a food and gas budget or keeping his house. Go ahead Phil, let your market do it's magic and then come talk.

John McCain needs to stop playing games with his wacky surrogates. They either speak for you or they don't speak for you. But when they're your top economic adviser, when you send them to public gatherings and to the media as your spokesman on the economy and your character, then they speak for you. Not to mention, when you refuse to fire them, when you keep someone as your top adviser who thinks gas prices aren't hurting Americans, who thinks the American economy isn't suffering, who thinks the American people aren't suffering, then yes, Mr. McCain, your actions speak for themselves. Read More......

McCain initially for Gramm comments, before being against them

Not that it's much of a surprise because McCain has been saying much of the same on the campaign trail except for the "whiner" remark. Of course psychology is important with economics, but then again, so are basic economic fundamentals such. Call me old fashioned, but the little things, such as cash flow, somehow mean something. Speaking of cash flow, Phil Gramm's employer UBS.

Interestingly enough, in this morning's FT there is an article about how Swiss regulators are telling UBS that they need to set aside more money to prevent a complete meltdown. In other words, Phil Gramm's employer better be sitting on a lot more cash if they are to avoid a Bear Stearns collapse. In the case of UBS, it's much worse though because it's a much larger organization. UBS has already written down close to $40 billion due to the subprime crisis, has had four consecutive quarters of losses and there is no end in site. Read more here about the outstanding problems at UBS including an inability to raise capital to remain afloat.

For McCain's economic brain to call the country "whiners" is amazing, since he has had a front row seat in the current crisis. He created the legislation that ushered in this new "anything goes" environment in finance and then went to work for one of the largest financial organizations in the world. No conflict of interest there, is there? More recently McCain's economic adviser lobbied for the troubled Swiss banking giant, seeking handouts by the American taxpayers for the self-created problems. So now Phil Gramm wants to call the US a bunch of whiners? Really? Are McCain and Gramm that out of touch that they can't appreciate the anger Americans have related to this subject?

To hell with whining, we're goddamn furious that elitists such as McCain and Gramm dumped this financial mess on the country and stuck average Americans with the bill. Can you imagine, one of the largest banks in the world asking for welfare handouts from middle class Americans? A bank? A Swiss bank, asking for American tax dollars? Gramm needs to quit his own whining about asking for corporate welfare. People living on million dollar salaries from exclusive Swiss banks or people who marry a trust fund have no idea what it's like for the rest of us. Maybe this BS works in their social circles, but it doesn't cut it back in the real world. Read More......

The Mortgage Lender Implode-O-Meter

The subtitle says it all: Tracking the housing finance breakdown: a saga of corruption, hypocrisy, and government complicity. The Times story on the site here and the site itself, here. Read More......

Failed AIG CEO receives $47 million for his troubles

Poor fellow. I hope that he will be OK though he does have the advantage of having an office and secretary until the end of the year. This is a new era, where record losses are ignored and multi-million dollar golden hand shakes are given along with a nice peck on the cheek. Let's be honest, corporate America would do this for any employee, especially after years of being treated so well with no luxury too much. Just because he was paid massive amounts based on bad business and now is being paid yet again despite the company writing down billions doesn't mean he didn't deserve it. Hey, he had a contract! Legal wasn't able to find any of those famous loopholes despite AIG losing billions upon billions.

What's that? Your company won't even pay for all of your family health insurance after working there for 10 years? Well, you people are always so greedy and just ask for too much. Shouldn't you be working now anyway? Read More......

Wachovia to stop "pay whatever you want" loans

Are they sure? It sounded like such a good idea and thankfully regulators saw no problem with it either. Just because real estate is hitting new lows every week and the bank's stock price has dropped around 70%, there's no reason they should give in to common sense. Such practices would only encourage more common sense and then where would the banking industry be? Well, that's why they're paid the big bucks, courtesy of the American middle class. No matter how stupid or how costly or how ridiculous their half-baked ideas are, taxpayers will always be there to bail them out and fund their lifestyle. Ain't life grand for bankers?

The choice to pay less was one of the options of Wachovia's controversial Pick-A-Payment mortgages, which offer customers four different payment options each month. Wachovia (WB, Fortune 500) told The Associated Press that it will no longer offer the less-than-full interest payment option on all new home loans.

Critics have said paying less than the amount of interest charged can lead to negative amortization. That means the borrower owes more than the value of their home, increasing the chance of foreclosure.

