Housing Doom

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"Thank you for contacting us regarding "share entitlements". When you purchase stock, they are held in ¿book-entry¿ (electronic) form but in"Street-Name". This provides secure and reliable methods of ownership,without the risks and worries that can be associated with a paper certificate.

Due to a change implemented by the Depository Trust Company (DTC) and approved by the Securities and Exchange Commission (SEC), a physical certificate is "no longer" available through TD AMERITRADE. Your ownership of a security through TD AMERITRADE is maintained electronically in street name at the Depository Trust Company (DTC). from the comment thread of [1]

The above would seem to be right out of the seal the cockpits, fire all your pilots and outsource to a bunch of Predator drone operators school of corporate safety and soundness.  That was a commenter, but the post itself [1] was even more hair-raising.  The assertion there was of a widespread amount of "failure to deliver" in the "repo" market in T-bills themselves in the wake of all the chaos last September.  The good new is, what with all the bailouts since September 18th, it can’t possibly be that bad now.

However … last Sunday the WSJ sent up a flair that new rules coming into effect tomorrow will cause issuers of treasuries who fail to deliver to be charged a hefty fee, and that the immediate impact will be such as to likely cause Treasury Debt yields to go negative.[2]  Today Bloomberg is warning this could drive away short sellers and impare market liquidity.[3]

OK, so if I’m reading the below quoted bit from this 2-week-old blog post in The Atlantic [4] correctly, treasuries are sort of the last bastion of the Commercial Paper model for doing corporate short term finance and a host of other related things.  We’re talking here about the pressure of the transmission fluid, as it were.  Do we really want to mess around with the liquidity of this market starting May Day?

UPDATE: belated thanks to both twist and the Implode-O-Gang for critical digs on this story.  And further thanks to Aaron’s people for their pickup of this post, although of course they had to quote the most egregious typo in the above ("hefty fee" not "heft fee")

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Meanwhile, I’m sitting an hour’s drive from about half of Canada’s present Swine Flu cases (in Windsor), and then this afternoon, without warning all hell broke loose (this is the CBC story with more video) just a 10 minute drive away..

"… anyone got some marshmallows?" It’s something of a joke in Canada that Maritimers tend to be a wee bit laid back. It’s not a joke.

Well, it’s been almost 9 years since Love Bug I came zorching out of the Philippines and exactly half a year since Love Bug II, Porche’s stealth short-squeeze against VW, caused chaos among the hedges and other speculators.  Do we really want tomorrow to look like another badly dubbed Disney B-movie?

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A foreclosed on homeowner in the Phoenix area has figured out how to make $5,000 on their way out the door.  They are renting out their home- but not in the usual manner.  No rent, no deposit- just a one time fee:

1 year old Custom Luxury, 4300 sq ft, 4 bedrooms and den in exclusive Vasaro
4 car garage
4 bathrooms
wood flooring
MUCh much more

We built this house and the market turned. This house will either be short sold or foreclosed but not for at least 90 days and probably longer. The longer you stay the cheaper it averages monthly.
You pay $5K up front AND THAT IS IT!

The ad also notes that pets are O.K.  I suspect that with this agreement, ANYTHING is O.K.

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As soon as I heard Part Three of CBC’s The Current on Monday I knew it deserved wide distribution. Doomers should first visit The Current’s show archive for April 27, 2009. What follows is an unauthorized Doom transcript for that third half hour, a lively interview with the prize-winning author of a new exposé on Goldman Sachs, their peer banksters and political accomplices.  Canadian Doomers especially note the references to the origins of ABCP and the Goldman alumnus presently leading our central bank.

I recommend listening to the Part Three tape to get the full flavor of the interview.  It pretty well stands alone, but I’ve taken the liberty of annotating the text with links to further information on names and terms that may not be immediately obvious to a general audience.

Unauthorized transcript for …

Monday, April 27, 2009 — Part 3: Goldman Sachs

Anna Maria Tremonti: [00:00] Hello, I’m Anna Maria Tremonti, and this is The Current.

Jon Stewart: Does anybody out there have some damn’d good economic news?

Reporter 1: A big earnings surprise from Goldman Sachs late today. The giant investment firm reported a quarterly profit more than double analysts’ estimates.

Reporter 2: The estimates were over a billion and a half dollars for Goldman.

Jon Stewart: Whoo Hooo!! Recession’s over bejins! … [laughter] … Wall Street is back!! The big dogs are out! [applause] … wait a minute, wait a minute … is this the same Goldman Sachs that took $10 billion in taxpayer bailout money less than 6 months ago? Ah, that’s amazing. Now, just a few months later, turn a $1.5 billion profit. You pull that off you’d think the Treasury Secretary who designed the bailout used to be Goldman’s CEO or some– … [laughter] … oh really, he — [laughter] … oh really, Hank Paulson literally left Goldman Sachs to take the Treasury job. Wow …

AMT: … well that was The Daily Show’s Jon Stewart riffing on Goldman Sachs right after the banking giant shocked analysts with a 1st quarter profit of $1.8 billion. More about that in a minute. But to be fair, the company also announced that it wants to pay off half of what Jon Stewart correctly identified as a $10 billion loan from the US government.

He’s right as well on another thing. The relationship between Goldman Sachs and the US federal government is tight and it pretty much has been for as long as the company has been around.

According to David Cay Johnston, that has allowed Goldman Sachs to turn itself into one of the most powerful and influential companies in the US and beyond, able to bend and shape the economic policies of one US administation after another.

David Cay Johnston is a Pulitzer Prize winning investigative reporter who teaches at Syracuse University’s Law School. He is also the author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill). He’s in Rochester New York. Good morning.

David Cay Johnston: Good Morning Anna Maria.

AMT: Just how closely is the US government linked to Goldman Sachs?

DCJ: Oh, they’re joined at the hip.

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The economy is cooling, and more Americans are deciding that "less is more".  Not only are many of us giving up the McMansions with the granite countertops and gourmet kitchens, we are giving up the fancy food we used to cook in them as well.  Companies are beginning to take notice:

A growing number of food manufacturers are showing the staples in their portfolio a little more love these days in an attempt to remind frugal gourmets of the basics.

How basic? Think butter and canned goods.

Del Monte is rolling out its first television campaign for its canned fruits and vegetables in a decade. The campaign, which is called “Stretch Your Dollar,” not surprisingly stresses a value message, and is aimed at consumers who want to eat healthy on the cheap.

According to Brandweek, Del Monte will spend $2 million on the effort this spring and another $13 million in September. Last year, the company spent only $5 million advertising its shelf-stable fruits and vegetables.

Land o’ Lakes also is going no frills. In recent years, the company has pitched its spreadable butter, but now it’s advertising its basic butter for the first time in 10 years.

Del Monte and Land o’ Lakes are not alone, new ads are airing for a number of products you may not have thought of in years: Hamburger Helper, Kool-Aid drink mix, Spam, and Dinty Moore stew, among others.

So what does it matter what Americans have in their grocery cart?

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I was forwarded this YouTube video by L.  Apparently a lender found that the new homes it had received back from a builder that had defaulted were more trouble than they were worth:

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At the end of the movie The Wizard Of Oz, the Tin Man asked, What diid you learn, Dorothy?

That’s a good question to ask about any situation- what were the lessons learned?

We are still sorting out the answer to that when discussing the housing crisis, but Alice Rivlin, senior fellow at Brookings and former vice chair of the Federal Reserve has some pretty decent answers:

The American dream of home ownership for average families is lying in a heap of toxic assets, but it can emerge stronger than ever if we learn the right lessons from the sad history of this decade. Lesson one: housing prices can go down as well as up should be written in huge letters in every lending institution in America. Lesson two: lax lending standards, teaser rates, no-doc loans and other immoral practices are no favor to the borrower and cannot be tolerated. Lesson three: loan originators must keep part of the risk. Their function is to judge the credit worthiness of borrowers. Allowing them to off-load the entire risk of default on someone else invites disaster. We need securitization, but must rewrite the rules.

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… "Wow, that’s even more disturbing" … - about 9:50AM

Today’s third 1/2 hour of The Current (about 9:32 to 9:55 AM across Canada’s time zones) is a must-hear.  Streaming audio as it happens by region is available here. This is CBC’s promo for the segment on their site.

And … Earlier this month, banking giant Goldman Sachs shocked Wall Street by posting a 1.8 Billion dollar profit in its first quarter earnings and announcing that it wants to pay off half of the 10-Billion-dollar loan it got from the U.S. Government last fall. We’ll talk to Pulitzer-Prize winning investigative reporter, David Cay Johnston, about the company’s long history and how Goldman Sachs has managed to survive and thrive at almost every turn, shaping decades of American economic policy in the process.

I knew that this segment was going to be special, because they put the promo for it on about a week ago, and it never came up.  Well, the lawyers must have finished their work because it’s being broadcast across the country now and … Holy $$@#%!