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Wall Street on edge of official bear market

One financial site says it was one of the worst weeks in the market seen in modern times. Obviously they don't understand economics, because the Republicans always tell us how much they know about economics and surely they must be right, right? Putting fantasy land aside, the Dow slightly fell below a 20% decline from its peak (the definition of a bear market) though eventually finished just above.

It wasn't long ago that the Dow was at 14,000+ and authors vying for a spot on CNBC and other Wall Street cheerleading outlets were writing books such as "Dow 30,000 by 2008" and "Dow 36,000" and "Dow 40,000." As ridiculous as they all sound today, it's surprising that there wasn't a book called "Dow, but this one goes up to eleven." Read More......

"Let the big brokers fail"

You know if the tables were turned, they would say the same for everyone else. With more rumors about Merrill Lynch and other "new" massive write downs, we should be hearing more of this talk and rightly so.

"I think there's a good chance that the Fed itself will fail one day if they say 'we're not going to let you fail' and the government will have to bail out the entire system," Faber said.

"If I'm a bad businessman and I go out of business, who's gong to help me?" he said. "But Bear Stearns and the Wall Street elite, because they are tied into the Treasury and the Federal Reserve and they have lunch together, it's a club and so forth, they're bailed out. It's a joke!"

"I think a lot of banks are already bankrupt … but they hide their rotten assets … in categories where you don't really need to value them," Faber said. "I think the financial sectors, by-and large, has much larger problems than is perceived by the investment community and the stock market to some extent is telling you that."

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$1 trillion for the credit crunch?

Good grief, it just never ends. So is Phil Gramm ready to admit failure for his plan or is he still debating the issue?

Major U.S. investment banks this week announced yet another painful quarter amid the implosion of mortgage-backed securities and risky credit investments. Regional banks have scrambled to secure fresh capital to stay in business, and by Wednesday there was new talk that embattled investment bank Lehman Brothers might be forced into a sale.

With each passing quarter, Wall Street's top bankers have indicated that the worst of the market turmoil was over — only to face more pain months later. The uncertainty has caused already battered investors to lose confidence in financial companies, and expectations have increased that more layoffs, asset sales and capital raising will be needed in the weeks ahead.

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Goldman: US banks will need another $65 billion

Wow, that's a pretty shocking figure and as the article mentions, raising capital is getting harder by the day. I'll be Phil Gramm's phone is ringing off the hook these days, though perhaps he only works for posh Swiss banks when he's not co-chair of the McCain campaign.

U.S. banks may need to raise $65 billion of additional capital to cope with mounting losses from a global credit crisis that will not peak until 2009, Goldman Sachs analysts said on Tuesday.

The new capital would be on top of $120 billion already raised by the industry, analysts led by Richard Ramsden said.

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Is Lehman Brothers on the block, out of cash or both?

Weekend meetings with executives when rumors of balance sheet problems have been flying is never a good sign. More consolidation in an already heavily concentrated market is hardly a good sign for our so-called free market but of course, nobody forced Lehman to make stupid and risky trades, did they? The question now is how many millions or billions will they walk away with for their failures? Let's hope it doesn't turn out to be a pathetic $61 million as we saw a Bear Stearns. Oh the embarrassment at the country club. Read More......

Phil Gramm's UBS has new problems

Phil Gramm's Swiss bank client has been one of the worst hit banks in the world due to the subprime banking crash which is linked to the Gramm-Leach-Bliley Act that the retired Texas Senator promoted before leaving the Senate and working for UBS. After showing initially profitable results, the banking world has since reminded some of why we had particular banking laws in place since the Great Depression. Gramm ignored history and thought he knew better. As the credit crisis grew Gramm, a Washington insider, was tasked with lobbying Congress to ease the pain of the problem he helped create.

The latest scandal to involve the McCain campaign co-chair lobbyist are investigations into UBS by the SEC as well as regulators from Massachusetts and New Hampshire. Is there a "20 strikes and you're out" policy in the McCain team? If you thought ties to Halliburton and Big Oil were bad with Bush, that's nothing compared to Wall Street problems and McCain.

UBS Financial Services Inc. knew as early as December that a segment of the municipal bond business was in trouble, but the Wall Street firm kept selling the investments to some clients without warning them of the risk, according to documents reviewed by the Globe.

By February, the $330 billion auction-rate securities market had collapsed, locking out the nonprofits and municipalities that had used the market for years to issue inexpensive debt, as well as the investors who had purchased it. UBS brokers have said they were as surprised as anyone about the market's shutdown.