It’s basically an interview with David Cay Johnson.  Let’s just say it didn’t pull any punches.  CBC usually has podcasts available shortly after the program.  August Dvorak so help me, this thing has got to go up where Google can see it.

UPDATE: Hope you caught the show on air, ’cause looks like that segment’s not going to podcast. Pity

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D’oh!

Another part of The Current’s web site now has the Whole Show Blow-by-Blow: The Current for April 27, 2009, including all three 1/2 hours as listenable segments.  The first half hour covers swine flu in Nova Scotia, which might be of interest to Doomers who read my brief weekend post.  However, the real must-hear segment is the third 1/2 hour.  Here’s their intro.  Go to the April 27th site to get a version with links and the listenable audio.

Part 3: Goldman Sachs

We started this segment with a clip from The Daily Show’s Jon Stewart riffing on Goldman Sachs right after the banking giant shocked analysts with a first quarter profit of 1.8 Billion dollars.

And to be fair, the company also announced that it wants to pay off half of what Jon Stewart correctly identified as a 10-Billion dollar loan from the U.S. Government. And Jon Stewart is right about another thing too. The relationship between Goldman Sachs and the U.S. Federal Government is tight and it pretty much has been for as long as the company has been around.

According to David Cay Johnston, that’s allowed Goldman Sachs to turn itself into one of the most powerful and influential companies in the country …able to bend and shape the economic policies of one U.S. Administration after another.

David Cay Johnston is a Pulitzer-Prize-winning investigative reporter who teaches at Syracuse University’s law school. He’s also the author of Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense and Stick You With The Bill. He was in Rochester, New York.

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LATER: Doom’s transcript is now available

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WASHINGTON — Virtually all of the 19 largest U.S. banks have passed the Obama administration’s controversial "stress test" with ease. [1]

"I’m going to turn my back, and when I turn around one of you 19 guys will have volunteered for the suicide mission by stepping forward," said the Sergeant. Then he turned around and chose the one guy who hadn’t been paying attention and therefore hadn’t stepped back.

UPDATE: Hat tip to the Implode-O-Gang for this.  Now that must have been a tea party!

This supported "End the Fed" rallies that were held on Saturday.

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Look who didn’t get the memo about everything being ducky with the big banks

WASHINGTON (MarketWatch) - Lawmakers should create a new federal authority to help unwind large systemically significant institutions, according to a key bank regulator on Monday. "We need a new resolution regime for large financial institutions," said Federal Deposit Insurance Corp. Charwoman Sheila Bair at the Economics Club of New York. … [3]

Clearly not all the banks are kaput or they’d have been nationalized by now, and at least one is insolvent or we wouldn’t be going through this farce.  So it looks like this week is going to be a no-holds-barred free-for-all of leaks, shorting and self-serving rumors.  The first truck-load of codswallop [2] has already hit, and it’s only going to get worse.

Meanwhile, Doom has been thinking a lot about the Unexpected Hanging Paradox (except for Igor, who’s down by the moat studying leaky induction ).  Anyone see a way Treasury and the Fed can orchestrate their Dance of the Nineteen Veils so as to anoint the sound institutions without condemning the turkeys?  hint: Tim & Ben & Co. aren’t going to make any smart remarks about dipping bread in the salt bowl, ’cause that would implicate all 19.

Welcome to Doom’s Monday Open Thread, where nothing’s OT.  Let us know if you can parse the unparseable, because there’s gonna be a lot of disingenuous in the lead-up to the official obfuscation.

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At the height of the housing boom, a number of real estate agents used the following pitch:

You are going to want to purchase as much home as you can afford.  Clearly, with the appreciation that we are now enjoying, the larger your home, the greater the financial return on your investment.

Many followed that advice, making the oversized McMansion immensely popular.  But what will be the fate of the McMansion market now?

Population forecasts conducted by the Dukakis Center for Urban and Regional Policy at Northeastern University make it clear that New England is aging rapidly and this is likely to affect the demand for large homes, perhaps substantially. The front end of the baby-boom generation is now pushing past age 60. Over the next 10 years, the increase in household formation throughout New England will be largely confined to those over 55. Such households traditionally look for smaller homes, regardless of their wealth and income. The demand from this section of the demographic spectrum will be for smaller homes, condominiums, and age-restricted housing. Not for McMansions.

At the same time, the number of households in the 35-to-55 age group will actually decline over this period. These younger families, usually with children at home but old enough to be able to afford a large home, normally constitute the largest market for McMansions. But this demographic group will be shrinking and, given the implosion of the economy, less likely to want or be able to afford a McMansion.

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One of the shortest foreclosure periods in the country could get a little longer:

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