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Bank shareholders dare to ask for accountability

Gasp! How could they ask such a question during such difficult times? Billions upon billions have been lost due to false logic and billions have been paid out in bonuses for that shady business but HSBC just knows that they are right, others wrong. Silly commoners. Don't people know that in order to keep quality people, Wall Street and City bankers need to keep paying top money? (To make this leap of logic, please just keep thinking it's 2006 and that the subprime bubble did not burst and require bailouts or massive intervention from central banks.) There always has to be one or two complainers out there who don't understand posh finance, right?

"There is no question in my mind that high levels of pay come with high levels of personal responsibility," said Green, who is an ordained Church of England minister. "High pay, unless justified by high performance, is unjustifiable and even when it is justified by high performance I have to say that poses some [questions about] individual personal responsibility."

One shareholder argued that once pay packets reached astronomic heights, as they may at HSBC, "they are no longer private and personal because of the amount of money they involve and the degree of inequality in our society."

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Getting to know McCain's economic brain, Foreclosure Phil

For those not familiar with the former Senator turned wealthy lobbyist and McCain for President co-chair, this is a must read article. Phil Gramm has played an important role in a number of failed initiatives including the S&L; failure, the energy deregulation fallout and Enron, and more recently the subprime mortgage meltdown. Remember, this is the guy who is shaping McCain economic policy. He's a highly paid lobbyist for one of the worst hit banks in the subprime crisis and yet he is still a co-chair of the McCain campaign.

Keep in mind that Phil Gramm and McCain are still unable to admit these policies were failures. Gramm says he "didn't intend this." Not the most comforting response from the architect. This is the same bullheadedness that we've experienced from Bush, who still can't admit any failures. More of the same is not what we need. Read through both links and get to know the man rumored to be McCain's choice as Treasury Secretary. Read More......

Bear Stearns disappears today

An amazing fall from grace. After 85 years, the Great Depression and countless recessions, Bear Stearns will no longer exist after today. The business and economic policies promoted by McCain's "economic brain" Phil Gramm has taken its toll, forcing the government to bail out what was previously one of the hottest companies on Wall Street. Still no explanation beyond "we had to in order to prevent a collapse" from anyone in Washington, as if Wall Street is the only place experiencing trouble. A once in a lifetime opportunity to leverage power for change was missed by Washington and very little remorse from Wall Street.

The entire event sickens me. It sickens me that it came to this. It sickens me that everyone turned a blind eye to the obvious failed logic that enriched so many. It sickens me to see how many lives are being ruined. It sickens me to see the chairman unloading all of his stock and profiting "only" $61 million in the middle of this collapse. It sickens me that even now, nobody in Washington addresses what is a very important event. The list goes on and none of it is good. If you have the stomach, the link above is a good overview (and interview) of that failure. It's still debatable whether those in power on Wall Street or Washington fully grasp the seriousness of this series of events. With talk of more mega-mergers, it's not clear that anyone gets it. Read More......

The mirage economy

For those who are wondering "what's going on with the economy?" this is an excellent article. It's much too easy to look at recent events as one-off problems rather than the collective result of policy. The upside is that when the US is focused it can reinvent itself better than most countries and bounce back. The downside is that because of this long "mirage economy", it's likely to be uncomfortable if not painful.

We still have to face up to the fact that the US middle class has been on the decline for over three decades and no matter how much candy coating or new fangled voodoo economics/financing you throw out there, that is just the way it is. Pulling ourselves out of this hole will take time, not to mention honesty from Washington. Business as usual is not going to cut it. Read More......

Phil Gramm's client tells employees to avoid USA

This sounds like serious trouble ahead, possibly with the US Justice Department and SEC. John McCain's leading economic adviser and co-campaign chair Phil Gramm needs to explain why his client is telling employees to avoid travel to the US. Shouldn't we expect more from a possible Treasury Secretary? Has the bar really been lowered this far? Read More......

McCain's lobbyist problems continue - will Phil Gramm now resign?

Besides lobbying for UBS - one of the worst hit banks in the subprime crisis, based in Europe - McCain national campaign co-chair, economic adviser and possible choice for Treasury Secretary, Phil Gramm played a critical role in setting up countless problems that the US is facing today. It was his signature legislation that cast aside Depression era laws and regulations, creating the Wild West gambler environment that has forced a bailout of the industry and thrown the entire US economy (and soon world) into a tailspin. Haven't we seen enough of this? The GOP experiment has shown everyone how serious the consequences can be. Of course, if anyone read a bit of history they would have known we've been here before. They also would remember McCain's role in the last banking failures we experienced back in the 1980s when he was part of the Keating Five scandal. Read More......